Should You File an Estate Tax Return on the Death of a Spouse?

When a spouse dies, the surviving spouse or personal representative must decide whether to file a federal estate tax return, Form 706. Filing Form 706 may be necessary due to tax thresholds, portability of unused exemptions, and other financial considerations.

Federal Estate Tax Exemption Overview

For 2024, the federal estate tax exemption is $13.61 million per individual. If the total value of an estate exceeds this amount, you must file Form 706 to report and possibly pay estate taxes. The estate’s value includes all assets owned by the deceased, such as real estate, bank accounts, investments, retirement accounts, and personal property.

In 2026, this exemption will change unless Congress acts. The exemption will drop to approximately $6-7 million per person, adjusted for inflation. This lower exemption means more estates will need to file Form 706 and potentially pay taxes.

When You Must File Form 706

  • Estate Value Exceeds the Exemption: You must file Form 706 if your spouse’s estate exceeds the federal exemption limit. This includes all assets owned individually or jointly and any gifts that exceed the annual gift tax exclusion. You can reduce the taxable estate with the unlimited marital deduction (gifts to the surviving spouse) and deductions for gifts to qualified charities.

When Filing Form 706 is a Good Idea

  • Portability of the Unused Exemption: File Form 706 even if your spouse’s estate is below the exemption to take advantage of “portability.” Portability transfers any unused exemption to the surviving spouse, increasing your own estate tax exemption. This strategy can protect against future estate taxes, especially if your estate grows.
  • Complex Assets: Estates with complex assets, like family businesses, closely-held companies, or large investment portfolios, benefit from filing Form 706. Accurate valuations of these assets help determine current and future tax liabilities.

Conclusion

Navigating estate taxes and Form 706 can feel overwhelming, especially during a time of loss. Work with an experienced estate attorney or tax professional to ensure compliance and optimize tax outcomes for the surviving spouse.

The information contained on this website is intended as an overview on subjects related to the practice of law. Each individual case is different, and laws do change, so please be aware that the circumstances and outcomes described may not apply to all cases and should not be interpreted as legal counsel. Please seek the advice of an attorney before making any decision related to legal issues.