Form 706, known as the United States Estate (and Generation-Skipping Transfer) Tax Return, is the tax form used to report the total value of a decedent’s estate and determine whether any federal estate tax is owed. Executors or administrators must file this return to calculate estate taxes, document asset valuations, and ensure compliance with Internal Revenue Code requirements. Even if no tax is due, filing may still be necessary to elect portability and transfer a deceased spouse’s unused exemption to the surviving spouse.
For the 2018 tax year, significant changes under the Tax Cuts and Jobs Act affected estate tax filing thresholds. The federal estate tax exemption increased to $11.18 million, meaning only estates exceeding this amount—or those making a portability election—must file Form 706. Executors should also be aware of specific exclusions, adjusted taxable gifts, and generation-skipping transfer reporting requirements that affect the taxable estate calculation.
Filing an estate tax return is a complex process that requires precise asset valuations, meticulous documentation, and strict adherence to deadlines. Understanding the filing requirements and updates for 2018 helps executors fulfill their legal duties accurately and avoid penalties for late or incomplete submissions. The following sections provide a step-by-step guide to help navigate the process efficiently.
Understanding Form 706 and Who Must File?
What Form 706 Is Used For?
Form 706 serves as the federal estate tax return used to report the total value of a decedent’s estate. When determining whether an estate or generation-skipping transfer tax is owed, it assists the Internal Revenue Service by providing a detailed accounting of all assets owned or controlled by the deceased person at the time of death, including deductions, credits, and elections that can affect the final tax liability. This form is used by executors to accurately calculate estate taxes, record fair market value, and fulfill Internal Revenue Code reporting obligations.
Who Needs to File Form 706 for 2018?
Executors must file Form 706 when the decedent’s gross estate, combined with adjusted taxable gifts and specific exemptions, exceeds the federal estate tax exemption for 2018. The threshold for that year is $ 11.18 million. Filing is also required if the executor chooses to make the portability election to transfer the deceased spouse’s unused exemption to the surviving spouse, even if the estate’s total value falls below the exemption limit.
Examples of estates that must file Form 706 include:
- Estates with a total value that exceeds the 2018 federal estate tax exemption amount.
- An estate choosing to elect portability for a surviving spouse to preserve the unused exemption.
- Estates that made lifetime gifts impact the adjusted taxable gifts calculation.
- Estates of nonresident decedents with U.S.-based assets are subject to estate tax rules.
Key 2018 Estate Tax Figures
Executors filing for 2018 should be aware of the following essential values:
- Basic exclusion amount: 11,180,000 dollars
- Applicable credit amount: 4,417,800 dollars
- Special-use valuation ceiling: 1,140,000 dollars
- Two percent portion for installment payments: 1,520,000 dollars
These figures guide the calculation of the taxable estate and help determine whether a tax return is required. Executors should review all relevant estate documents to confirm total asset values, identify adjusted taxable gifts, and ensure that deductions are applied adequately before completing the estate tax return.
What Changed for the 2018 Tax Year?
The 2018 tax year brought significant changes to estate tax rules with the enactment of the Tax Cuts and Jobs Act. The most important adjustment was the increase in the federal estate tax exemption from approximately $5.49 million in 2017 to $11.18 million in 2018. The number of estates that had to file Form 706 and pay estate taxes was significantly decreased by this expansion. Unless the estate chooses portability for the surviving spouse, estates valued below this threshold typically do not owe federal estate tax.
Key Updates for 2018
- The basic exclusion amount doubled, raising the exemption for many estates.
- The applicable credit amount increased to $ 4,417,800, offsetting a greater portion of the tax liability.
- The special-use valuation ceiling was set at $ 1,140,000, allowing qualified real property to be valued based on its actual use rather than its market value.
- The 2 percent portion for installment payments rose to 1,520,000 dollars, benefiting estates with closely held businesses.
Additional Regulatory Changes
Revenue Procedure 2017-34, which extended the deadline for making the portability election, should be known to executors filing for 2018. According to this rule, an executor may transfer the unused exemption of the deceased spouse by filing Form 706, within two years of the decedent's passing. To ensure that asset valuations align with estate tax purposes, estates must also file Form 8971 and provide Schedule A to beneficiaries to meet consistent basis reporting requirements.
For many estates, these changes made filing easier; however, for those still subject to estate tax, they increased the amount of paperwork and compliance requirements.
Step-by-Step Instructions for Completing Form 706
Filing Form 706 requires organization, accuracy, and attention to detail. Executors must account for all assets, liabilities, and deductions to calculate estate taxes accurately. The following steps outline the process of preparing and submitting the estate tax return.
Step 1: Gather Required Documents.
Before completing the form, the executor should collect essential records, including:
- Certified copy of the death certificate.
- The decedent’s will, codicils, and any trust agreements.
- Letters testamentary or administration authorizing the executor.
- Detailed list of all assets, including real estate, bank accounts, and business interests.
- Appraisals and fair market value documentation for each asset.
- Records of debts, mortgages, and outstanding tax bills.
- Prior gift tax returns (Form 709) to verify adjusted taxable gifts.
Step 2: Complete Decedent and Executor Information (Part 1).
This section requires identifying details such as the decedent’s name, date of birth, date of death, and Social Security Number. Executors must include their own information, contact details, and the probate court’s jurisdiction. Accurate identification prevents filing delays and ensures compliance with Internal Revenue Service records.
Step 3: Answer General Information (Part 4).
This section includes yes-or-no questions about the estate’s complexity, including whether the decedent owned foreign accounts, jointly held property, or business interests. Executors should answer completely and truthfully to provide the IRS with an accurate picture of the estate’s scope.
Step 4: Report Estate Assets and Deductions. (Schedules A–O).
Each schedule addresses a specific type of property or deduction:
- Schedules A–I: Real estate, stocks, bonds, insurance, cash, annuities, and other property.
- Schedules J–O: Deductions for funeral and administration expenses, debts, charitable gifts, and bequests to a surviving spouse.
All assets should be reported at fair market value or, if elected, using the alternate valuation date. Executors must ensure that every item listed matches supporting appraisals and financial records.
Step 5: Calculate the Estate Tax (Part 2).
Executors determine the taxable estate by adding the gross estate and adjusted taxable gifts, then subtracting allowable deductions. The applicable credits and exemptions are applied to calculate the total estate tax due. Accuracy in this section is crucial because miscalculations can lead to penalties or delays.
Step 6: Make Elections (Part 3).
Executors may choose elections that benefit the estate, including:
- Alternate valuation date: Allows assets to be valued six months after the decedent’s death if this reduces overall tax liability.
- Special-use valuation: Permits qualified real property to be valued based on its current use rather than market potential.
- Installment payments: Available for estates with closely held businesses, allowing payment of tax in annual installments under Section 6166.
Step 7: Portability Election (Part 6).
Executors may elect to transfer the deceased spouse’s unused exemption to the surviving spouse by completing Part 6. This portability election can protect future estates from higher tax exposure. Filing must be timely and accurate, even if no tax is owed, to ensure the benefit is secured.
By following these steps and maintaining organized records, executors can accurately file Form 706 and meet federal estate tax obligations.
Filing and Payment Procedures
Form 706 for 2018 must be filed on paper, as electronic filing was not yet available at the time of filing. Executors are responsible for submitting the completed form, supporting schedules, and required attachments to the Internal Revenue Service within the designated timeframe.
Filing Deadlines and Extensions
The estate tax return is due nine months after the decedent’s date of death. Executors who are unable to meet the deadline may request an automatic six-month extension by using Form 4768. This extension applies only to the time allowed for filing, not for paying the tax. Late filing without reasonable cause may result in penalties and interest.
How to Submit Form 706?
The correct mailing address depends on the date of filing:
- Forms filed before June 30, 2019, should be sent to the IRS Service Center in Cincinnati, Ohio.
- Forms filed after June 30, 2019, should be mailed to the Kansas City, Missouri, Service Center.
Executors using private delivery services should confirm current addresses on the IRS website and retain proof of mailing.
Payment Options
Estate taxes must be paid within nine months of the decedent’s death. Executors can:
- Pay by check made payable to the United States Treasury.
- Use the Electronic Federal Tax Payment System (EFTPS) to pay online.
- Apply for installment payments if the estate qualifies under Section 6166, which allows payment over up to ten years for estates containing closely held business interests.
Meeting filing and payment deadlines ensures compliance with IRS requirements and helps prevent unnecessary penalties or interest charges.
Required Attachments and Schedules
Filing Form 706 requires complete and accurate documentation to verify all reported values, deductions, and elections. Executors should prepare and review each attachment carefully before mailing the estate tax return. Providing detailed support ensures the Internal Revenue Service can confirm figures without delays or additional correspondence.
Common Attachments
- The executor must include a certified copy of the death certificate.
- The will, codicils, and any related trust documents must be attached to confirm distribution instructions.
- Form 712 must be provided for each life insurance policy held by the decedent.
- Professional appraisal reports must be attached to establish the fair market value of assets.
- Bank statements, investment records, and documents from financial institutions must be included for all account holdings.
- Court documents showing the appointment of the executor or administrator must accompany the return.
- Form 8971 and Schedule A must be filed to report basis information to beneficiaries.
- Copies of all prior gift tax returns must be included to verify lifetime gifts and adjusted taxable gifts.
Key Schedules
- Schedule A: Lists all real estate owned by the decedent, including residences, rental properties, and undeveloped land.
- Schedule B: Reports stocks, bonds, and other marketable securities held at the time of death.
- Schedule C: Details mortgages, notes receivable, and cash equivalents owned by the estate.
- Schedule D: Covers life insurance policies on the decedent’s life, whether personally owned or assigned to others.
- Schedule E: Reports jointly owned property, including community property shared with a spouse.
- Schedule F: Describes personal property, business interests, collectibles, and other miscellaneous assets.
- Schedules J–O: Document deductions for funeral and administrative expenses, outstanding debts, charitable contributions, and bequests to a surviving spouse.
Executors should ensure that all attachments and schedules are clearly labeled and correspond to the values entered on Form 706. Submitting complete and consistent documentation enables the IRS to verify estate information efficiently, reducing the likelihood of requests for clarification or supplemental evidence.
Common Errors and How to Avoid Them
Mistakes on Form 706 can lead to delays, penalties, or IRS inquiries. Executors should review all entries carefully before submitting the estate tax return.
Frequent Calculation Mistakes
- Executors sometimes miscalculate the total value of the gross estate.
- Some forget to include adjusted taxable gifts or specific exemptions.
- Errors occur when transferring totals between schedules.
- Using outdated 2018 tax rates can lead to an incorrect tax liability.
Documentation and Valuation Errors
- Missing appraisals or using estimates instead of fair market value is a common practice.
- Required forms, such as Form 712 or Form 8971, may not be included.
- Asset values often don’t match financial institution records.
- Missing proof for deductions, such as medical or funeral expenses, causes issues.
Filing and Compliance Errors
- Some executors miss the nine-month filing deadline or forget to request a six-month extension.
- The tax form is sometimes sent to the wrong IRS Service Center.
- Executors may fail to elect portability for the deceased spouse’s unused exemption.
- Missing signatures or incomplete schedules make the filing invalid.
Reviewing all information and consulting a tax professional helps prevent these errors and ensures a smooth filing process.
Filing for Portability Only (Zero-Activity Estates)
Some estates may not owe any federal estate tax but must still file Form 706 to make a portability election. This situation occurs when the estate’s total value falls below the federal estate tax exemption amount. Yet, the executor wants to transfer the deceased spouse’s unused exemption to the surviving spouse.
When to File for Portability?
- The decedent’s estate is under 11.18 million dollars.
- The surviving spouse is a U.S. citizen eligible to receive the unused exemption.
- The executor chooses to file Form 706 solely to elect portability.
Simplified Reporting Rules
Estates filing only for portability may use simplified valuations for marital and charitable deduction property. However, complete appraisals are still required for assets where an alternate valuation or special-use valuation election is made. Executors must still complete all relevant schedules to document asset categories, even if amounts are minimal.
Portability Checklist
- Verify that the surviving spouse is a U.S. citizen.
- Complete and file Form 706 within the standard nine-month deadline or with an approved six-month extension.
- Include the DSUE calculation in Part 6.
- Attached is all the required documentation, including the death certificate and asset summary schedules.
Properly filing for portability ensures the surviving spouse can use the deceased spouse’s unused exemption for future estate tax planning. Executors should double-check deadlines and figures before submission to avoid losing this valuable tax benefit.
Tips for First-Time Executors
Serving as an executor for the first time can feel overwhelming, especially when handling estate tax filings and financial documentation. Understanding the core responsibilities and following a transparent process can make estate administration more manageable.
Key Responsibilities
- Collect and secure all of the decedent’s assets, including real estate, bank accounts, and investments.
- Obtain appraisals to determine the fair market value of assets as of the decedent’s date of death.
- Pay outstanding debts, medical expenses, and tax bills before distributing assets to beneficiaries.
- File all required returns, including the estate tax return and estate income tax return, if applicable.
- Maintain accurate records of all transactions throughout the estate administration process.
Organization and Timeline
Executors should establish a timeline early in the process to stay on schedule:
- Months 1–3: Identify and value the estate’s assets.
- Months 4–6: Collect appraisals, review liabilities, and prepare preliminary drafts of Form 706.
- Months 7–8: Finalize calculations, gather supporting documentation, and verify accuracy.
- Month 9: File Form 706 or submit Form 4768 for an extension if more time is needed.
Professional Support
Estate administration can be complex, especially when the estate includes businesses or property in multiple states. Consulting a financial advisor, tax attorney, or certified public accountant can help ensure compliance and avoid costly errors. Professional guidance is crucial for large or high-value estates requiring sophisticated tax planning.
Being thorough, organized, and proactive allows first-time executors to fulfill their obligations efficiently while protecting the interests of all beneficiaries.
Frequently Asked Questions
What is Form 706, and who must file it?
Form 706, the United States Estate (and Generation-Skipping Transfer) Tax Return, must be filed by the executor of a decedent’s estate when the gross estate, combined with adjusted taxable gifts, exceeds the federal estate tax exemption for the year of death. For 2018, estates exceeding 11.18 million dollars or electing portability of a deceased spouse’s unused exemption must file this tax form to ensure compliance with IRS regulations.
What is the federal estate tax exemption for 2018?
The federal estate tax exemption for 2018 is $11.18 million. This amount, set by the Tax Cuts and Jobs Act, determines whether a decedent’s estate must pay estate taxes. Estates below this total value generally do not owe federal estate tax. However, the executor may still file Form 706 to make a portability election for a surviving spouse under the Internal Revenue Code.
How are assets valued on Form 706?
Executors must report all of the decedent’s assets at their fair market value as of the decedent’s date of death. Alternatively, the executor may elect to use the alternate valuation date, six months after death, if it lowers both the gross estate and overall tax liability. Accurate asset valuations are crucial for calculating estate taxes accurately and ensuring compliance with IRS form requirements.
What happens if Form 706 is filed late?
A late filing may result in penalties and interest on unpaid taxes. However, the IRS may grant relief if the executor demonstrates reasonable cause. Executors can request an automatic six-month extension using Form 4768, but this extension applies only to the filing deadline, not to the time to pay estate taxes. Filing on time is a crucial step in estate administration to avoid unnecessary costs.
What is a portability election, and why is it important?
A portability election allows a surviving spouse to use the deceased spouse’s unused exemption from federal estate tax. Executors must file Form 706 within nine months of the decedent’s death, or with a valid extension, to elect portability. This election can significantly reduce future tax liability for the surviving spouse and should be made even if no estate tax is owed.
When will the IRS issue an estate tax closing letter?
The IRS typically issues an estate tax closing letter after reviewing the filed Form 706 and confirming that all tax bills have been paid in full. Executors can request the letter through the IRS website several months after submission. This document confirms that the estate tax return has been accepted and that the estate’s obligations under the Internal Revenue Code are now complete.
Can nonresident decedents or nonresident aliens be subject to U.S. estate tax?
Yes, nonresident decedents with assets located in the United States may need to file an estate tax return. Their estates are generally subject to different exemption limits and reporting requirements. Executors should review relevant revenue procedures and consult a financial advisor to ensure compliance when handling estate and generation-skipping transfer tax filings for nonresident estates.
