Probate & Trust Law Section Conference Manual ... - Minnesota CLE

E. Other Notable Items
There are a few other items to note when gathering information in preparing your first
return. The first is whether the decedent made any previous taxable gifts. The return will
require you to disclose any gift tax returns filed and any taxable gifts reported. If you look to
line 4 on the first page of the return, you will see where adjusted taxable gifts are typically listed.
Further, the questions on page 3 of the return, shown in Appendix 3, are important because the
IRS is seeking to acquire additional information to discover whether additional lifetime transfers
were made by the decedent that should be included in the decedent’s taxable estate. Again, these
materials will not address the intricacies of how and when you should answer yes or no to these
questions, but they are important to review and to consider.
All assets must be valued as of date of death, but it is possible that if the assets have
decreased in value six months from the date of death to use what is called an “alternate valuation
date.” This alternate valuation date is exactly six months from the decedent’s death, and may
only be used if it reduces the decedent’s federal tax. This is not something that is useful or that
can be used if the decedent is only paying Minnesota tax. In the case of alternate valuation, all
assets must be revalued, including the updates to any appraisals, as of that six-month date.
Further, any transfers receiving GST tax exemption must be noted on Schedule R of the
estate tax return. An example of Schedule R is included as Appendix 21.
Finally, it is important to include any documentation required to support the amounts
provided and/or inclusion treatment of the assets. The form asks for some specific attachments
such as a will, trust, death certificate, and previous gift tax returns filed. The return will also
require that you file any Form 712, disclaimers or other documents impacting the distribution of
assets, as well as documentation for the values used for any assets. The more documentation you
provided to the IRS, the less likely it is to have follow-up questions or a corresponding audit.
F. Filing the Minnesota Return – M706
Once the federal return is prepared, that return is used to compile the Minnesota return.
The Minnesota Department of Revenue requires that you file a copy of the federal return along
with any exhibits, even if you are not anticipating the requirement to file a federal return. For
example, if the decedent’s estate is $2,000,000 and you have no federal filing requirement, you
still have to prepare the federal return in order to prepare the Minnesota return, and provide the
Minnesota Department of Revenue with a copy of that return. Further, it may be advisable in the
era of portability to file a federal return even if you are under the Minnesota taxable amount.
Gift Tax Return – Form 709
Similar to the filing of an estate tax return, the gift tax return is filed in the year following
any reportable gifts made by a taxpayer or his/her spouse, and documents a snapshot of the value
of that gift as of the date of the gift. Please see attached Appendix 22 through 24 for an example
of the first three pages of a gift tax return. The gift tax return is due on April 15 of the year
following a reportable gift. Reportable gifts are any gifts over the annual exclusion amount
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