Filing an Estate Tax Return and Planning Lifetime Gifts: A Practical Checklist

Tax > Estate, Gift, and Inheritance Tax | Published 26 November 2025 - Updated 27 July 2026 | UpLaw - uplaw.us

Most estates owe no federal transfer tax. Many more owe state death tax. And the basis step-up matters to nearly everyone. Work the exposure screen first.

Items marked ⚠ are the ones where the natural instinct costs the most.

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Section 1 — Exposure screen

☐ Total the gross estate, including: ☐ Real property at fair market value ☐ Bank and investment accounts ☐ Retirement accounts at full balance ☐ ⚠ Life insurance face amount where the decedent held incidents of ownership — 26 U.S.C. § 2042 ☐ Business interests ☐ Jointly held property — 26 U.S.C. § 2040 ☐ Property subject to a general power of appointment — 26 U.S.C. § 2041 ☐ ⚠ Property transferred with a retained life estate — 26 U.S.C. § 2036 ☐ Revocable trust assets — 26 U.S.C. § 2038 ☐ Annuities — 26 U.S.C. § 2039 ☐ Prior marital deduction property — 26 U.S.C. § 2044 ☐ Add adjusted taxable gifts from prior gift tax returns. ☐ Compare to the federal exemption — 26 U.S.C. § 2010. ☐ ⭐ Compare separately to the state threshold, which is frequently far lower and is the binding number for most families. ☐ Check for a state inheritance tax, which is imposed on recipients and varies by relationship. ☐ Check for out-of-state real property creating a filing obligation elsewhere. ☐ Confirm domicile if two states might claim the decedent. ☐ ⭐ Even with no tax due, determine whether a return should be filed for portability.

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Section 2 — Lifetime gifting

☐ Use the annual exclusion — 26 U.S.C. § 2503, per recipient per year, no return required. ☐ ⚠ Confirm the gift is a present interest. A gift to a trust generally is not without withdrawal rights. ☐ Consider gift splitting — 26 U.S.C. § 2513 doubles the exclusion but requires consent on a return. ☐ ⭐ Pay tuition and medical expenses directly to the institution or provider — excluded entirely and without limit. ☐ File a gift tax return where required — 26 U.S.C. § 6019: gifts above the exclusion, future interests, and gift splitting. ⚠ Required even when no tax is due. ☐ ⭐ Disclose adequately. A complete return starts the limitations period on the valuation, after which it cannot be revisited — a genuine and underused technique. ☐ Value the gift properly — 26 U.S.C. § 2512; obtain an appraisal for anything without a public market. ☐ Address generation-skipping allocation on the return — 26 U.S.C. § 2632. ⚠ Automatic allocation happens without anyone deciding. ☐ ⭐ Before any gift of appreciated property, run the basis analysis in Section 9.

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Section 3 — Assembling the estate

☐ Obtain date-of-death statements from every financial institution. ☐ Obtain appraisals for real property, closely held interests, art, collectibles, and anything without a public market. ⭐ A qualified appraisal from a credentialed appraiser is the single best investment in the return. ☐ Confirm life insurance face amounts, ownership, and beneficiary — 26 U.S.C. § 2042. ☐ Locate prior gift tax returns. ⚠ Missing returns for prior gifts must be found or reconstructed; adjusted taxable gifts are added back at death. ☐ Identify retained interests, powers, and joint property — 26 U.S.C. § 2033 through 26 U.S.C. § 2042; transfers within three years at 26 U.S.C. § 2035; transfers taking effect at death at 26 U.S.C. § 2037. ☐ Compile debts, expenses, and claims — 26 U.S.C. § 2053; losses during administration at 26 U.S.C. § 2054. ☐ Reconcile to the probate inventory and explain any differences. ☐ Apply the general valuation standard at 26 U.S.C. § 2031.

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Section 4 — Portability

⭐ The most commonly missed election in estate administration.

☐ File the estate tax return at the first spouse's death to elect portability — ⚠ even where the estate is far below the filing threshold and no tax is due. ☐ Confirm the election is actually made on the return; it is not automatic on filing. ☐ ⚠ The unused amount is fixed at the first death and does not grow. ☐ ⚠ Only the most recently deceased spouse's unused amount is available. ☐ ⚠ Portability does not apply to the generation-skipping exemption — 26 U.S.C. § 2631. ☐ If the deadline was missed, investigate late-election relief for estates not otherwise required to file. ☐ Preserve the return permanently. The survivor's estate will need it decades later. ☐ Filing requirement at 26 U.S.C. § 6018; due date at 26 U.S.C. § 6075.

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Section 5 — Deductions and disclaimers

☐ Marital deduction — 26 U.S.C. § 2056, unlimited for a citizen spouse. ☐ ⚠ For trust property, confirm the interest qualifies — income to the spouse for life, payable at least annually, with no power to divert principal. Elect where required; the property is later included under 26 U.S.C. § 2044. ☐ ⚠ A non-citizen spouse does not qualify without a qualified domestic trust. ☐ Charitable deduction — 26 U.S.C. § 2055. ☐ State death taxes — 26 U.S.C. § 2058. ☐ Decide where to deduct administration expenses — estate tax return under 26 U.S.C. § 2053 or the estate income tax return. ⚠ Not both. Model which is better. ☐ Consider disclaimers — 26 U.S.C. § 2518. ⭐ Nine months, in writing, before accepting any benefit, and the disclaimant may not direct where it goes. The window is absolute.

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Section 6 — Elections on the return

Election	Authority	Consider when	Done
⭐ Portability	—	⚠ Almost always, for a married decedent	☐
Alternate valuation	26 U.S.C. § 2032	Values dropped after death; ⚠ all-or-nothing and irrevocable	☐
Special use valuation	26 U.S.C. § 2032a	Farm or business real property; ⚠ recapture binds heirs	☐
Marital deduction for trust property	26 U.S.C. § 2056	Qualifying trust interests	☐
Generation-skipping allocation	26 U.S.C. § 2632	Any transfer to or for skip persons	☐
Installment payment	26 U.S.C. § 6166	Closely held business is a large share of the estate	☐
Extension of time to pay	26 U.S.C. § 6161	Reasonable cause	☐
Expense deduction placement	26 U.S.C. § 2053	Model both	☐

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Section 7 — Valuation and discounts

☐ Retain a qualified appraiser early. ⭐ The valuation is the case, and an appraisal prepared for a bank or for insurance will not survive scrutiny. ☐ Attach the appraisals, not summaries. ☐ Document discount methodology — lack of control, lack of marketability — with comparable data. ☐ Test any buy-sell agreement against 26 U.S.C. § 2703; a fixed price is disregarded unless specific requirements are met. ☐ ⚠ Review insurance-funded redemption agreements against Connelly v. United States, which held that a redemption obligation does not offset the proceeds in valuing the company. ☐ Check the special valuation rules — 26 U.S.C. § 2701, 26 U.S.C. § 2702, 26 U.S.C. § 2704. ☐ Note that a friendly probate order does not settle a federal issue — Commissioner v. Estate of Bosch. ☐ Prepare the appraiser to be questioned on methodology and every assumption. ☐ Regulations at 26 C.F.R. part 20, 26 C.F.R. part 25, and 26 C.F.R. part 26.

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Section 8 — Payment, liens, and executor liability

☐ The return is due nine months after death — 26 U.S.C. § 6075; an extension to file is available. ☐ ⚠ An extension to file is not an extension to pay. ☐ Seek an extension of time to pay for reasonable cause — 26 U.S.C. § 6161. ☐ Consider installment payment for closely held business interests — 26 U.S.C. § 6166. ⭐ This provision exists so families are not forced to sell the business to pay the tax. ☐ ⚠ The estate tax lien under 26 U.S.C. § 6324 attaches for ten years and reaches transferees. Obtain a release before selling estate real property, or the buyer takes subject to it. ☐ ⚠ Do not distribute before the tax is satisfied. An executor who does so is personally liable. ☐ Coordinate with the estate income tax return and beneficiaries' returns. ☐ Retain the file permanently, including appraisals and the portability election. ☐ See probate and estate administration and opening and administering a probate estate.

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Section 9 — The basis analysis

⭐ Run this before any lifetime transfer of appreciated property. For most families it reverses the answer.

Question	Entry
Asset
Current fair market value
Donor's adjusted basis
Built-in gain
Recipient's likely capital gains rate
Income tax cost of gifting (gain × rate)
Is the estate above the federal exemption?	☐
Is the estate above the state threshold?	☐
Transfer tax saved by removing this asset
Net result

☐ ⭐ Property held at death takes a new basis equal to date-of-death value; lifetime appreciation is never taxed. A lifetime gift carries the donor's basis instead. ☐ ⚠ Deeding a home to children destroys the step-up and — if the parent continues living there — fails anyway under 26 U.S.C. § 2036. The most common and most expensive do-it-yourself mistake in estate planning. ☐ Community property receives a full step-up on both halves at the first spouse's death. ☐ ⚠ Retirement accounts receive no step-up; distributions are income to the beneficiary. ⭐ Which makes them the worst asset to leave a taxable beneficiary and the best to leave to charity. ☐ ⭐ For families below the exemption, the goal is to get more assets into the taxable estate to capture basis — the opposite of what everyone assumes.

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Section 10 — Generation-skipping transfers

☐ Identify skip persons — 26 U.S.C. § 2613, generally two or more generations below. ☐ Identify the taxable event — direct skip, taxable termination, or taxable distribution — 26 U.S.C. § 2612. ☐ Allocate exemption deliberately — 26 U.S.C. § 2631 and 26 U.S.C. § 2632. ⚠ Automatic allocation happens without anyone deciding, and sometimes wastes exemption. ☐ Compute the inclusion ratio — 26 U.S.C. § 2641, 26 U.S.C. § 2642. ☐ ⚠ The exemption is not portable. ☐ ⚠ The tax is imposed at the highest rate with no graduated schedule. ☐ Note the predeceased ancestor rule, which moves a grandchild up a generation where the parent has died. ☐ Make elections in or out of automatic allocation on the gift tax return — ⭐ among the least forgiving decisions in the field. ☐ Tax imposed under 26 U.S.C. § 2601; transfers defined at 26 U.S.C. § 2611.

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Section 11 — Quick reference

Your situation	Do this first	Watch out for
Wondering about estate tax	Check the state threshold	⭐ It binds far more often
Spouse died, no tax due	⚠ File anyway for portability	Most missed election
Considering gifting the house	Run the basis analysis	⚠ Step-up lost; 26 U.S.C. § 2036
Making family gifts	Use the annual exclusion	Present interest required
Paying a grandchild's tuition	Pay the school directly	Unlimited exclusion
Gift above the exclusion	File a return, disclose adequately	Starts the limitations clock
Trust for grandchildren	Allocate exemption deliberately	⚠ Automatic allocation
Business in the estate	Get an appraisal; check 26 U.S.C. § 6166	Liquidity; Connelly
Beneficiary wants out	Consider a disclaimer	⚠ Nine months, absolute
Selling estate real property	Obtain a lien release	26 U.S.C. § 6324
Ready to distribute	Confirm the tax is satisfied	⚠ Executor personal liability
Non-citizen spouse	Consider a qualified domestic trust	⚠ No unlimited marital deduction

☐ Print this and keep it with the estate file. ⭐ Two things prevent most of what goes wrong: check the state number first, and file for portability even when nothing is due.

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Section 12 — Worked example: an estate handled correctly

Marta dies leaving a house worth $540,000, retirement accounts of $780,000, savings of $210,000, and a $500,000 life insurance policy she owned, naming her two children. Her husband Ben died six years earlier. Her state imposes an estate tax with a threshold of $2 million.

Week 1 — the exposure screen. The executor totals the gross estate: $540,000 plus $780,000 plus $210,000 plus — ⚠ the full $500,000 of insurance, because she owned the policy under 26 U.S.C. § 2042. Total: $2,030,000. ⭐ She is below the federal exemption by a wide margin but above her state's threshold by $30,000 — which nobody expected, because the family assumed insurance passed "outside the estate."

Week 2 — the prior death. The executor looks for an estate tax return from Ben's death. There is none; the family was told no tax was due. ⚠ That omission does not affect the federal picture here, but it forecloses a portability option that would have mattered had Marta's estate been larger.

Week 3 — appraisals. A licensed appraiser values the house at $528,000 as of the date of death, slightly below the family's estimate. The executor obtains date-of-death statements for every account.

Week 4 — deductions. Funeral expenses, the final medical bill, administration costs, and a small credit card balance are compiled under 26 U.S.C. § 2053. Together with the lower appraisal, the taxable estate drops below the state threshold.

Month 3 — the income tax question. ⭐ The house takes a basis of $528,000. The children sell it four months later for $535,000 and recognize almost no gain — where a lifetime gift would have left them with Marta's 1994 basis of $71,000 and a gain of roughly $464,000.

Month 4 — the retirement accounts. These receive no step-up. The executor confirms beneficiary designations were current and advises the children that distributions will be taxable income to them.

Month 8 — filing. A state estate tax return is filed. No federal return is required, but the executor files one anyway to document valuations and start the limitations period.

Month 9 — distribution. Only after the state tax is satisfied and a lien release obtained on the house sale.

⭐ What made this work: counting the life insurance, checking the state threshold rather than the federal one, obtaining a real appraisal, and understanding that the basis step-up was worth several times any tax at issue.

⚠ Compare the version where Marta had deeded the house to her children in 2019 to "keep it out of the estate." She kept living there, so the full value returns under 26 U.S.C. § 2036 — no tax saved — and the children take her 1994 basis, owing tax on roughly $464,000 of gain that would otherwise have vanished.

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Section 13 — Income tax during administration

Transfer tax is only half the picture. These decisions reach every estate.

☐ The estate is a separate taxpayer from the date of death, with its own return and tax year. ☐ ⚠ Compressed brackets mean an estate reaches the top rate at a very low income level. ⭐ Distributing income to beneficiaries in lower brackets is usually the largest income tax saving available during administration. ☐ Use the sixty-five day rule to treat early-following-year distributions as made in the prior year. ☐ Income in respect of a decedent — 26 U.S.C. § 691 — is taxed without a step-up, with a deduction for the estate tax attributable to it. ☐ Trust and estate income taxation — 26 U.S.C. § 641; distribution deductions at 26 U.S.C. § 642 and 26 U.S.C. § 661; grantor trust rules at 26 U.S.C. § 671. ☐ ⭐ Selling assets shortly after death frequently produces little or no gain, because of the step-up. ☐ Pass through capital losses and excess deductions to beneficiaries in the final year. ☐ Decide where administration expenses are deducted — estate tax return or income tax return, not both. ☐ See tax controversy for individuals and trusts and estate planning.

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Section 14 — Annual review for living clients

☐ Re-estimate the gross estate, including insurance and retirement balances. ☐ Compare to the current federal exemption and the state threshold. ⚠ The exemption is scheduled to change. ☐ Confirm portability was elected at any prior spouse's death, and locate the return. ☐ Review beneficiary designations, which control more assets than the will. See the beneficiary form beats the will. ☐ Check for inadvertent general powers of appointment — 26 U.S.C. § 2041. ☐ Review transfers made "to keep it out of the estate" against 26 U.S.C. § 2036 and the basis consequences. ☐ Confirm gift tax returns were filed and adequately disclosed. ☐ Review buy-sell agreements against 26 U.S.C. § 2703 and Connelly. ☐ Review after a move, marriage, divorce, birth, death, or material change in wealth. ☐ ⭐ Ask the basis question before every lifetime transfer. ☐ See building and maintaining an estate plan and the estate planning and trust funding toolkit.

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Section 15 — Where to go next

☐ For the narrative overview of why most estates owe nothing, see the tax most estates never pay. ☐ For the full framework — inclusion, deductions, valuation, portability, and generation-skipping allocation — see estate, gift, and generation-skipping tax. ☐ For worksheets, inventories, and election templates, see the transfer tax planning and estate return toolkit. ☐ For the underlying documents, see the documents that do the work. ☐ For administration mechanics, see opening and administering a probate estate and the probate and estate administration toolkit. ☐ Where beneficiaries and fiduciaries disagree, see estate and trust litigation. ☐ Where a beneficiary receives public benefits, see special needs planning — ⚠ an inheritance can end eligibility.

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Section 16 — Non-citizen spouses

☐ ⚠ The unlimited marital deduction under 26 U.S.C. § 2056 is unavailable where the surviving spouse is not a United States citizen. ☐ Consider a qualified domestic trust, which preserves the deduction by keeping property under a domestic trustee, with tax on principal distributions. ☐ Note the larger but finite annual exclusion for gifts to a non-citizen spouse; the general marital gift deduction at 26 U.S.C. § 2523 does not apply. ☐ ⭐ Citizenship, not residency or immigration status, is the operative fact. A lawful permanent resident spouse is a non-citizen for this purpose. ☐ Confirm whether naturalization before the return is filed changes the result; timing matters. ☐ For non-resident non-citizen decedents, note the far smaller exemption on United States situs property — ⚠ which surprises foreign owners of American real estate. ☐ Check any applicable treaty. ☐ See naturalization and citizenship.

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Related Documents

• The Tax Most Estates Never Pay: How Transfer Taxes Actually Work
• Estate, Gift, and Generation-Skipping Tax: A Comprehensive Guide to Exemptions, Valuation, and Returns
• The Transfer Tax Planning and Estate Return Toolkit