Finance Terms: Form 706

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Estate planning can be a daunting process, especially when it comes to taxes and paperwork. One of the key forms you’ll need to be familiar with is Form 706, also known as the United States Estate (and Generation-Skipping Transfer) Tax Return. In this article, we’ll explore the purpose of Form 706, who needs to file it, the different parts of the form, common mistakes to avoid, how to calculate estate tax liability, tips for completing the form, and the role of a certified public accountant in preparing and filing Form 706. By the end, you’ll have a comprehensive understanding of this critical estate planning document.

Understanding the Purpose of Form 706 in Estate Planning

Form 706 is an essential document for anyone who is responsible for administering the estate of someone who has passed away. The form provides a comprehensive snapshot of the estate’s financial situation, including all assets, debts, and beneficiaries. The primary purpose of Form 706 is to calculate the estate tax that is owed to the federal government. However, it also serves as a record of the estate’s value and a tool for administering the distribution of assets.

One important thing to note is that not all estates are required to file Form 706. The filing threshold for the estate tax changes each year, so it’s important to stay up-to-date on the current requirements. Additionally, there are certain deductions and credits that can be applied to reduce the amount of estate tax owed, such as the marital deduction and the unified credit.

It’s also worth mentioning that Form 706 must be filed within nine months of the decedent’s date of death. Failing to file the form on time can result in penalties and interest charges. It’s important to work with a qualified estate planning attorney or tax professional to ensure that all necessary forms are filed correctly and on time.

Who Needs to File Form 706 and When?

Not everyone needs to file Form 706. If the deceased person’s estate is worth less than the current estate tax exemption amount, then no estate tax is due, and filing the form is unnecessary. In 2021, the estate tax exemption is $11.7 million per person, or $23.4 million for a married couple. However, if the estate exceeds this threshold, then the executor or administrator of the estate is required to file Form 706 within nine months of the date of death.

It is important to note that even if the estate is not required to file Form 706, it may still be beneficial to do so. This is because filing the form establishes a basis for the assets in the estate, which can be helpful for the beneficiaries when they sell the assets in the future. Additionally, if the estate is below the exemption amount but includes a surviving spouse, filing Form 706 can allow the surviving spouse to use any unused portion of the exemption amount in the future.

The Different Parts of Form 706: A Breakdown

Form 706 is a lengthy document with several sections. Here’s a brief overview of each part:

  • Part 1: General information
  • Part 2: Tax computation
  • Part 3: Credits against tax
  • Part 4: Tax due
  • Part 5: Recapitulation
  • Part 6: Signature and consent to assessment

Each section requires specific information about the estate, including an inventory of assets, debts, and other liabilities.

It’s important to note that Form 706 is only required for estates with a gross value exceeding the estate tax exemption amount, which is currently set at $11.7 million for 2021. If the estate is below this threshold, Form 706 is not required to be filed.

Additionally, it’s worth mentioning that Form 706 is due nine months after the date of the decedent’s death. However, an extension of up to six months can be requested by filing Form 4768. It’s important to file for an extension before the original due date to avoid any penalties or interest charges.

Common Mistakes to Avoid When Filling Out Form 706

There are several common errors that can occur when completing Form 706. One of the most significant mistakes is failing to report all assets and income accurately. The IRS has access to extensive databases and can quickly discover any discrepancies or omissions, which can lead to penalties and fines. Other mistakes include incorrect valuations of property, errors in calculations, and failure to meet deadlines for filing the form.

Another common mistake to avoid when filling out Form 706 is not seeking professional help. Estate tax laws can be complex, and it’s easy to make errors that can result in significant financial consequences. Hiring an experienced tax professional or estate planning attorney can help ensure that you complete the form accurately and avoid costly mistakes. Additionally, seeking professional help can provide peace of mind and help you navigate any unexpected issues that may arise during the process.

How to Calculate the Estate Tax Liability Using Form 706

Calculating estate tax liability can be complex. Fortunately, Form 706 includes a set of instructions that guide you through the process. The first step is to compile a complete inventory of all assets, including real estate, personal property, investments, and life insurance proceeds. After valuing each asset, you’ll subtract any allowable deductions, such as funeral expenses and debts of the estate. The remaining amount is subject to estate tax, which can range from 18% to 40%, depending on the value of the estate. The estate will only owe tax on the amount that exceeds the exemption threshold.

It’s important to note that the exemption threshold for estate tax can change from year to year. For example, in 2021, the exemption threshold is $11.7 million for individuals and $23.4 million for married couples. If the value of the estate is below the exemption threshold, then no estate tax is owed. However, if the value of the estate exceeds the exemption threshold, then the estate will owe tax on the amount that exceeds the threshold.

In addition to Form 706, there are other forms that may need to be filed depending on the specifics of the estate. For example, if the estate includes assets held in foreign countries, then Form 706-NA may need to be filed. It’s important to consult with a tax professional or attorney to ensure that all necessary forms are filed correctly and on time.

Tips for Completing Form 706 Accurately and Efficiently

One of the best ways to ensure that you are completing Form 706 accurately and efficiently is to work with a certified public accountant (CPA) or other financial professional. A qualified professional can offer guidance and assistance in gathering relevant information, completing the form, and avoiding common mistakes. Additionally, keep detailed records and stay organized throughout the process to ensure that all necessary information is readily available when needed.

Another important tip for completing Form 706 is to understand the applicable tax laws and regulations. This includes knowing the current estate tax exemption amount, which is subject to change each year. It is also important to be aware of any deductions or credits that may be available to reduce the overall tax liability. Taking the time to research and understand these laws and regulations can help ensure that the form is completed accurately and that you are not overpaying on taxes.

What Happens After Filing Form 706? An Overview of the Estate Tax Process

After filing Form 706, the IRS will review the return and any supporting documentation. If there are no issues, the IRS will typically assess the estate tax and send a bill for payment. If there are discrepancies, the IRS may initiate an audit or request additional information. Once the estate tax is paid, the executor or administrator can begin to distribute assets to beneficiaries. It’s essential to keep in mind that, in some cases, beneficiaries may owe income tax on inherited assets.

It’s also important to note that the estate tax process can be lengthy and complex, especially for larger estates. The executor or administrator may need to work with financial and legal professionals to ensure that all tax obligations are met and assets are distributed properly. Additionally, if the estate is subject to state estate taxes, separate filings and payments may be required. It’s crucial to stay organized and keep accurate records throughout the entire process to avoid any potential issues or penalties.

The Role of a Certified Public Accountant in Preparing and Filing Form 706

A certified public accountant (CPA) can play a vital role in guiding you through the estate planning process and helping you to complete Form 706 accurately and efficiently. A CPA can provide valuable insight and expertise in areas such as estate valuation, tax law, and financial planning. Additionally, a CPA can help to ensure that all necessary documentation is in order and that all deadlines are met. Working with a CPA can give you peace of mind and help to ensure that your loved one’s estate is handled correctly.

It is important to note that not all CPAs specialize in estate planning and tax law. When selecting a CPA to assist with Form 706, it is recommended to choose one who has experience in these areas. A CPA who is familiar with the specific requirements and regulations of Form 706 can help to minimize errors and potential penalties. Furthermore, a CPA can provide ongoing support and advice throughout the estate administration process, including post-filing tax planning and compliance.


Form 706 is a critical document in the estate planning process. By understanding the purpose of the form, who needs to file it, and how to complete it accurately, you can ensure a smooth and efficient estate planning process. Remember to stay organized, work with qualified professionals, and avoid common mistakes to ensure that your loved one’s assets are handled with care and precision.

It is important to note that Form 706 must be filed within nine months of the decedent’s death. Failing to file the form or filing it late can result in penalties and interest charges. Additionally, it is recommended to review and update your estate plan regularly to ensure that it reflects your current wishes and circumstances. By staying proactive and informed, you can protect your assets and provide for your loved ones in the future.

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