Estate Tax Returns Demystified: A Tax Preparer's Resource for IRS Form 706

February 24, 2025

As tax professionals, we often help families as they work through one of their most challenging experiences – managing the finances of a loved one after they pass away.

Whether you're handling your first estate tax return or looking to sharpen your expertise, this guide will walk you through IRS Form 706, the United States Estate Tax Return – from basic filing requirements to step-by-step instructions for completing the form.

What is Form 706?

Form 706 is the United States Estate (and Generation-Skipping Transfer) Tax Return. It is used by the executor of an estate to calculate and report the estate tax owed on the transfer of the decedent’s assets at death. It also includes the generation-skipping transfer (GST) tax for transfers that skip a generation.

The form determines the tax due on the transfer of the decedent's assets to their heirs and beneficiaries. It's a comprehensive document that requires detailed information about the decedent's assets, debts, and previous taxable gifts.

Don’t confuse Form 706 with Form 709, the United States Gift (and Generation-Skipping Transfer) Tax Return. Unlike Form 706, which deals with estate taxes after death, Form 709 addresses gift taxes and generation-skipping transfers that occur during a person's lifetime. We'll talk about Form 706 in a future article.

When must form 706 be filed?

Not every estate requires Form 706. The form must be filed when the gross estate of a deceased U.S. citizen or resident exceeds the basic exclusion amount. For deaths that occurred in 2024, this threshold is $13.61 million. However, even if the estate falls below this threshold, filing might still be advisable in certain situations, such as when the executor elects to transfer the deceased spousal unused exclusion (DSUE) amount to the surviving spouse, regardless of the size of the decedent's gross estate. See the instructions for Part 6—Portability of Deceased Spousal Unused Exclusion, later, and sections 2010(c)(4) and (c)(5).

To determine whether the taxpayer must file Form 706 for the estate, add:

The adjusted taxable gifts (as defined in section 2503) made by the decedent after December 31, 1976;
The total specific exemption allowed under section 2521 (as in effect before its repeal by the Tax Reform Act of 1976) for gifts made by the decedent after September 8, 1976; and
The decedent's gross estate valued as of the date of death

Gross estate

The term “gross estate” refers to the total dollar value of all the property and assets owned by an individual at the time of their death. This includes real estate, stocks, bonds, cash, personal property, and other financial assets. The gross estate value is calculated before any deductions for debts, taxes, or other liabilities are made.

Generation-skipping transfer

A generation-skipping transfer (GST) is a transfer of property or assets that skips a generation, typically from grandparents directly to their grandchildren, bypassing the parents. This can be done through a gift or inheritance. The purpose of such transfers is often to avoid the estate tax that would be applied if the assets were first transferred to the parents and then to the grandchildren.

To prevent this tax avoidance, the IRS imposes a Generation-Skipping Transfer Tax (GSTT). This tax is applied in addition to any other estate or gift taxes and is currently set at a flat rate of 40%. The GSTT ensures that the skipped generation (the parents) does not engage in a transfer of wealth without being assessed the required tax liability.

Key components and completion guidelines

Form 706 is a lengthy (26 pages), complex form. When completing Form 706, pay special attention to these critical sections:

Part 1: Decedent and Executor Information - Provide accurate identification details, including the decedent's SSN and the executor's contact information.

Part 2: Tax Computation - Calculate the tentative tax base and any applicable credits, including the unified credit and state death tax credit.

Schedules A through I: The schedules that accompany IRS Form 706 provide detailed information about the various components of the decedent’s estate. Each schedule focuses on a specific type of asset, liability, or deduction, ensuring that the estate is accurately valued, and all relevant information is disclosed.

Schedule A: Real Estate
Schedule B: Stocks and Bonds
Schedule C: Mortgages, Notes, and Cash
Schedule D: Life Insurance
Schedule E: Jointly Owned Property
Schedule F: Other Miscellaneous Property
Schedule G: Transfers During Decedent's Life
Schedule H: Powers of Appointment
Schedule I: Annuities and Retirement Accounts

The schedules that accompany IRS Form 706 serve to provide detailed information about the various components of the decedent’s estate. Each schedule focuses on a specific type of asset, liability, or deduction, ensuring that the estate is accurately valued, and all relevant information is disclosed.

Step-by-step instructions for completing Form 706

The form itself has remained the same since the August 2019 revision. The instructions were updated in October 2024.

Gather Essential Documents:

Decedent’s will and trust documents
Valuations of the estate’s assets (real estate, stocks, bonds, etc.)
Proof of debts and liabilities

Complete Part 1 (Decedent and Executor Information):

Provide the decedent’s personal information, including name, Social Security number, and date of death
Enter the executor’s information, including name, address, and Social Security number

Calculate the Gross Estate (Part 5):

List all assets owned by the decedent at the time of death, including real estate, bank accounts, investments, and personal property
Use the fair market value of each asset as of the date of death

Determine Deductions (Part 5):

Include deductions for funeral expenses, debts, mortgages, and administrative expenses
Also, account for any charitable and marital deductions

Compute the Taxable Estate:

Subtract the total deductions from the gross estate to determine the taxable estate

Calculate the Estate Tax (Part 2):

Use the tax computation table provided in the instructions to calculate the estate tax based on the taxable estate amount
Apply any applicable credits, such as the unified credit

Make Elections by the Executor (Part 3):

Indicate any elections the executor is making, such as alternate valuation or special-use valuation

Attach Required Schedules and Documents:

Attach all necessary schedules (A through U) that provide detailed information about the assets and deductions
Include any supplemental documents required by the IRS

Sign and File the Form:

The executor must sign and date the form
File Form 706 with the IRS within nine months of the decedent’s death. An automatic six-month extension can be requested using Form 4768.

Filing Deadlines and Extensions

The executor must file Form 706 within nine months of the decedent's death. For example, if the death occurred on March 15, 2024, the form would be due by December 15, 2024. An automatic 6-month extension is available by filing Form 4768, which must be submitted before the original due date.

Filing Process and Documentation

Submit Form 706 to the appropriate IRS Service Center based on the decedent's legal residence or domicile. Include all required supporting documentation:

Certified copy of the death certificate
Copies of the will and trust documents
Appraisals for real estate, business interests, and valuable personal property
Relevant financial statements and tax returns
Documentation of any lifetime gifts

Common Challenges and Solutions

Estate tax preparation often involves complex valuations and calculations. Consider these best practices:

Document everything thoroughly. Maintain detailed records of how you arrived at asset valuations, especially for hard-to-value assets like closely-held businesses or unique collectibles.
Work collaboratively with estate attorneys and financial advisors. Their expertise can be invaluable in properly categorizing assets and identifying deductions.
Stay current with tax law changes. Estate tax laws can change significantly, affecting exclusion amounts and available deductions.

Remember that Form 706 preparation requires meticulous attention to detail and thorough understanding of estate tax laws. Consider seeking specialized training or consulting with experienced colleagues when handling complex estates. The penalties for errors can be significant, so accuracy is critically important.

Additional Resources

For additional guidance on Form 706 and estate tax preparation, consult these valuable resources: