Serving as the executor or personal representative of a deceased person’s estate can be challenging, especially when required to file the federal estate tax return. Form 706, known as the United States Estate (and Generation-Skipping Transfer) Tax Return, is used to calculate and report estate tax owed after a person’s death. For decedents who passed away in tax year 2016, understanding the filing requirements and following the correct Form 706 2016 instructions for that year is essential for proper estate administration.
This guide explains how to file Form 706 accurately and efficiently, ensuring the estate’s assets are reported at fair market value and that all deductions, debts, and applicable elections are adequately documented. It also outlines when a filing is required—typically when the gross estate exceeds the federal estate tax exemption for the year—and how to handle the generation-skipping transfer tax, which applies when property is passed to grandchildren or others more than one generation below the decedent.
Executors and other interested parties will find step-by-step guidance on gathering required documents, valuing property, and completing the necessary IRS forms. The process can be time-consuming and complex, but with careful attention to detail, a properly prepared return helps fulfill all obligations to the IRS and ensures beneficiaries receive their share of the estate according to law.
Understanding Form 706 and Who Must File?
Form 706, officially called the United States Estate (and Generation-Skipping Transfer) Tax Return, is used to report the total value of a deceased person’s estate and determine whether any estate tax is due. It also applies when an executor elects to transfer unused portions of the federal estate tax exemption to a surviving spouse through a portability election.
What Is Form 706?
Form 706 is a tax return filed with the Internal Revenue Service to report the fair market value of all assets owned by the decedent at death. This includes real property, personal possessions, investment accounts, and business interests. The form also accounts for deductions such as debts, funeral expenses, and administrative costs. If the estate generates income after the date of death, separate estate income tax returns may also be required.
Who Needs to File Form 706 for 2016 Deaths?
An executor must file Form 706 for a decedent’s estate if any of the following apply:
- The gross estate, combined with adjusted taxable gifts and specific bequests, exceeds the 2016 federal estate tax exemption of $5,450,000.
- The executor chooses to make a portability election to transfer the deceased person’s unused exclusion to a surviving spouse, even if no estate tax is owed.
- The estate includes property subject to the generation-skipping transfer tax, which occurs when assets are passed to grandchildren or other beneficiaries more than one generation below the decedent.
Key Dollar Amounts for 2016
- Basic Exclusion Amount: $5,450,000, which determines whether an estate is subject to federal estate tax.
- Applicable Credit Amount: $2,125,800, which offsets part of the tax due.
- Special-Use Valuation Ceiling: $1,110,000 for specific farm or business property valued under Section 2032A.
- Installment Payment Threshold: $1,480,000, which allows extended payment under Section 6166 when business interests make up a significant portion of the estate.
Executors should review the estate’s assets carefully to determine filing responsibility. In most cases, filing Form 706 ensures compliance with the IRS and protects the rights of beneficiaries and other interested parties.
Significant Updates and Changes for 2016
Form 706 underwent several updates for the estates of individuals who died in 2016. These changes affected filing procedures, valuation rules, and reporting requirements for both estate tax and generation-skipping transfer tax.
Portability of the Deceased Spousal Unused Exclusion (DSUE)
Part 6 was added to allow executors to make or opt out of the portability election. When elected, the surviving spouse can use the deceased spouse’s unused federal estate tax exemption. A timely and complete filing automatically elects portability, unless it is specifically opted out.
Recognition of Same-Sex Marriages
All legal same-sex marriages are treated the same as opposite-sex marriages for federal estate tax purposes. This inclusion ensures consistent treatment when claiming marital deductions or making portability elections.
Basis Consistency and New Form 8971
Executors must file Form 8971 within 30 days of submitting Form 706 to report asset values to beneficiaries. This ensures that beneficiaries use consistent fair market values when determining future capital gains or losses on inherited property.
Changes to Estate Tax Closing Letters
Estate tax closing letters are no longer issued automatically. Executors must request them directly from the IRS, and a fee applies. Alternatively, account transcripts can serve as proof that the return has been processed.
Executors handling an estate from 2016 should review these updates before filing to ensure that the return is prepared correctly and compliant with all IRS requirements.
Step-by-Step Form 706 Filing Process
The filing process requires attention to detail, supporting documentation, and a clear understanding of the estate’s assets and liabilities. Following a structured approach helps executors avoid errors and ensures that the return meets all legal and administrative standards.
Step 1: Gather Required Documentation.
Executors should collect all documents necessary to report the estate’s value and deductions. These include:
- A certified copy of the death certificate and the decedent’s will or trust documents.
- All Forms 709 previously filed by the decedent for gift tax reporting.
- Appraisals for real property, business interests, and valuable personal property.
- Bank statements, investment account summaries, and insurance policy Form 712s.
- Details on debts, funeral costs, and administrative expenses.
A complete set of documents supports the accuracy of the estate inventory and ensures that deductions and valuations can be verified if reviewed by the IRS.
Step 2: Verify Executor Authority.
Before filing, the executor must confirm official authority through probate court documentation, such as letters testamentary or letters of administration. These prove the executor’s legal standing to act on behalf of the estate. A self-declaration without court verification is not sufficient for filing purposes.
Step 3: Determine Valuation Method.
Executors must decide whether to value the estate’s assets as of the decedent’s date of death or use the alternate valuation date, which is six months later. The alternate method may only be used if it reduces both the total gross estate and the estate tax due. The chosen method must be applied consistently across all assets.
Step 4: Complete Form 706 Sections.
Form 706 contains several parts that must be completed in sequence:
- Part 1 – Decedent and Executor Information: Identifies the deceased person, date of death, and executor details.
- Part 2 – Tax Computation: Calculates tentative tax, credits, and deductions.
- Part 3 – Elections by the Executor: Covers alternate valuation, special-use valuation, and payment extensions.
- Part 4 – General Information: Determines which schedules apply to the estate.
- Part 5 – Recapitulation: Summarizes gross estate values and deductions.
- Part 6 – Portability of DSUE: Used to calculate and transfer the deceased spouse’s unused exclusion to the surviving spouse.
Step 5: Assemble and Review the Return.
Before submission, executors should double-check all calculations, confirm that totals match between schedules and recapitulation, and verify that all required attachments are included. Making clear copies of the completed return and supporting documents helps maintain records for both the estate and its beneficiaries.
A properly filed return reduces the risk of IRS disputes, ensures timely payment of any taxes owed, and allows smooth estate administration during an already difficult time.
Key Schedules and Attachments
Form 706 requires detailed schedules to document the estate’s assets, deductions, and credits. Each schedule corresponds to a specific category of property or expense and supports the values reported in the return. Executors must ensure that all applicable schedules are completed accurately and supported by documentation.
Mandatory Schedules
The following schedules are commonly required for most estates:
- Schedule A (Real Estate): Lists all real property owned by the decedent, including addresses, descriptions, and appraised fair market values.
- Schedule B (Stocks and Bonds): Reports the value of securities, providing CUSIP numbers and valuation dates.
- Schedule C (Mortgages, Notes, and Cash): Includes all cash holdings, bank account balances, and promissory notes as of the date of death.
- Schedule D (Insurance on the Decedent’s Life): Requires Form 712 from insurance companies to verify policy values and beneficiaries.
- Schedule F (Other Miscellaneous Property): Covers personal property not listed elsewhere, such as jewelry, vehicles, and collectibles.
- Schedule M (Bequests to Surviving Spouse): Identifies property qualifying for the marital deduction.
- Schedule O (Charitable, Public, and Similar Gifts and Bequests): Records donations to charitable organizations that qualify for deductions.
Attachment Checklist
Executors must include all required attachments to validate the reported information:
- Certified copy of the decedent’s will or trust.
- Form 712 for every life insurance policy.
- Copies of all prior gift tax returns (Form 709).
- Death certificate and any relevant probate court documents.
- Valuation reports and appraisals for real property and business assets.
Accurate completion of schedules and inclusion of attachments ensures the IRS can verify each entry, reducing the likelihood of audits or delays in processing the estate tax return.
Filing and Payment Instructions
Filing Form 706 for the 2016 tax year involves following specific deadlines, mailing procedures, and payment options. Executors are responsible for submitting the return and ensuring any taxes due are paid on time.
Filing Method and Address
For 2016, the IRS only accepted paper filings of Form 706. The return must be mailed to the appropriate address, depending on the delivery method:
- Standard Mail:
Department of the Treasury
Internal Revenue Service Center
Cincinnati, OH 45999 - Private Delivery Services:
201 W. RiverCenter Boulevard
Covington, KY 41011
Attn: Submission Processing, Stop 31
Private carriers such as FedEx, UPS, and DHL are permitted as long as they use approved overnight or express services. Executors should retain mailing receipts as proof of timely filing.
Deadlines and Extensions
Form 706 is due within nine months of the decedent’s date of death. Executors who need additional time may file Form 4768 to request an automatic six-month extension. However, an extension to the filing does not extend the time to pay taxes owed. Failure to pay on time can result in penalties and interest.
Payment Options
Executors may choose from the following payment methods:
- Electronic Federal Tax Payment System (EFTPS): Recommended for faster processing and immediate confirmation.
- Check or Money Order: Payable to “United States Treasury” and include the decedent’s name, Social Security number, and “Form 706” on the memo line.
- Installment Payments: Estates with closely held business interests may qualify for installment payments under Section 6166, which allows deferred payment over several years.
Meeting payment and filing deadlines ensures compliance with the IRS and avoids unnecessary penalties that can burden the estate’s beneficiaries.
Common Mistakes and How to Avoid Them
Filing Form 706 can be time-consuming, and even minor errors can result in delays, penalties, or audits. Executors should be aware of frequent mistakes and take steps to prevent them.
Missing or Incorrect Attachments
One of the most common errors involves failing to include required documents such as death certificates, appraisals, or prior tax forms. Each asset listed in the return must be supported by documentation that confirms its value and ownership. Executors should review the attachment checklist before filing.
Inconsistent Valuation Methods
Some executors mistakenly confuse the date of death and alternate valuation dates. The chosen method must be applied consistently throughout the return. Using inconsistent values can cause discrepancies and potential tax disputes with the IRS.
Mathematical and Transfer Errors
Errors in totaling schedules or transferring figures to the recapitulation section are frequent causes of incorrect returns. Executors should carefully verify all calculations before submission. Using a second reviewer or professional tax preparer can help detect these issues early.
Late Filing or Payment
Failing to meet the nine-month deadline without an approved extension incurs penalties. Executors should always file Form 4768 in advance if additional time is needed to prepare or pay the estate tax.
Portability and DSUE Mistakes
Failure to complete Part 6 for portability can result in losing the ability to transfer unused federal estate tax exemption amounts to a surviving spouse. Executors should confirm all required details are filled out, even if the DSUE amount is zero.
By double-checking all schedules, ensuring accurate valuations, and filing within the required deadlines, executors can avoid complications and ensure the estate is administered correctly in accordance with IRS regulations.
Portability and DSUE Explained
The portability election enables a surviving spouse to utilize the portion of the federal estate tax exemption that the deceased spouse did not use. This amount, known as the Deceased Spousal Unused Exclusion (DSUE), helps reduce future estate tax liability for the surviving spouse’s estate.
What Is the DSUE?
The DSUE represents the unused portion of the deceased spouse’s federal estate tax exemption. For 2016, the total exemption was $5,450,000. If the decedent’s taxable estate used only part of this amount, the remainder could be transferred to the surviving spouse through a properly filed Form 706. This benefit can significantly reduce or eliminate future estate taxes on the spouse’s death.
How to Elect Portability?
To make the portability election, the executor or personal representative must:
- File a complete and timely Form 706.
The return must be submitted within nine months after the decedent’s death, or within an approved extension period. - Complete Part 6 of Form 706.
This section calculates the DSUE amount and identifies the surviving spouse. - Ensure all executors agree.
If there is more than one executor, all must consent to the election before filing. - Avoid opting out by default.
A complete and properly prepared return automatically elects portability unless the executor checks the opt-out box.
When to Opt Out of Portability?
Opting out of portability may be appropriate in some situations:
- The surviving spouse’s estate is unlikely to exceed the exemption.
If the spouse’s future estate will remain below the federal estate tax exemption, portability may not offer meaningful benefits. - Privacy concerns outweigh the advantages.
Some families choose to opt out to avoid disclosing detailed financial or asset information on the estate tax return. - State laws or family disputes complicate administration.
Executors may opt out if state tax differences or disagreements among heirs could create unnecessary legal or financial complications.
Properly managing the DSUE election ensures the surviving spouse can benefit from the deceased person’s unused exemption while preventing future tax complications for the family.
Special Valuation and Payment Elections
Executors may choose from several special elections that can lower the estate tax burden or make payments more manageable. These elections are beneficial for estates that include family farms, business interests, or property that cannot be easily sold to cover taxes.
Alternate Valuation (Section 2032)
- Executors may elect to value the estate’s assets six months after the decedent’s date of death instead of on the date of death. This option is often chosen when market conditions have caused asset values to decline, resulting in a lower gross estate and reduced estate tax liability.
- The alternate valuation method can only be used if it decreases both the total value of the estate and the amount of tax owed. Once elected, it applies to all assets in the estate and cannot be changed after the filing deadline has passed.
Special Use Valuation (Section 2032A)
- Estates that include farms or closely held businesses may qualify to value real property based on its actual use rather than its fair market value. This election is designed to prevent families from having to sell income-generating property, such as farmland or a family business, to pay the estate tax.
- To qualify, the property must remain in use by a qualified family member after the decedent’s death, and detailed documentation—such as appraisals and ownership records—must be attached to Form 706. For 2016, the maximum reduction allowed was $1,110,000.
Installment Payment Election (Section 6166)
- Estates where a closely held business makes up more than 35% of the adjusted gross estate may elect to pay the estate tax in installments. This option helps estates preserve business operations and avoid forced sales of assets to meet immediate tax obligations.
- Section 6166 allows a deferral of up to five years before payments begin, followed by ten annual installments with reduced interest rates. Executors must make this election on a timely filed Form 706 and ensure compliance with all IRS requirements.
Each election offers significant benefits, but it must be evaluated based on the estate’s liquidity, type of assets, and long-term financial impact. Consulting an experienced attorney or financial advisor can help executors determine the most advantageous strategy for the estate and its beneficiaries.
Frequently Asked Questions
Who must file Form 706 for a deceased person’s estate?
An executor or personal representative must file Form 706 when a decedent’s gross estate, including all assets and specific bequests, exceeds the 2016 federal estate tax exemption of $5,450,000. Filing may also be required to make a portability election for a surviving spouse. Estates with a generation-skipping transfer tax liability are also required to file a return. Proper estate administration ensures the return is accurately prepared and submitted to the IRS.
What is the difference between an estate tax return and an income tax return?
An estate tax return reports the fair market value of a deceased person’s assets to calculate any estate tax owed. In contrast, an estate income tax return reports gross income or income generated by the estate’s assets after death. Both forms serve different purposes under IRS rules and are essential to ensure full compliance during probate and settlement of the decedent’s estate.
How long does an executor have to file Form 706?
Form 706 must be filed within nine months after the decedent’s date of death. Executors who require additional time to gather valuations or determine deductions may request a six-month extension by using Form 4768. Timely filing helps avoid penalties and interest charges, while ensuring that the estate’s assets and debts are adequately documented for IRS review.
What is the generation-skipping transfer tax, and when does it apply?
The generation-skipping transfer tax applies when a decedent’s assets pass to beneficiaries who are more than one generation below the deceased person, such as grandchildren. This separate skip transfer tax return ensures that wealth transfers skipping a generation are appropriately taxed. Executors must determine whether such property is included and report it accurately using the correct IRS forms.
Can more than one executor file Form 706?
If there is more than one executor, all must agree on the contents of the tax return and jointly sign it before submission. Coordination among co-executors ensures that the estate inventory, deductions, and valuations reflect the actual fair market value of the estate’s assets. This cooperation also prevents potential disputes among family members or interested parties during the probate process.
When should an executor seek professional help when filing an estate tax return?
The executor should seek guidance from an attorney or financial advisor when the decedent’s estate includes complex assets, such as real property, investment accounts, or business interests. Professional assistance ensures the return is prepared correctly, deductions and debts are accurately reported, and payment procedures follow IRS revenue procedures. Expert advice also helps during a difficult time by reducing delays and potential filing errors.
