IRS Form 706 for 2018: A Comprehensive Filing Checklist
Overview of Form 706 for 2018
The 2018 IRS Form 706 serves as the United States Estate and Generation-Skipping Transfer Tax Return for estates of decedents who died during calendar year 2018. This revision reflects significant changes enacted by the Tax Cuts and Jobs Act, which doubled the basic exclusion amount from $5 million to $10 million, indexed for inflation. For decedents dying in 2018, the basic exclusion amount was set at $11,180,000, with a corresponding applicable credit amount of $4,417,800.
The November 2018 revision incorporates important procedural updates, including continued provisions for portability elections under Revenue Procedure 2017-34 and procedures for restored exclusion amounts for same-sex spouse transfers, as outlined in Notice 2017-15. Executors must carefully complete all applicable sections to ensure compliance with federal estate tax requirements and to preserve valuable tax benefits for surviving family members.
Filing Requirements and Deadlines
Form 706 must be filed for estates of United States citizens or residents whose gross estate, combined with adjusted taxable gifts and specific exemptions, exceeds the $11,180,000 filing threshold for 2018. The return is generally due nine months after the date of the decedent’s death. However, executors may request an automatic six-month extension by filing Form 4768 before the original due date.
Even if an estate falls below the filing threshold, executors should consider filing Form 706 to elect portability of the deceased spouse's unused exclusion amount to a surviving spouse. This election allows the surviving spouse to apply the decedent’s unused exclusion amount to future transfers, potentially shielding millions of dollars from estate and gift taxes.
Revenue Procedure 2017-34 continues to provide relief for executors who missed the original deadline to elect portability, allowing filing on or before the later of January 2, 2018, or the second anniversary of the decedent’s death.
Checklist for Completing Form 706
1. Assemble Complete Estate Documentation
Gather all documents related to the decedent’s assets and liabilities, including deeds, bank statements, brokerage account statements, insurance policies, business ownership documents, and professional appraisals. The death certificate must be attached to the return. If the decedent died testate, a certified copy of the will is also required.
Collect documentation for real estate holdings, securities portfolios, mortgages, and notes receivable, life insurance proceeds, jointly owned property, transfers made during the decedent’s lifetime, powers of appointment, and annuities. Note the 2018 basic exclusion amount of $11,180,000, which is critical for exemption calculations and determining whether the estate has a filing requirement.
2. Complete Decedent and Executor Information
Complete Part 1 with the decedent’s personal data, including full legal name, social security number, date of birth, date of death, and residence information. Enter the executor’s name, address, telephone number, and social security number.
Executors must provide documentation proving their status, such as a certified copy of court orders or letters testamentary. If there is more than one executor, all are responsible for the return, though only one signature is required. Ensure the executor's signature and date are properly executed under penalty of perjury, as instructed.
3. Attach Schedule O for Charitable Deductions
Attach Schedule O to report charitable, public, and similar gifts and bequests if claiming a deduction on item 22 of Part 5—Recapitulation. Schedule O is used exclusively for reporting transfers to qualifying charitable organizations under Section 2055, including the United States government, state and local governments, and qualifying organizations that are religious, charitable, scientific, literary, or educational.
Provide the name and address of each charitable beneficiary, the amount of each bequest, and sufficient detail to demonstrate that the transfer qualifies for the charitable deduction. If Schedule O includes a bequest of the residue or part of the residue, attach a copy of the computation showing how the value was determined.
4. Complete Schedule P and Schedule Q if Applicable
Attach Schedule P if claiming a credit for foreign death taxes paid to a foreign country on property included in the gross estate. The credit helps prevent double taxation on assets subject to both the United States estate tax and foreign death taxes. Attach Form 706-CE, Certificate of Payment of Foreign Death Tax, to support the credit claim.
Attach Schedule Q if claiming a credit for tax on prior transfers, which applies when property was inherited from someone who died within ten years before or two years after the current decedent. These credits reduce the estate tax liability dollar for dollar and require careful documentation and calculation.
5. Complete Schedule R and Schedule R-1 for GST Tax
Complete Schedule R to calculate the generation-skipping transfer tax on direct skips from the estate to skip persons, such as grandchildren or more remote descendants. The GST exemption for 2018 equals the basic exclusion amount of $11,180,000. Schedule R is used for direct skips where the estate is responsible for paying the GST tax.
Complete Schedule R-1 separately to figure the GST tax payable by certain trusts included in the gross estate. Schedule R-1 serves as notification from the executor to the trustee that GST tax is due, and under section 2603(a)(2), the trustee, rather than the estate, is responsible for paying this tax. Accurate calculation and proper allocation of the GST exemption preserve wealth for younger generations while minimizing transfer tax liability.
6. Verify Special-Use Valuation Elections
If electing special-use valuation under section 2032A for qualified farm or business real property, complete both Schedule A for real estate and Schedule A-1 for the section 2032A valuation election. Ensure all interested heirs sign the required agreement, accepting personal liability for potential recapture tax.
The agreement must be attached to the return along with detailed descriptions of the property and its qualified use, evidence of material participation by the decedent or family members for at least five of the eight years preceding death, and calculations demonstrating that the property meets the statutory percentage requirements. The maximum reduction in value under section 2032A for 2018 was $1,140,000.
7. Confirm Applicable Exclusion Amount Calculations
Verify that all numeric values for exclusions are accurately reflected throughout the return. The basic exclusion amount for 2018 is $11,180,000, which translates to an applicable credit amount of $4,417,800. If the decedent received a deceased spousal unused exclusion amount from a predeceased spouse, this total must be properly reported and calculated in Part 2—Tax Computation and Part 6—Portability sections.
The applicable exclusion amount on line 9d of Part 2 reflects the sum of the basic exclusion amount, any restored exclusion amount for same-sex spouse transfers, and any DSUE amount received from a predeceased spouse. Proper calculation of these amounts is essential for accurate tax computation.
8. Attach All Required Asset and Deduction Schedules
Ensure that all schedules are attached, if applicable, according to the entries in Part 5—Recapitulation. Schedule G reports transfers during the decedent’s life, including gifts made within three years of death and transfers with retained interests or powers. Schedule H reports powers of appointment, both general and special, that the decedent possessed at death.
Schedule J reports funeral expenses and administration expenses incurred in administering property subject to claims. Schedule K reports the debts of the decedent, as well as mortgages and liens. Schedule M reports bequests to the surviving spouse qualifying for the marital deduction, including QTIP elections made by listing the property and its value. Each schedule requires complete and accurate information with proper supporting documentation.
9. Review All Signatures and Filing Information
Review all signatures, dates, and filing information for accuracy and completeness. The executor is required to sign the declaration on page 1 while under the threat of perjury. If a paid preparer was used, that person must also sign and complete the Paid Preparer Use Only section. Make sure documentation proving the executor’s status is attached, as statements by the executor attesting to their status are insufficient.
Verify that the correct filing address is used according to the filing date, since the IRS changed mailing addresses for returns filed after June 30, 2019. For returns filed between January 1, 2019, and June 30, 2019, mail to the Cincinnati, Ohio, address. For returns filed after June 30, 2019, mail to the Kansas City, Missouri, address.
10. File with All Required Attachments
File the paper return with all appropriate schedules, attachments, and the signature page, adhering to the 2018 filing instructions. The first four pages of Form 706 must be filed along with all required schedules. Attach Form 8971, Information Regarding Beneficiaries Acquiring Property From a Decedent, to satisfy consistent basis reporting requirements.
Include copies of all Forms 709 filed by the decedent for lifetime gifts, Form 712 for each life insurance policy, appraisals for assets requiring valuation support, and state certification of payment of death taxes if claiming a state death tax deduction. Staple all required pages together in proper order and retain copies of the complete return and all attachments for the estate’s records.
Key 2018 Form Updates and Special Considerations
Increased Basic Exclusion Amount Under TCJA
The most significant change for 2018 was the increase in the basic exclusion amount, resulting from the Tax Cuts and Jobs Act. Section 2010 (c) (3), as amended by Public Law 115-97, increased the basic exclusion amount from $5 million to $10 million, with both amounts indexed for inflation. This resulted in a basic exclusion amount of $11,180,000 for estates of decedents dying in 2018, nearly double the $5,490,000 amount for 2017.
The corresponding applicable credit amount increased to $4,417,800, substantially reducing the number of estates subject to federal estate tax. This increased exemption is scheduled to sunset after 2025, when the basic exclusion amount will revert to $5 million, indexed for inflation, unless Congress acts to extend or modify the provision.
Portability Provisions and DSUE Calculations
Part 6—Portability of Deceased Spousal Unused Exclusion allows estates to elect portability of any unused exclusion amount to a surviving spouse. This election is automatic upon timely filing of a complete and properly prepared Form 706, even if the estate is not otherwise required to file. Executors who do not wish to make the portability election must affirmatively opt out by checking the appropriate box in Section A of Part 6.
Section C of Part 6 calculates the DSUE amount portable to the decedent’s surviving spouse, while Section D reports any DSUE amount the decedent received from one or more predeceased spouses. The combination of the increased basic exclusion amount and portability allows married couples to effectively shield up to $22,360,000 from federal estate tax for deaths occurring in 2018.
Restored Exclusion for Same-Sex Spouse Transfers
Notice 2017-15 continues to provide procedures allowing executors to restore exclusion amounts that were utilized in taxable gifts to same-sex spouses made before the Supreme Court’s decision in United States v. Windsor. If the decedent made a taxable gift to a same-sex spouse that resulted in a reduction of the available applicable exclusion amount, the estate may restore that exclusion by following the procedures outlined in the notice.
The restored exclusion amount is reported on line 9c of Part 2—Tax Computation. Similarly, any generation-skipping transfer exemption amount allocated to gifts whose generation assignment changed as a result of Notice 2017-15 will be deemed void. These provisions ensure equitable treatment of same-sex married couples for estate and gift tax purposes.
Simplified Valuation Rules for Portability-Only Returns
Executors of estates who are not required to file Form 706 under section 6018(a) but who are filing solely to elect portability may use simplified valuation rules under Regulations section 20.2010-2(a)(7)(ii). Under this special rule, these estates are not required to report the value of certain property eligible for the marital deduction under section 2056 or 2056A or the charitable deduction under section 2055.
However, the value of those assets must be estimated and included in the total value of the gross estate reported on Part 5—Recapitulation. This special rule does not apply to assets whose valuation is required for eligibility under section 2032 for alternate valuation, section 2032A for special-use valuation, section 2652(a)(3) for GST tax purposes, section 6166 for installment payment elections, or other provisions of the Code or regulations.
This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
