Recently, the IRS changed its rules about the distribution of closing letters. Instead of automatically sending such letters to indicate the end of an estate filing and the completed payment of related federal taxes, the agency will only send notices when they’re directly requested by a taxpayer. Prior to June 2015, closing letters were distributed within around four to six months after the IRS’ receipt of Form 706, and analysts say the changes could make estate closings more complex.
Observers note that the new rules don’t apply to states that levy taxes on inheritances and estates, but estates with tax obligations may still be forced to delay payouts to beneficiaries. Taxpayers need to wait for four months after filing their Form 706 documents to even request a closing letter, so the portability of any exemptions they wish to claim could be left up in the air for some time, especially if a return contains errors that draw IRS scrutiny.
Some financial planners even believe that that estates that don’t request closing letters may wind up not being reviewed by the IRS as quickly. Although closing letters aren’t always strictly necessary for many taxpayers, such as beneficiaries whose estates are below the tax threshold, experts maintain that asking for one could still provide valuable closure.
Proper estate planning should account for numerous factors. In addition to considering the immediate and long-term needs of heirs and other beneficiaries, planners must be aware of how regulatory rules might impact execution, disbursal and other critical processes. Those who want to use their inheritances for specific purposes, like starting a business or paying off loans, may find it advisable to learn more about how the law affects them so that they can plan more accurately.