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Internal Revenue Service Form 712 is primarily of interest to people serving as the executor of a deceased person's estate. It's the executor's job to wrap up the financial affairs of the deceased, including filing an estate tax return if necessary. Form 712 reports the value of life insurance policies for estate tax purposes.
One of an executor's responsibilities is determining the total value of the estate, as estates larger than a certain amount are subject to estate tax. As of 2013, for example, federal estate tax applied to the portion of any estate in excess of $5.25 million. Estates smaller than that amount had no tax liability at all. In addition, any portion of an estate going to a surviving spouse is exempt from tax, regardless of value. Executors must file an estate tax return only if there is tax due on the estate.
Life insurance benefits payable upon death may be part of the estate, and therefore subject to tax, depending on who owned the insurance policy. If the policy was owned by the deceased, then it's part of the estate, regardless of who's named as the beneficiary. If the policy was owned by someone else, it's not part of the estate -- unless the policy named the estate itself as the beneficiary. Under IRS rules, "ownership" of a life insurance policy centers not on who pays the premiums, but on who has the right to make decisions affecting the policy -- such as changing the beneficiaries, canceling the policy or deciding how benefits will be paid out.
If there was life insurance in effect, the executor must obtain a filled-out copy of IRS Form 712 from the insurance company. If there were multiple policies in effect, the executor must get a separate Form 712 for each policy. The insurer uses this form to report details about the policy, including who owned it and the value at the time of death. The insurer also must specify whether the deceased previously had owned the policy, but transferred it to another person less than three years before death. If so, the benefits will still be considered part of the estate. This rule is designed to prevent "death-bed transfers" intended solely to avoid estate tax.
The executor uses the information from Form 712 to fill out the estate tax return, which is IRS Form 706. Life insurance information goes on Schedule D of the return. A copy of each Form 712 must be attached to Schedule D. The estate tax return must be filed within nine months of the death, and it must be filed by mail. There's no e-filing option, although payments can be made electronically. Executors can request a six-month extension for filing the return, but the tax is still due within nine months of death.
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