IRS Form 706: Who must file it and related forms...

What is Form 706: U.S. Inheritance Tax (and Generation Skipping Transfer Tax) Declaration?

Form 706: U.S. Inheritance (and Generation-Skipping Transfer Tax) Declaration is a document used by the executor of a decedent's estate to calculate inheritance tax under Title 11 of the U.S. Internal Revenue Code (IRC). The tax is levied on the total taxable amount of the inheritance, not just the share received by a particular heir. Executors also use Form 706 to calculate the generation-skipping transfer tax (GST) imposed under section 13 of the Internal Revenue Code (IRC).

Highlights

Form 706 is used by the executor of a decedent's estate to calculate the inheritance tax under section 11 of the Internal Revenue Code (IRC) and to calculate the generation-skipping transfer tax (GST) imposed under section 13 of the IRC. Form 706 must be filed on behalf of a deceased U.S. citizen or resident whose gross taxable income, adjusted taxable gifts, and specific exemptions exceed $12.92 million in 2023 (adjusted to $13.61 million in 2024).

Form 706-GS(D)

Form 706-GS(D) is used to calculate taxes payable on distributions of trust funds subject to the generation-skipping transfer tax (GSTT).

Who can file Form 706?

Form 706 must be filed by the executor of the estate of each U.S. citizen or resident:

• Their gross taxable income, adjusted taxable gifts, and specific exemptions exceed the exclusion limit: $12.92 million for decedents dying in 2023 ($13.61 million in 2024), or

• Whose executor elects to transfer the "deceased spouse's nonapplicable residual exclusion" (DSUE) to the surviving spouse, regardless of the amount of the decedent's gross taxable income.

T To determine whether an inheritance exceeds the exclusion limit, add together the following amounts 1, 2, and 3:

2. T Adjusted taxable gifts made by the decedent after December 31, 1976,

3. TGeneral specific exemption provided by section 2521 (to theAny generation skipping transferor who receives a taxable distribution from a trust must use Form 706-GS(D) to calculate and pay the tax.

   Generation Skipping Transfer Tax (GSTT)

   Generation Skipping Transfer Tax (GSTT) is the transfer of money or property, whether an inheritance or a gift, to someone two or more generations below the settlor. A person who receives an inheritance or gift is called a "skip person." While the omitted person is often the grandchild, it can be anyone who is at least 37.5 years younger than the founder. The NPPT is levied on gifts and legacies that the omitted person receives. This ensures that taxes are paid on every generation. The NPSTP has the same lifetime exemption amount as federal inheritance and gift taxes - $12.92 million in 2023 ($13.61 million in 2024).

   Trustees must report taxable distributions to the skip using Form 706-GS(D-1), Notice of Distribution from a Generation-Skipping Trust. Note that trustees must also provide the omitted person with the information needed to calculate the distribution tax.

   Where to send Form 706?

   You must file a paper Form 706 for inheritance or NPPP reporting within nine months of the decedent's death. If you are unable to file Form 706 by the due date, you may apply for an automatic six-month extension of time using Form 4768, Application for Extension of Time to File a Return and/or Pay U.S., Inheritance, and Generation-Skipping Transfer Taxes.