Trust and Estate Planning Guide

Trust and Estate Planning Guide

May 10, 2024

Effectively navigating your personal tax and private wealth strategies and other complexities of your affairs while you’re still alive is essential to safeguard your legacy. And it’s never too late (or too early) to start or strengthen your estate plan.

Table of Contents

What Should I Do Before I Die

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Harness IRS Form 706 to Provide a Clear Path

If you have a substantial estate, IRS Form 706 is crucial to your planning. It serves as a gatekeeper to make sure your hard-earned assets are properly accounted for and protected.

Though Form 706 would typically be filed by your loved ones after your death, ignoring the form’s intricacies now could be a costly mistake. With the looming reduction in lifetime estate and gift tax exemption thresholds slated for 2026, taking the time today to understand Form 706 can help you avoid leaving your family burdened with unexpected financial liabilities or missed savings opportunities.

By delving into the details now, you’ll get the relief of knowing that you’ve maximized your exemption limits and explored every possible tax-saving opportunity — all while laying the foundation for a comprehensive, airtight estate plan that preserves your legacy, provides a smooth transition for your loved ones and withstands the test of time.

Here’s a breakdown of what you need to know about Form 706 and how you can use it to help you and your loved ones prepare your estate.

Understanding IRS Form 706

Officially known as the United States Estate (and Generation-Skipping Transfer) Tax Return, Form 706 provides a comprehensive overview of an estate’s financial status and reports the value of the deceased person’s estate at the time of their death. Filing this form is necessary to accurately determine the estate’s worth and calculate any estate tax liabilities that may be owed — and is often a requirement under federal estate tax rules.

There are two types of Form 706 returns: the required Form 706 and the portability Form 706.

  • Your executor or personal representative must file the required Form 706 if your estate’s gross assets, including lifetime gifts, exceed a specific threshold. In 2024, the required threshold is $13.61 million.
  • The portability Form 706 filing allows your surviving spouse to carry over the unused portion of your estate tax exemption after your death. If you didn’t exhaust all your exemption, your spouse can add it to their own exemption and potentially reduce estate taxes for their beneficiaries. While filing Form 706 for portability is optional, it can be beneficial for tax planning purposes, acting as a sort of insurance policy to cover estate taxes and give your surviving spouse peace of mind.

Who should prepare Form 706?

Your executor or personal representative is responsible for filing Form 706. Generally, this task is handled by your accountant or family attorney, depending on their capabilities and the specific estate needs. The important takeaway is to assign someone with specific experience preparing returns like the 706 rather than professionals whose background is in income tax filings.

When is the filing deadline?

The filing deadline for Form 706 is usually nine months following the individual’s death. If filers need more time, they can request a six-month extension using IRS Form 4768.

Why is it so important to consider Form 706 now?

Though Form 706 is filed after death, considering it now can significantly influence your estate planning approach. Being proactive allows you and your loved ones to better preserve wealth, avoid missed opportunities and minimize potential tax burdens.

Beginning January 1, 2026, the current lifetime estate and gift tax exemption will be cut roughly in half and revert to 2017 levels, adjusted for inflation. Given this pending change, you and your family need to think about how you can safeguard your wealth through your estate planning today.

Don’t wait to have estate planning discussions with your family and advisors. By making these preparations ahead of time and keeping the conversation open, you can avoid the upcoming challenges with tax law changes, spare your loved ones from unwelcome estate tax surprises and protect your legacy.

How can Form 706 help you prepare your estate?

Form 706 plays several crucial roles in your estate planning.

Defend your estate against IRS scrutiny

Form 706 keeps your estate compliant with IRS regulations. This is especially important because of the high audit rates and regulatory scrutiny associated with this filing. According to recent IRS data, the overall audit rate for Form 706 is about 7%, compared to a typical income tax return audit rate of around 1%. Twenty-two percent of estates larger than $10 million get audited, and estates greater than $100 million get audited about 50% of the time.

Track your estate’s inventory

Use Form 706 to catalog your assets, liabilities and lifetime gifts, including real estate, investments, business interests and personal property. This form helps determine whether your estate is subject to federal estate tax and, if so, the potential liabilities. Anticipating these challenges now helps you strengthen your estate planning strategy and pave a clear path forward for your heirs.

Discover tax-saving strategies

Form 706 can also serve as a blueprint for proactive tax planning. High-net-worth individuals can strategically minimize estate tax liabilities by taking advantage of exemptions such as the unified credit, marital deduction, charitable deductions and intentionally defective grantor trusts (IDGTs).

  • Unified credit. The unified credit provides a set amount that can offset estate tax liabilities.
  • Marital deduction. The marital deduction effectively allows the estate to transfer tax free to your surviving spouse. The estate can also elect to allow your surviving spouse to use any remaining estate tax exemption by filing the portability Form 706.
  • Charitable donations. If you’re charitably inclined, you can make donations during your lifetime or designate them upon your death. This can result in an estate tax deduction or moving assets out of the taxable state for an income tax deduction. One method is to execute a qualified charitable distribution from an IRA, which allows the assets to be moved to charitable entities. Note that the once popular “stretch IRA” option for most beneficiaries has been phased out by the SECURE Act and SECURE 2.0. So, passing the IRA assets to charity is more tax efficient than donating cash or securities.
  • Intentionally defective grantor trusts. IDGTs allow you to make a gift that uses exemption for income tax purposes but is still taxed to the person who created the trust, essentially facilitating the transfer of assets without forcing you to give up certain tax benefits.
  • Qualified disclaimers. A qualified disclaimer can be used to efficiently transfer your assets by allowing assets to pass to heirs without being subject to income tax. It must executed within nine months of death.
  • Provide full visibility into your assets

    A complete view of your assets is essential to properly file Form 706 and stay on top of your estate plan. To prepare to file Form 706, your executor or personal representative must compile comprehensive documentation of your estate’s assets and liabilities. This typically includes individually owned property, jointly owned property, revocable living trusts, life insurance and community property. This organized record not only facilitates estate tax compliance but also simplifies the settlement of the estate for heirs and executors by providing a clear overview of your financial affairs.

    Address the generation-skipping transfer tax

    The generation-skipping transfer tax (GSTT) is a federal tax applied to transfers of assets to beneficiaries who are more than one generation below the donor. Typically, this would mean an inheritance you’re leaving to your grandchildren. Because the tax is designed to prevent individuals from bypassing estate taxes by transferring assets directly to grandchildren or others two or more generations below them, GSTTs have intricate rules regarding exemptions and allocations. It takes careful planning to navigate them effectively to keep your wealth transfer strategies aligned with your estate planning goals.

    Where to start your Form 706 preparation

    To begin preparing for a Form 706 filing, conduct a “state of your estate” analysis.

    • Document the details of your current estate plan.
    • Identify your goals and motivations for what to do with your estate after you die.
    • Compile a list of your assets and liabilities so everything is in one place.
    • Communicate your plans with loved ones and trusted advisors.

    Evaluating your estate early, and keeping your advisors and loved ones informed as changes occur, helps you identify potential issues and get maximum value from your estate planning.

    Smooth Your Estate Planning Journey

    Hard-to-value assets, complex tax laws, the inherent difficulty of thinking about your demise… Challenges like these can make estate planning feel overwhelming at any age. The good news is that you don’t have to handle it alone. And it’s never too late (or too early) to start or fine-tune your plan. Find out how our compassionate trust and estate planning tax consultants can help you create a personalized estate strategy that builds and preserves your legacy.


    Help Your Loved Ones Secure Your Legacy

    Looking for a caring resource to help loved ones close out your final affairs? Download our What to Do When I Die checklist and documents toolkit.