When is the filing of Form 706 required?
Form 706 generally must be filed with any estate tax due within nine months of the date of the decedent’s death. However, not every estate is required to file Form 706. This depends on the value of the estate.
Who must file Form 706?
Form 706 must be filed for decedents who died in 2022 when the total gross assets of the estate, plus any taxable gifts made during their lifetime, exceed $12.06 million. This threshold is adjusted for inflation, so it may gradually increase over the years.
How to calculate the value of the estate
To determine whether a federal estate tax return must be filed, the following values should be added together:
- Taxable gifts made by the decedent after December 31, 1976, that exceeded the annual gift tax exclusion for the year they were made
- The total aggregate exclusion allowed under section 2521 (which was in effect before its repeal by the Tax Reform Act of 1976) for gifts made by the decedent after September 8, 1976
- The total gross assets of the decedent at the time of death
Portability elections
The concept of portability of the estate tax exemption between married couples was introduced in 2011. The surviving spouse can choose to benefit from the unused estate tax exemption of their deceased spouse and add it to their own federal estate tax exemption. This is known as the deceased spouse unused exemption (DSUE).
For example, if the Smith couple has equal ownership of an estate valued at $24.12 million. If Mr. Smith died in January 2022, half of the estate valued at $12.06 million ($24.12 million / 2) could pass to his wife without any tax liability under the unlimited marital deduction. Now if Mrs. Smith later dies, there could be two scenarios:
- Without portability: If Mrs. Smith does not elect portability and claims the unused estate tax exemption of her husband, the inherited amount of $12.06 million from her husband could pass to her heirs tax-free. However, any portion exceeding her own estate of $12.06 million would be subject to estate tax.
- With portability: If Mrs. Smith elects portability, she can claim the entire unused estate tax exemption of $12.06 million. Between this unused exemption from Mr. Smith and Mrs. Smith’s own estate tax exemption of $12.06 million, she could pass the entire estate to her heirs almost tax-free.
Note: The surviving spouse can choose to use the deceased spouse’s exemption by filing Form 706 for the estate regardless of whether it is subject to any estate tax. The election is made on this tax form.
When should a non-taxable estate file Form 706?
Some estates that are not required to file a federal estate tax return may consider filing anyway. It is often easier to settle the surviving spouse’s or non-spousal beneficiary’s estate later if the estate tax return has been filed in advance. The fair market values of the inherited assets and the increase in the tax basis in the decedent’s original property will be documented on the initial federal estate tax return filed with the IRS.
States that require filing Form 706
Sometimes an estate may be subject to state taxes even if it is not subject to federal taxes, and this may require the filing of the
Source: https://www.thebalancemoney.com/when-is-a-federal-estate-tax-return-required-to-be-filed-3505678
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