Paralegal Advanced Competency Exam (PACE) Practice Exam

Which of the following is true about estate taxes?

1. They are exclusively state taxes

2. They can be filed using Form 706

3. They apply only to financial gifts

4. They are often waived for property transfers

The correct answer is: They can be filed using Form 706

The assertion that estate taxes can be filed using Form 706 is accurate. Form 706, officially known as the United States Estate (and Generation-Skipping Transfer) Tax Return, is the specific form used to report the estate of a deceased individual for federal tax purposes. This form is essential for calculating whether estate taxes are owed based on the total value of the estate at the time of the decedent's death, which may exceed the exemption threshold established by the IRS. Filing Form 706 is a critical requirement for estates with a gross value exceeding the specified exemption amount. The procedure involves listing the assets, identifying deductions, and calculating any resultant tax liability. Therefore, understanding how to properly complete and submit this form is fundamental for anyone dealing with estate planning or the administration of an estate. In contrast, the other options present misconceptions. Estate taxes are not exclusively state taxes; they encompass both federal and, in some cases, state taxation. Estate taxes do not apply solely to financial gifts; they pertain to the entirety of the person's assets at death, which includes property, investments, and other wealth. Additionally, while certain property transfers may be exempt from tax under specific conditions, estate taxes are not generally waived for such transfers, particularly with regard