Form 706 is the federal estate tax return used to report the value of a decedent’s estate and determine whether any estate tax is due. It is also used to calculate the generation-skipping transfer tax and elect portability of any unused exclusion to a surviving spouse. This guide provides clear, step-by-step instructions for executors and administrators filing for decedents who died in 2015.
For the 2015 tax year, the federal estate tax exemption was set at $5.43 million, meaning estates with assets below that threshold were generally not required to file, unless they elected portability. Executors filing on behalf of a decedent’s estate must carefully determine the gross estate, apply deductions and credits, and ensure accurate valuations of assets such as real or tangible property, personal property, and lifetime gifts. The Internal Revenue Service requires precise documentation to avoid penalties or delays.
Because estate tax rules can be complex, this guide simplifies the filing process for those unfamiliar with tax or legal terminology. It explains how to complete the federal form, determine fair market value, and meet all filing deadlines. Executors will also learn how the portability election benefits married couples and how special deductions and elections may apply under specific circumstances.
Understanding IRS Form 706
Purpose of Form 706
Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, is used by executors to report the value of a decedent’s estate, calculate any estate tax due, and determine if generation-skipping transfer tax applies to property passed to later generations. Required by the Internal Revenue Service, this federal form ensures compliance with the Internal Revenue Code, accurate reporting of assets and deductions, and proper election of portability for a surviving spouse.
Who Must File?
An executor or administrator must file Form 706 if any of the following apply:
- The decedent’s gross estate, plus adjusted taxable gifts and specific exemptions, exceeds the federal estate tax exemption for 2015, which was $5.43 million.
- The executor intends to make a portability election to transfer the deceased spouse’s unused exclusion (DSUE) to the surviving spouse, even if the estate’s value is below the exemption amount.
Executors must carefully determine whether a filing is required, as missing the deadline may result in penalties or the loss of portability benefits.
What’s Included in the Gross Estate?
The gross estate includes the total value of all property and assets the decedent owned or had particular interests in at the date of death. Examples include:
- Real or tangible property, such as land, homes, and personal possessions.
- Stocks, bonds, mutual funds, and other financial assets.
- Life insurance proceeds are payable to beneficiaries.
- Jointly owned property and community property.
- Business interests, partnerships, or closely held company shares.
- Sure, lifetime gifts are where the decedent retains control or benefit.
Each asset must be valued at its fair market value, representing the price a willing buyer would pay a willing seller under ordinary conditions. Accurate valuation is critical for determining the adjusted gross estate and preventing understatement penalties.
Filing Purpose Summary
Filing Form 706 allows the executor to establish the estate’s taxable estate, calculate applicable taxes, and report any generation-skipping transfer. It also ensures that the estate qualifies for any special deductions, elections, or portability benefits available under the Internal Revenue Code. Completing this form properly helps preserve benefits for surviving spouses and beneficiaries, while ensuring compliance with federal tax law.
What’s New for the 2015 Tax Year?
Form 706 for the 2015 tax year included several updates that affected filing requirements, calculation methods, and portability elections. Executors preparing an estate tax return should be aware of these changes before completing the form to ensure full compliance with IRS standards.
Updated Dollar Amounts and Limits
For decedents dying in 2015, the Internal Revenue Service adjusted several key values for inflation. These updates impacted both filing thresholds and the calculation of credits and deductions:
- The basic exclusion amount increased to $5,430,000, which determined whether an estate was required to file a federal estate tax return.
- The applicable credit amount rose to $2,117,800, reducing the overall estate tax liability for qualifying estates.
- The ceiling on special-use valuation increased to $1,100,000, allowing eligible estates with farm or business property to claim greater valuation reductions.
- The amount subject to the 2% interest rate for installment payments under Section 6166 was set at $1,470,000.
These adjustments ensure that estate values remain aligned with inflation, thereby maintaining fairness in the application of the federal estate tax.
Portability and Credit Reunification
In 2015, the IRS reaffirmed the reunification of the gift and estate tax credits. This meant that both lifetime gifts and transfers at death were applied toward the same unified credit limit. A timely and complete filing of Form 706 automatically served as a portability election, allowing the surviving spouse to use any unused portion of the deceased spouse’s federal estate tax exemption. Executors who missed the deadline for portability could only seek relief under special IRS provisions.
Windsor Ruling and Recognition of Marriage
The Supreme Court’s decision in United States v. Windsor required the IRS to recognize same-sex marriages for all federal tax purposes, including estate tax filings. As a result, married couples—regardless of gender—could now elect portability and claim the same deductions and credits available to other married taxpayers. This change simplified estate planning for same-sex couples and ensured consistency in how the Internal Revenue Code applied to all marriages.
Together, these updates reflected the IRS’s effort to modernize estate tax administration, improve equality in tax treatment, and streamline filing processes for executors.
Step-by-Step Filing Instructions
Filing Form 706 requires attention to detail and accurate reporting of the decedent’s assets, debts, and deductions. Executors should follow these steps carefully to ensure proper filing and compliance with federal law.
Step 1: Determine Filing Requirement.
Executors must first calculate the estate’s total value as of the decedent’s date of death. To determine whether a filing is required:
- Add the gross estate value, which includes all assets, both real and tangible property, owned by the decedent at death.
- Include adjusted taxable gifts made during the decedent’s lifetime, along with any specific exemptions allowed under prior tax laws.
- Compare this combined total to the federal estate tax exemption for 2015, which was $5.43 million.
- File Form 706 if the value exceeds the exemption or if the executor intends to make a portability election to transfer the unused exemption to the surviving spouse.
Understanding these requirements ensures that estates neither overreport nor miss the opportunity to claim essential tax benefits.
Step 2: Gather Required Documentation.
Before completing the return, the executor must collect all documents needed to support the reported values and deductions. These include:
- A certified copy of the death certificate, which establishes the date of death for tax purposes.
- Court documents or letters of appointment confirming the executor’s authority to act on behalf of the estate.
- A certified copy of the will or trust agreement to verify asset distribution and estate structure.
- Appraisals or professional valuations for real estate, business interests, and personal property to determine fair market value.
- Bank statements, brokerage statements, and insurance policies that reflect asset values at the date of death.
- Prior gift tax returns (Form 709) and documentation for lifetime gifts to ensure accurate reporting of adjusted taxable gifts.
Proper documentation supports the estate’s reported fair market values and helps prevent IRS delays or disputes during the review process.
Step 3: Complete Form 706.
Form 706 must be completed carefully and in the correct order:
- Part 1: Decedent and Executor Information – Include the decedent’s name, Social Security Number, and date of death, along with the executor’s contact information.
- Part 2: Tax Computation – Calculate the gross estate, apply deductions, determine adjusted taxable gifts, and compute the total estate tax.
- Part 3: Elections by the Executor – Make elections such as alternate valuation, special-use valuation, or installment payment of tax under Section 6166.
- Part 4 and Part 5: Recapitulation and Supporting Schedules – Summarize totals and attach all applicable schedules to document assets, deductions, and credits.
- Part 6: Portability of DSUE – Report and elect portability for the surviving spouse if desired.
Completing each part accurately ensures proper tax calculation and supports any elections made under the Internal Revenue Code.
Step 4: Attach Schedules and Review Totals.
After completing the form, executors should review all figures and attach the required schedules that support the reported information. Each schedule should be clearly numbered, totaled, and referenced in the Recapitulation section. Common schedules include:
- Schedule A for real estate.
- Schedule B for stocks and bonds.
- Schedule D for life insurance policies.
- Schedule F for miscellaneous personal property.
Executors should verify that totals match across the return and that all supporting documentation is attached. A careful review helps avoid filing errors and ensures that the Internal Revenue Service processes the return without unnecessary delays.
How and Where to File?
For the 2015 tax year, Form 706 must be submitted on paper because electronic filing was not available for estate tax returns at that time. Executors should mail the completed federal form, required schedules, and all attachments to the Internal Revenue Service Center in Cincinnati, Ohio. Private delivery services, such as FedEx or UPS, may also be used, and proof of mailing should be retained to confirm timely filing.
The estate tax return is due within nine months of the decedent’s death, but a six-month extension may be requested if more time is needed. Executors should include the death certificate, will, Form 712 for insurance, and all required schedules. Making complete copies of estate records before mailing helps ensure proper documentation and compliance with federal estate tax requirements.
Payment and Extension Options
Executors are responsible for ensuring that any estate tax due is paid in full and on time. Payments are typically required within nine months after the decedent’s death, unless the Internal Revenue Service approves an extension or installment arrangement.
Payment Deadlines
The estate tax payment is due by the same date as the filing deadline for Form 706. Executors who cannot pay the full amount by this date should still file the return on time to avoid late filing penalties. An extension may be granted for payment under exceptional circumstances, but interest will continue to accrue on any unpaid balance.
Payment Methods
The Internal Revenue Service accepts several payment methods for estate tax settlements:
- Check or Money Order: Executors may submit payment by check made payable to “United States Treasury.” The check must include the decedent’s name, Social Security Number, and the notation “Form 706” to ensure proper crediting.
- Electronic Federal Tax Payment System (EFTPS): This secure online system allows electronic payment of estate taxes. Executors should schedule payments at least one business day before the due date to avoid delays. Registration can be completed at www.eftps.gov or by calling the EFTPS helpline.
- Wire Transfer: Larger estates may use direct bank transfers to ensure timely payment, especially when paying from estate accounts.
Choosing a reliable payment method ensures that funds are received by the IRS promptly, avoiding late fees and processing complications.
Extensions and Installments
Executors who need more time to file or pay can request an extension using Form 4768, Application for Extension of Time to File a Return and/or Pay U.S. Estate Tax.
- Extension to File: Grants an automatic six-month extension for filing, but not for payment.
- Extension to Pay: May be granted in cases of undue hardship, where immediate payment would cause significant financial strain to the estate or beneficiaries.
- Installment Payments: Under Section 6166, estates containing closely held business interests may elect to pay the tax in installments over a period of up to 14 years. The first four installments are interest-only, while the remaining installments include both principal and interest.
By planning payment options early, executors can avoid unnecessary penalties and preserve the estate’s liquidity for beneficiaries.
Required Schedules and Attachments
Form 706 contains several schedules that document the estate’s assets, deductions, and credits. Each schedule corresponds to a specific type of property or deduction and must be attached as required.
Commonly Required Schedules
- Schedule A – Real Estate: Lists all real property owned by the decedent at death, including fair market value, legal descriptions, and outstanding mortgages.
- Schedule B – Stocks and Bonds: Includes all publicly traded and privately held securities, with CUSIP numbers and valuation details as of the date of death.
- Schedule C – Mortgages, Notes, and Cash: Covers cash holdings, bank accounts, loans, and promissory notes.
- Schedule D – Insurance on the Decedent’s Life: Required even if proceeds are not part of the gross estate.
- Schedule E – Jointly Owned Property: Reports assets held jointly with others and specifies each owner’s contribution.
- Schedule F – Other Miscellaneous Property: Includes tangible personal property, collectibles, and business interests.
Deduction and Credit Schedules
Additional schedules report deductions and credits that reduce taxable estate value:
- Schedule J – Funeral and Administration Expenses: Records funeral costs and administrative expenses related to property subject to claims.
- Schedule K – Debts and Mortgages: Lists all debts outstanding at death.
- Schedule M – Bequests to Surviving Spouse: Used to claim the unlimited marital deduction.
- Schedule O – Charitable Gifts: Details charitable contributions made under the will or trust.
Executors should verify that each schedule is complete, totals are accurate, and all supporting documents are attached. Errors or omissions can delay IRS review and may affect the final estate tax calculation.
A well-organized filing package demonstrates compliance with IRS requirements and supports accurate estate tax assessment.
Asset Valuation and Appraisals
Valuation is one of the most critical aspects of preparing Form 706. Each asset in the decedent’s estate must be reported at its fair market value as of the date of death or, if elected, an alternate valuation date.
Fair Market Value Standard
Fair market value represents the price that a willing buyer and a willing seller would agree upon in an open market, with neither party under pressure to act. Executors should use this standard consistently across all asset types to ensure accuracy in the adjusted gross estate calculation.
Valuation by Asset Type
Different valuation methods apply depending on the nature of the property:
- Real Estate: Professional appraisals should be obtained from certified real estate appraisers. Comparable sales and current market conditions must be taken into account.
- Stocks and Bonds: Publicly traded securities are valued at the mean between the high and low selling prices on the date of death. For non-traded securities, valuation must be based on financial statements and comparable market data.
- Closely Held Business Interests: These require a professional business valuation using the asset, market, or income approach. Discounts for minority interest or lack of marketability may apply when justified by documentation.
- Personal Property: Items such as vehicles, jewelry, and collectibles should be valued using recognized price guides or professional appraisals.
Alternate Valuation and Special-Use Valuation
Executors may elect to use an alternate valuation date under Section 2032, valuing all assets six months after the decedent’s death. This option is beneficial if it reduces both the gross estate and the estate tax liability. Alternatively, special-use valuation under Section 2032A may be used for qualifying farm or business real property, allowing valuation based on actual use rather than highest and best use.
Proper documentation of appraisals and valuation methods helps prevent disputes with the Internal Revenue Service and supports fair assessment of the taxable estate. Accurate valuations also protect the estate from penalties for underreporting asset values and ensure compliance with federal estate tax law.
Portability of the DSUE Amount
Portability allows a surviving spouse to use any portion of the deceased spouse’s unused federal estate tax exemption (DSUE). This feature was designed to simplify estate tax planning, ensuring that married couples can fully benefit from both exemptions without the need for complex trust arrangements.
Understanding the DSUE
The Deceased Spousal Unused Exclusion (DSUE) represents the remaining balance of the deceased spouse’s federal estate tax exemption after accounting for their taxable estate and adjusted taxable gifts.
For decedents dying in 2015, the basic exclusion amount was $5.43 million. If an estate’s total taxable value was less than this amount, the unused portion could be transferred to the surviving spouse through a portability election.
How to Elect Portability?
To elect portability, the executor must:
- File a complete and timely Form 706 within nine months of the decedent’s death, including any approved six-month extension.
- Complete Part 6—Portability of DSUE on Form 706, accurately reporting the DSUE calculation.
- Ensure that all schedules and supporting documentation are included, even if the estate falls below the filing threshold.
- Maintain copies of both the filed return and all acknowledgment letters from the IRS for future reference.
Executors who miss the filing deadline cannot elect portability unless they receive specific relief under IRS Regulation 301.9100-3.
Benefits and Limitations of Portability
Portability provides flexibility by allowing the surviving spouse to combine exemptions, potentially shielding up to $10.86 million from federal estate tax in 2015. However, the DSUE amount does not adjust for inflation after the decedent’s death and does not apply to generation-skipping transfer tax exemptions.
Portability is also subject to the “last deceased spouse” rule, meaning only the most recently deceased spouse’s DSUE can be used. Proper use of the portability election ensures long-term tax efficiency and greater protection for surviving spouses when managing future estates.
Common Mistakes and Filing Tips
Errors in preparing Form 706 can delay processing or lead to penalties. Executors should carefully review the return to confirm that all requirements are met before submission.
Common Filing Errors
- Missing Signatures: Every Form 706 must include the executor’s signature under penalties of perjury. If prepared by a professional, the preparer’s signature is also required.
- Incomplete Documentation: Missing copies of the death certificate, will, or required schedules can cause the IRS to return or reject the filing.
- Incorrect Valuations: Assets must be reported at fair market value as of the date of death. Unsupported estimates or outdated appraisals may lead to adjustments or penalties.
- Schedule Omissions: Schedule D for life insurance and Schedule F for personal property must always be included, even if no taxable value is reported.
- Incorrect DSUE Reporting: Executors must ensure that all portability calculations are accurate and include documentation for prior estate filings, if applicable.
Filing Best Practices
- Review the IRS checklist found at the end of the Form 706 instructions to confirm completeness.
- Use professional appraisers for valuable or unique assets to prevent valuation disputes.
- Verify that totals on all schedules match the Recapitulation section in Part 5.
- Keep detailed records of mailing dates, payment confirmations, and communication with the Internal Revenue Service.
A thorough review before mailing helps avoid costly errors and ensures accurate calculation of the estate’s tax liability.
Frequently Asked Questions
What is Form 706, and who is required to file it?
Form 706 is the federal estate tax return used to report the value of a decedent’s estate and determine any estate tax liability. Executors must file this form if the gross estate, combined with adjusted taxable gifts, exceeds the federal estate tax exemption for the applicable tax year. It must also be filed to elect portability for a surviving spouse, even if no tax is due.
What was the federal estate tax exemption for decedents dying in 2015?
For the 2015 tax year, the federal estate tax exemption was set at $5.43 million. Estates with a gross value below this threshold were generally not required to file Form 706 unless the executor wished to elect portability for a surviving spouse. This exemption amount, adjusted annually for inflation, determines when a federal estate tax return is required under the Internal Revenue Code.
How should fair market value be determined for estate assets?
The fair market value of estate assets represents the price that a willing buyer and seller would agree upon in an open market. Executors should determine value as of the decedent’s date of death unless an alternate valuation date is elected. Professional appraisals are recommended for real or tangible property, personal property, or business interests to ensure compliance with Internal Revenue Service requirements.
What is the generation-skipping transfer tax, and when does it apply?
The generation-skipping transfer tax applies when wealth or property is passed to individuals who are more than one generation below the decedent, such as grandchildren or great-grandchildren. This tax prevents families from avoiding estate or gift taxes by transferring assets directly to younger generations. Executors must report these transfers on Form 706 under the section addressing estate and generation-skipping transfer taxes to ensure compliance with federal estate tax law.
Can a surviving spouse claim the unused estate tax exemption from the deceased?
Yes, through a portability election on Form 706, a surviving spouse may claim the deceased spouse’s unused exemption, known as the DSUE amount. The election must be made on a timely filed federal estate tax return, generally within nine months of the decedent’s death, including any approved six-month extension. This election allows married couples to combine exemptions for greater tax savings.
