If you are the executor of a decedent’s estate, you might be required to file a federal estate tax return. This filing is made on Form 706, which can be obtained directly from the IRS.

For decedents who died in 2023, Form 706 must be filed by the executor of the estate of every U.S. citizen or resident:

1. Whose gross estate, plus adjusted taxable gifts and specific exemption, is more than $12,920,000; or
2. Whose executor elects to transfer the deceased spousal unused exclusion (DSUE) amount to the surviving spouse, regardless of the size of the decedent’s gross estate.

To determine whether you must file a return for the estate under (a) above, add:

1. The adjusted taxable gifts (as defined in section 2503) made by the decedent after December 31, 1976;
2. The total specific exemption allowed under section 2521 (as in effect before its repeal by the Tax Reform Act of 1976) for gifts made by the decedent after September 8, 1976; and
3. The decedent’s gross estate valued as of the date of death.

Calculating the Gross Estate for the Estate Tax Return

The gross estate includes all property in which the decedent had an interest (including property outside the United States). It also includes:

• Business interests including interests in closely-held companies,
• Certain transfers made during the decedent’s life without an adequate and full consideration in money or money’s worth,
• Annuities and IRAs,
• The includible portion of joint estates with right of survivorship,
• The includible portion of tenancies by the entirety,
• Certain life insurance proceeds (even though payable to beneficiaries other than the estate),
• Digital assets,
• Intellectual property,
• Property over which the decedent possessed a general power of appointment.

Adjusted Taxable Gifts and the Estate Tax Return

When preparing a federal estate tax return, you must include adjusted taxable gifts. Section 2503 of the Internal Revenue Code (IRC) deals with the federal gift tax. Under this section, certain gifts are subject to gift tax, but there are also exclusions and exemptions that can adjust the taxable amount. Here’s an explanation with examples for gifts made to a spouse, children, and other relatives.

Key Taxable Gift Concepts

Annual Exclusion

Each year, you can give a certain amount to any number of individuals without those gifts counting against your lifetime exemption. For 2024, the annual exclusion amount is $18,000 per recipient. This is the maximum amount you can give away per person this year without being required to report the gift on a federal gift tax return (Form 709). However, there are many situations where you still might want to report the gift.

Marital Deduction

Gifts to a spouse who is a U.S. citizen are generally not subject to gift tax because of the unlimited marital deduction.

Lifetime Exemption

In addition to the annual exclusion, there’s a lifetime exemption amount, which is $12.92 million per individual for 2023 and $13.61 million per individual for 2024. This is the total amount you can give away (during your lifetime or at death) before gift or estate taxes apply. Note that most gifts to a spouse do not count against your lifetime exemption.

Taxable Gifts

Gifts exceeding the annual exclusion and not covered by the lifetime exemption are considered taxable.

Examples

Example 1. Gift to Spouse. Suppose you give your spouse $50,000 in 2024, what result?

• Annual Exclusion: Doesn’t apply here because of the unlimited marital deduction
• Marital Deduction: The entire $50,000 gift is covered by the marital deduction.
• Taxable Gift: None. The gift is fully deductible.

Example 2. Gift to Child. Suppose you give your child $20,000 in 2024, what result?

• Annual Exclusion: $18,000 is excluded.
• Excess Amount: $2,000 ($20,000 – $18,000) is considered a taxable gift.
• Lifetime Exemption: The $2,000 reduces your lifetime exemption and must be reported on a federal gift tax return for the year

Example 3. Gift to Sibling. Suppose you lend your brother $30,000 in 2024 and then you forgive the debt.

• Annual Exclusion: $18,000 is excluded. The debt forgiveness is a gift.
• Excess Amount: $12,000 ($30,000 – $18,000) is considered a taxable gift and must be reported to the IRS on Form 709.
• Lifetime Exemption: The $12,000 reduces your lifetime exemption. If you have plenty of exemption left, no tax will be due.

When to File

You must file Form 706 to report estate and/or GST tax within 9 months after the date of the decedent’s death. If you are unable to file Form 706 by the due date, you may receive an extension of time to file. Use Form 4768, Application for Extension of Time To File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes, to apply for an automatic 6-month extension of time to file.

Portability Election

An executor can only elect to transfer the DSUE amount to the surviving spouse if the Form 706 is filed timely, that is, within 9 months of the decedent’s date of death or, if you have received an extension of time to file, before the 6-month extension period ends.

Extension to Elect Portability

Executors who did not have a filing requirement under section 6018(a) but failed to timely file Form 706 to make the portability election may be eligible for an extension under Rev. Proc. 2022-32, 2022-30 I.R.B. 101 (superseding Rev. Proc. 2017-34, 2017-26 I.R.B. 1282). Executors filing to elect portability may now file Form 706 on or before the fifth anniversary of the decedent’s death.
An executor wishing to elect portability under this extension must state at the top of the Form 706 being filed that the return is “Filed Pursuant to Rev. Proc. 2022-32 to Elect Portability under section 2010(c)(5)(A).”

Note. Any estate that is filing an estate tax return only to elect portability and did not file timely or within the extension provided in Rev. Proc. 2022-32 may seek relief under Regulations section 301.9100-3 to make the portability election.

Conclusion

Don’t wait. If you are dealing with an estate where a federal estate tax filing might be necessary, contact an experienced tax attorney to help you through the process.