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IRS Link to Form — Found Here

The Form 706 is required not only if there is a tax implication for an estate, but also to claim exclusions. Each person has an exclusion of 5.49 Million as of 2017. For married couples, that goes double, such that heirs to an estate under $11 million probably will not owe any estate taxes.

A surviving spouse should still report the inherited portion of the deceased spouse’s estate up to the exclusion amount, otherwise the exclusion will be lost. There are also lines for the lifetime gift exclusion amount and the generation skipping transfer tax.

Estate planning is the practice of seeking to avoid unnecessary taxes on assets transferred to heirs.

When the aggregate value of assets is over the exclusion amounts, they will be taxed at Estate Tax rates, which is 40% in 2016. Form 706 is used to claim the exclusion amount, which is $5.49 million per person, and $10.98 million for married couples.

It is notable that a surviving spouse must file a 706 in a timely manner after a spouse’s death so that the deceased spouse’s exclusion amount can be claimed. Otherwise the surviving spouse would only have their own exclusion amount to work with when transferring asset to heirs.

The 706 also serves to document any Generation-Skipping Transfers (GSTs) which might have been done. The GST exemption is also $5.49 mm, but the tax penalty for transfers to grandchildren over that amount is about 10% higher than the regular estate tax.

Wealthy families should file a 706 if they are remotely close to the exclusion limit.