Form 706: Estate Tax Return Fundamentals

Tax Professionals' Resource
April 4, 2013 — 2,594 views  
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United States Estate (and Generation-Skipping Transfer) Tax Return or Form 706 is the form used by the IRS to calculate estate taxes. Form 706 should be filed before the end of nine months from the death of the decedent. Surviving spouses looking to elect in order to use an exemption of estate tax unused by the deceased spouse should file Form 706 in time for the estate of the deceased spouse. This action is known as 'portability in exemption of estate tax'.

Who Must File Form 706?

Based on the instructions for the official version of the 2012 Form 706, it should be filed, for the decedents who have died in 2012, by the estate executor of any US resident or citizen whose gross value, along with adjusted gifts that are taxable, and special exemption is higher than $5,120,000. It can also be filed by any resident or citizen whose executor elects to allow the surviving spouse to use any exemptions of the decedent that has not been utilized.

When are the Payments for estate tax and Form 706 due?

Form 706 should be filed and all taxes that are due should be paid in full within 9 months after the death of the decedent. However, you can gain an automatic extension of 6 months for filing the return for all estates. This can be done by filing IRS Form 4768. But filing this form will not allow you to delay payment of any taxes due. It is also possible to get an extension in limited special circumstances.

Which States are required to Prepare Form 706?

It may be possible for an estate not be taxed at federal level but be taxed at state level. It may also be possible that certain estates, which are not taxed at both federal and state levels, are required to prepare a tax return for their estate and file it. This is done to comply with certain state level estate reporting purposes. If one or both of these situations apply, then you are required to prepare and file IRS-Form 706 with all the necessary information and documents for the state level estate tax. This is only valid for the following states – Oregon, New York, New Jersey, Minnesota, Massachusetts, Maryland, Kansas, and Illinois.

When Should a Non-Taxable Estate file Form 706?

Certain estates that do not have to file federal level estate tax returns, should consider filing a Form 706. This is to lock in the market values of all of the estate's assets as on the date of the decedent's death. This includes the estates which utilize ABC or AB Trust planning. According to this, only the B and C Trusts or the B Trust will be funded. It is also useful for estates which create trusts for a lifetime in order to provide benefits to non-spouse beneficiaries. This will make it a lot easier when settling the estates of a non-spouse beneficiary or a surviving spouse when they die. The fair market values and stepped up basis of all the estate's assets are clearly given on the Form 706 of those initial decedents.

Tax Professionals' Resource