Form 706 - U.S. Estate Tax Return

            Form 706, U.S. Estate Tax Return, is used to compute the estate tax required by Chapter 11 of the Internal Revenue Code.  The form is completed by the executor of the decedent’s estate.  The tax is computed on the whole taxable estate.  Another use for Form 706 is to figure the generation-skipping transfer (GST) tax levied by Chapter 13 of the Internal Revenue Code.  This is a tax on transfers designed to skip persons of interest in property that is included in the decedent’s gross estate.

            For decedents with death occurring in 2007, Form 706 is required to be filed by the executor for the estate of any U.S. citizen or resident with a gross estate, after adjusted taxable gifts are added, and certain exemptions subtracted, of more than $2,000,000.  The gross estate is defined as including any property that the decedent had an interest in, which includes real property located outside of the U.S.  The gross estate also includes some transactions that occurred during the decedent’s life for less than an adequate or full consideration in money or the like, annuities, any includible part of a joint estate with the right of survivorship, any includible part of a tenancy by the entirety, certain life insurance proceeds, property that the decedent had a general power of appointment over, the statutory estate of the surviving spouse, and any community property up to the limit of the decedent’s interest as determined by any applicable laws.

             Form 706 is required to be filed within nine months after the decedent’s death, or by the extended date if an extension has been granted.  At least the first three pages must be filed, along with any schedules that may be required due to the specific circumstances of the estate.  The death certificate has to be attached to Form 706.  A certified copy of the will is required to be attached to the return if the deceased was a U.S. citizen or resident that died testate.

             The gift and estate tax rates for gifts which are made in the estates of individuals that die in 2007, 2008, or 2009 range from zero to greater than $555,800.  For a gift from zero up to $10,000, the tax amount is 18% of the amount.  For gifts from $10,000 to $20,000 the tax is $1,800 plus 20% of the amount over $10,000.  The tax amounts increase along with increasing gift or inheritance amounts.  The highest amount of tax is on gifts above $1,500,000.  This results in a tax of $555,800 plus 45% of any amount greater than $1,500,000.

             Regarding the generation-skipping transfer (GST) tax, complicated estate tax rules must be followed when there are transfers of property that skip a generation or more.  An example of this is when a grandparent transfers property to a grandchild or a great-grandchild.  The GST may be due as well as the regular estate tax.  It may be beneficial to have professional financial and estate planning assistance in order to maximize any gifts or inheritances while minimizing tax effects.

            If you need help with figuring out your income taxes, including an estate tax return, then you are in the right place.  Try out the CPA search feature on this website to find a qualified professional in your area to assist you with all your tax and accounting needs.