How to Complete Parts 1 and 2 of Estate Form 706
If the estate you’re administering requires a 706 for any reason, you must complete the first four pages, together with all the other schedules needed to report your decedent’s assets, deductions, exclusions, and credits.
Part 1: Decedent and Executor
On the face of the Form 706, fill in the decedent’s name, address, Social Security number, year domicile (residence) was established in the decedent’s state of residence, date of birth, and date of death. On line 6a, list the executor you want contacted by the IRS; list any additional executors on an attached sheet as an exhibit and refer to it here. The rest of Part 1 is fairly self-explanatory.
Part 2: Tax Computation
Now you get to start with some numbers, or so you may think. But wait — although this section is on the first page of the return, you really can’t do anything with it until you’ve completed everything else. So if you’re just beginning, skip ahead to Part 3. If you’ve completed all the other schedules and parts and are now ready to put this baby to bed, read on.
On lines 1–20, enter the figures indicated to arrive at the total transfer taxes due, if any.
Line 3: The state death tax deduction referred to on line 3b is available if estate, inheritance, succession, or legacy taxes are paid to any state or the District of Columbia as a result of the decedent’s death.
Line 4: Enter adjusted taxable gifts. If the gifts are includible in the decedent’s estate, you’ve included them in the number in line 1. Use the Line 4 Worksheet TG — Taxable Gifts Reconciliation on page 6 of the Instructions.
You need the decedent’s 709s to complete the worksheet. Keep in mind that, besides any gifts reported on 709s, you must include any taxable gifts from prior years that you’re aware of that weren’t reported on 709s but should have been.
To the extent that you come across gifts from earlier years in the decedent’s papers that weren’t reported, keep a tally year by year to see whether they’re taxable. The annual exclusion amount has changed over the years, so you need to look on the instructions for that particular year’s 709; you can download it from the IRS or call the IRS forms line at 800-829-3676.
Line 7: Enter the total gift tax paid or payable by the decedent on gifts he or she made after December 31, 1976. Include gift taxes paid by the decedent’s spouse for that spouse’s share of split gifts only if the decedent was the donor of the gifts and they are includible in the decedent’s gross estate.
Use the Line 7 Worksheet — Gift Tax on Gifts Made After 1976 on page 7 of the Instructions. Page 8 of the Instructions discusses split gifts further.
Line 9b: If the decedent had a spouse who died on or after January 1, 2011, enter the deceased spousal unused exclusion (DSUE), if any, from Section D, Part 6-Portability of Deceased Spousal Unused Exclusion. See Part 6: Portability of Deceased Spousal Unused Exclusion (DSUE).
Line 10: Enter adjustments, if any, to the applicable credit amount. You have adjustments only if the decedent made gifts after September 8, 1976, and before January 1, 1977, for which he or she claimed a specific exemption. If so, the unified credit (applicable credit) on the estate tax return is reduced. Compute the reduction by entering 20 percent of the specific exemption that was claimed for these gifts.
Line 13: Enter any credit for foreign death taxes from Schedule P and attach Form(s) 706-CE.
Line 15: Add lines 13 and 14 to arrive at the total credits. In addition to using line 15 to report the totals of line 13, credit for foreign death taxes, and line 14, credit for tax on prior transfers, you may also use it to take a credit for pre-1977 federal gift taxes under a formula laid out on page 9 of the Instructions.
If you do so, be sure to identify the credit and make a note on the dotted line to the left of the entry, noting it as an IRC Section 2012 credit.
(You may refer to the regulations under IRC Section 2012 for more information, but you may also want to see your tax advisor at this juncture!) Also complete and attach Form 4808, Computation of Credit for Gift Tax.
You may also use line 15 to claim the Canadian marital credit. When doing so, enter the credit on line 15 and make a note on the dotted line to the left of the entry, noting it as a Canadian marital credit. Also attach a statement as an exhibit to the return referring to the treaty, waiving qualified domestic trust (QDOT) rights, and showing the computation of the credit.
You can see the Canadian income tax treaty protocol for details on computing the credit, and by this point, you’re probably also visiting your tax advisor.
Assuming you’ve done all the math to arrive at line 20, you’ve now completed the 706, which is no small accomplishment. Congratulations!
Signature of executor(s)
Consider the wisdom of having all executor(s) or administrator(s) sign and date the return at the bottom of page 1, although only one signature is required. If none exist, the person(s) holding assets who is/are filing the return, such as the trustee(s) of a trust, sign.
Signature of preparer other than the executor
If you paid someone else to prepare Form 706, she signs the return here and completes it in accordance with the Instructions.