IRS Form 706 is the federal estate and generation-skipping transfer tax return, filed by the executor to report a deceased person’s estate and calculate any federal estate tax owed. For someone who died in 2026, filing is required when the gross estate plus lifetime taxable gifts exceeds $15 million. Some estates below that threshold file anyway to preserve the deceased spouse’s unused exclusion for the surviving spouse. The return is due nine months after the date of death, and the tax is due at the same time.
Who Has to File
The filing test is a single comparison. Add the fair market value of everything in the gross estate to any taxable gifts the decedent made during life, and measure that total against the Basic Exclusion Amount for the year of death. For 2026 deaths, the BEA is $15 million per person. If the total is over, the executor files, whether or not any tax ends up owed after deductions run.
Legal responsibility falls on the executor, administrator, or anyone in possession of the decedent’s property. The trigger is gross value before deductions, not net taxable amount. An estate worth $16 million that qualifies for a $3 million marital deduction still has to file, even though the taxable estate lands below the BEA.
Portability Filers
When the first spouse dies with an estate under the BEA, the surviving spouse can claim the leftover exclusion through a portability election. If the decedent used only $4 million of the $15 million exclusion, the surviving spouse can add the remaining $11 million to their own. This deceased spousal unused exclusion (DSUE) election requires filing a complete Form 706 even when no tax is owed and the estate would otherwise have no filing obligation.
Executors who miss the original deadline can still elect portability under a simplified procedure, provided they file a complete Form 706 within five years of the decedent’s date of death. That relief applies only to estates not otherwise required to file. Once the five-year window closes, the unused exclusion is gone.
Lifetime Gifts Count Toward the Threshold
Lifetime taxable gifts include transfers that required the decedent to file Form 709. Annual exclusion gifts within the per-recipient limit are not counted. Get copies of every gift tax return the decedent filed, because those cumulative gifts are added to the gross estate when measuring against the BEA. Even if no gift tax was paid during life, those gifts still reduce the exclusion available at death.
What Goes Into the Gross Estate
The gross estate is broader than the probate estate. It captures every asset in which the decedent had an ownership interest or certain retained rights at death, including property that bypasses the will entirely. Each asset category gets its own schedule inside Form 706.
- Schedule A: real estate the decedent owned, from primary residences to raw land.
- Schedule B: publicly traded stocks, bonds, notes, and other financial instruments.
- Schedule C: bank accounts, money market funds, and debts owed to the decedent.
- Schedule D: life insurance proceeds where the decedent held “incidents of ownership” — the right to change the beneficiary, borrow against the policy, or cancel it. Policies payable to someone other than the estate are still included if the decedent kept any of those rights.
- Schedule G: revocable trust assets and other lifetime transfers where the decedent kept the right to income or the power to revoke.
- Schedule I: IRAs, 401(k) plans, pensions, and commercial annuities, regardless of the named beneficiary.
Jointly Owned Property
How much of a joint asset gets included depends on the type of co-ownership. For tenants-in-common, only the decedent’s fractional share goes in: a 50 percent stake means half the value.
Joint tenancy with right of survivorship between non-spouses works differently. The full value is included unless the surviving co-owner can prove they contributed their own funds. The executor carries the burden of tracing the source.
Spouses get a simpler rule. For a qualified joint interest between married co-owners, exactly half the value goes into the first spouse’s estate regardless of who paid.
The Three-Year Rule
Transferring a life insurance policy to an irrevocable trust is a common way to keep the death benefit outside the estate. It works only if the decedent survives at least three years after the transfer. Die inside that window and the full death benefit snaps back into the gross estate. The same statute pulls any gift taxes paid on transfers made within three years of death back into the gross estate, preventing deathbed gifts from shrinking the estate by the amount of gift tax paid.
Valuing the Assets
Every asset in the gross estate goes in at fair market value as of the date of death. For publicly traded securities, FMV is the average of the high and low selling prices on the date of death. If markets were closed, use a weighted average of the nearest trading days before and after.
The Alternate Valuation Election
If asset values fall after death, the executor can elect to value the entire estate as of six months after death instead. The election is available only if it reduces both the gross estate and the total estate and GST tax liability. It’s irrevocable once made. Any asset sold, distributed, or otherwise disposed of before the six-month mark gets valued as of the disposition date.
Hard-to-Value Assets
Real estate needs a qualified appraisal that analyzes highest and best use and comparable sales. Closely held business interests demand specialized techniques accounting for earnings, net worth, and market position. The IRS scrutinizes these valuations closely.
Discounts for lack of marketability (owners can’t sell on a public exchange) or lack of control (a minority stake can’t dictate business decisions) can meaningfully reduce the reported value. These discounts are legitimate but invite IRS attention, and the analysis behind them needs to survive an audit.
Valuations Set the Beneficiary’s Basis
Values reported on Form 706 also determine the beneficiaries’ future capital gains. Property acquired from a decedent takes a new tax basis equal to its FMV at the date of death, or the alternate valuation date if elected. Stock a parent bought for $50,000 that is worth $500,000 at death gives the beneficiary a $500,000 basis; a sale at $500,000 produces no gain. Undervaluing assets to reduce estate tax also reduces the beneficiary’s stepped-up basis, which can create bigger capital gains later.
Deductions That Reduce the Taxable Estate
The taxable estate is the gross estate minus deductions authorized by statute. Each major category has its own schedule.
Expenses, Debts, and Losses
Funeral costs, executor commissions, attorney fees, and appraisal fees necessary to settle the estate go on Schedule J. Amounts must be reasonable and either already paid or expected to be paid. The executor has to choose whether to claim administration expenses on Form 706 or on the estate’s income tax return (Form 1041); double-dipping isn’t allowed. For large estates in high brackets, the estate tax deduction usually wins, but the numbers should drive the choice.
Debts the decedent owed at death, including mortgages and unpaid taxes, are deductible on Schedule K if they were genuine obligations enforceable under local law. Theft or casualty losses during estate administration go on Schedule L, only to the extent insurance doesn’t cover them.
The Marital Deduction
The marital deduction on Schedule M is unlimited. Any amount of property passing to a surviving spouse who is a U.S. citizen is fully deductible. It defers rather than eliminates: the property lands in the surviving spouse’s estate later and faces its own reckoning.
The main restriction is the terminable interest rule. If the spouse’s interest can end on some event, the deduction generally doesn’t apply. “To my spouse for life, then to my children” would normally fail because the spouse’s interest terminates at death.
The workaround is a Qualified Terminable Interest Property (QTIP) trust. The surviving spouse has to receive all trust income for life, and the executor makes the QTIP election on Schedule M. The election is irrevocable, and the trust assets will be pulled into the surviving spouse’s gross estate later.
When the surviving spouse is not a U.S. citizen, the marital deduction is unavailable unless the property goes into a Qualified Domestic Trust (QDOT). A QDOT must have at least one U.S. citizen or domestic corporation as trustee, with the right to withhold estate tax on any principal distribution.
Charitable Deduction
Property passing to qualifying charities is fully deductible on Schedule O with no cap. The recipient has to qualify under Section 501(c)(3), and the executor documents the transfer with the will or trust provision directing the bequest.
Computing the Tax
The calculation applies a graduated rate schedule to the taxable estate plus adjusted taxable gifts. Rates climb from 18 percent on the first $10,000 to 40 percent on amounts over $1 million. That produces a tentative tax, reduced by credits.
The unified credit is the big one. It offsets the tax on the first $15 million (the 2026 BEA). Any portion already used against lifetime gift taxes reduces what remains at death. If the decedent made $3 million in taxable gifts during life, the remaining credit at death shelters only $12 million of the taxable estate. Complete gift tax return records are essential to calculate this accurately.
Two more credits can shrink the bill. A credit for foreign death taxes covers estate or inheritance taxes paid to another country on property situated abroad. The credit for tax on prior transfers prevents double taxation when the decedent inherited property from someone who died within ten years before, or two years after, the decedent’s own death, and that prior estate paid federal estate tax on the same property.
The GST Tax Layer
Form 706 also handles the generation-skipping transfer tax. When property passes to someone two or more generations below the decedent — a grandchild, or an unrelated person more than 37.5 years younger — a separate tax can apply on top of the estate tax. The GST rate is a flat 40 percent.
Each person has a GST exemption equal to the BEA, so $15 million for 2026. The executor allocates it to specific transfers on Schedule R. Direct skips at death, such as an outright bequest to a grandchild, are reported and taxed there. Transfers to trusts that could eventually benefit skip persons also need exemption allocated, even if no GST tax is due immediately. Getting the allocation right at filing avoids much bigger problems when those trusts distribute or terminate later.
The Deadline and Getting an Extension
Form 706 is due nine months after the date of death. A March 15 death produces a December 15 deadline. This applies whether or not tax is owed.
Filing Form 4768 before the original deadline grants an automatic six-month extension of time to file. No explanation is required for the filing extension. The catch: it doesn’t extend the payment deadline. Estimated tax still has to be paid by the original nine-month date. Sending in Form 4768 without a payment doesn’t protect the estate from penalties and interest on the unpaid balance.
Late-Filing and Late-Payment Penalties
The IRS runs two separate penalties, and they stack.
- Late filing: 5 percent of the unpaid tax for each month or partial month the return is overdue, up to 25 percent. If the return is more than 60 days late, the minimum penalty is the lesser of $525 or 100 percent of the tax due.
- Late payment: 0.5 percent of the unpaid tax per month, capped at 25 percent. The rate rises to 1 percent per month if the IRS issues a notice of intent to levy and the tax stays unpaid after ten days.
These penalty rates come from published IRS guidance. Interest also accrues on the unpaid balance from the original due date. For the first quarter of 2026, the IRS charges 7 percent per year on individual underpayments, compounded daily.
Payment Relief When the Estate Is Illiquid
The full tax is due with the return. Two relief options exist for estates that can’t raise cash that quickly.
Reasonable Cause Extension of Time to Pay
Filing Form 4768 with a detailed written explanation of why liquid funds can’t be gathered by the deadline can secure an extension of time to pay. The extension runs 12 months at a time. The executor has to show that borrowing the funds would cause undue hardship. Interest continues to run during the extension.
Installment Payments for Closely Held Businesses
When a closely held business interest is more than 35 percent of the adjusted gross estate, the executor can elect to spread the tax attributable to that interest over roughly 14 years under IRC Section 6166. The structure allows up to five years of interest-only payments, followed by up to ten annual installments of principal and interest. A special 2 percent interest rate applies to the deferred tax on the first $1 million (inflation-adjusted) of taxable value of the business interest; the regular underpayment rate applies to the rest. This election matters most when the primary asset is an illiquid business that would otherwise have to be sold to raise the tax.
After the Return Is Filed
The IRS has three years from filing to assess additional estate tax. That extends to six years if the estate omitted items worth more than 25 percent of the reported gross estate. Estates with substantial valuation discounts, closely held businesses, or complex trust arrangements draw the most attention.
Once the IRS accepts the return or finishes an examination, the executor can request an Estate Tax Closing Letter confirming the final tax liability. The request goes through Pay.gov and costs $56. Wait at least nine months after filing before requesting the letter, or 30 days after an examination concludes. Processing times vary and the IRS doesn’t provide estimates.
A faster alternative: an authorized tax professional can pull an account transcript through the IRS Transcript Delivery System. Transaction Code 421 on the transcript indicates the return has been accepted or the examination is complete. Many states and title companies now accept a transcript showing TC 421 in place of the formal closing letter.
Don’t finalize distributions until you have either the closing letter or a transcript confirming acceptance. Without that confirmation, a later audit could produce additional tax that the executor becomes personally liable for once estate assets have been paid out to beneficiaries.
State Estate Taxes Are Separate
Form 706 covers only the federal side. Roughly a dozen states and the District of Columbia impose their own estate taxes, often with much lower exemptions. Oregon starts at $1 million, Massachusetts at $2 million, and several other states fall in the $3 million to $7 million range. An estate well below the $15 million federal threshold can still owe six figures at the state level. Check the rules in the state where the decedent was domiciled and in any state where the decedent owned real property, since some states tax real estate within their borders regardless of where the owner lived.