Form 706 can be a long and complicated form. Although it may be costly, many trustees prefer that Form 706 be filed by professional tax preparers specializing in estate tax returns. Thankfully, the IRS requires that only high value estates must file Form 706. Generally, only estates subject to estate tax must file Form 706. As a result of recent legislation, the value of estates subject to estate tax has varied significantly in past years.
2009 and 2010 Estate Tax Limitations
In 2009, only estates with a gross estate value plus historical taxable gifts by the decedent greater than $3,500,000 needed to file Form 706. Estates with lower aggregate values and historical taxable gifts by the decedent were not required to file the form. In 2010, as allowed under the Economic Growth and Tax Relief Reconciliation Act of 2001 (part of the Bush tax cuts), the estate tax was eliminated. As a result, the estates of 2010 decedents are not required to file Form 706.
2011 and 2012 Estate Tax Limitations
In December 2010, Congress passed legislation granting a $5 million per estate exemption on estate tax. As a result of this legislation, in 2011, only estates where the gross value of the estate plus historical taxable gifts by the decedent exceed $5,000,000 will be required to file Form 706 with the IRS. This limitation only applies to 2011 and the limitation for 2012 is $5.12 million. The limitation in future periods is uncertain.
Valuation of Gross Estate
In valuing a decedent's estate for purposes of determining whether Form 706 must be filed, the IRS requires that trustees include the value of all property owned, including partial interests, by the decedent at the time of death. Further, most annuities and life insurance policies receivable at the time of the decedent's death must also be added to the total.
Finally, the value of the estate must include all taxable gifts made after December 31, 1976. A gift tax return would have been filed for these gifts.