The short answer is: You must file a federal estate tax return if the value of your loved one’s estate exceeds the federal exemption threshold. However, even if the estate does not meet that requirement, there may be strategic reasons to file anyway, such as preserving unused exemption benefits for a surviving spouse. Understanding when and why a federal estate tax return is necessary can help you avoid costly mistakes and ensure your family’s financial interests are protected.
At Kavesh, Minor & Otis, our California trust and estate administration lawyers frequently hear this question from clients who have recently lost a loved one. The rules are complicated, the paperwork is extensive, and the consequences of not filing when required can be significant. Below, we explain the basics of the federal estate tax return, when it must be filed, and why families sometimes choose to file even when not strictly required.
What Is a Federal Estate Tax Return?
A federal estate tax return, formally known as IRS Form 706, is a document used to report the total value of a deceased person’s estate to the Internal Revenue Service (IRS). It determines whether any federal estate tax is owed. While not every estate needs to file this form, the IRS requires it when the gross estate plus certain lifetime gifts exceed the federal exemption amount in the year of death.
The estate tax is different from income tax. While a final income tax return must be filed for every decedent, the estate tax return applies only to estates of a certain size or in special circumstances. Filing can be both a compliance obligation and a strategic planning tool.
The Federal Estate Tax Exemption Threshold
The most important factor in deciding whether to file is the federal estate tax exemption. This exemption amount shields a portion of the estate’s value from taxation. Only the amount above the exemption is subject to federal estate tax.
- For deaths in 2025, the federal estate tax exemption is $13.61 million per individual. This means that if the gross estate, plus any taxable gifts made during life, exceeds this amount, the estate must file a federal estate tax return.
- Married couples may potentially shield double this amount, though proper filing and elections are required.
It is worth noting that the exemption amount has changed significantly over time and may change again in the future. For example, current law schedules the exemption to decrease by roughly half in 2026 unless Congress acts to extend it. This uncertainty makes it especially important to review the specific numbers that apply at the time of a loved one’s passing.
When Filing Is Mandatory
An estate is required to file a federal estate tax return if:
- The gross estate plus prior taxable gifts exceeds the exemption amount for the year of death
- The estate has certain types of property, such as large life insurance policies owned by the decedent, that push the value over the threshold
- The decedent had assets located outside the United States and was a U.S. citizen or resident, as worldwide assets are counted
In these situations, failure to file can result in IRS penalties, interest, and a loss of important tax elections.
Why File Even If It’s Not Required?
Even if the estate does not reach the exemption threshold, there may still be good reasons to file Form 706. One of the most significant is to preserve what is known as “portability.”
- Portability. This is a tax benefit that allows the unused portion of a deceased spouse’s estate tax exemption to be transferred to the surviving spouse. Known as the Deceased Spousal Unused Exclusion (DSUE), it can substantially reduce or even eliminate estate taxes for the surviving spouse’s estate later on. However, portability is only available if a timely federal estate tax return is filed.
- Protecting against future law changes. Since the exemption amount is scheduled to decrease in 2026, filing now may preserve tax benefits that would otherwise be lost if the law changes. What seems like an unnecessary step today could result in significant savings down the road.
- Ensuring accurate valuations. Filing requires a detailed appraisal and reporting of the estate’s assets. This process can help establish fair market values for tax and legal purposes, preventing disputes among beneficiaries or with the IRS in the future.
Providing peace of mind. Some families choose to file simply to create a clear record with the IRS. Even if no tax is owed, the return can serve as proof that the estate’s obligations were handled properly.
Deadlines and Extensions
The federal estate tax return must generally be filed within nine months of the date of death. If additional time is needed, the executor may request a six-month extension by filing IRS Form 4768 before the original deadline expires. It is important to note that an extension of time to file does not extend the time to pay any taxes owed, so payment must still be made within the nine-month window.
Failing to meet the filing deadline can result in penalties and the loss of important elections, such as portability. Executors should be proactive about this timeline, especially since collecting valuations and documentation can take several months.
What Information Is Required for Filing?
Filing Form 706 is not a simple process. It requires extensive documentation and accurate reporting of all estate assets and debts. Some examples include:
- Real estate. Appraisals of any homes, land, or commercial property owned by the decedent.
- Bank and investment accounts. Balances at the date of death, along with supporting statements.
- Retirement accounts and life insurance. Values and beneficiary designations.
- Personal property. Valuations of jewelry, art, vehicles, and other tangible assets.
- Business interests. Appraisals of closely held companies or partnerships.
The executor must also provide information about the decedent’s lifetime gifts, debts, funeral expenses, and any charitable contributions.
Because the form is lengthy and technical, many families choose to work with an experienced California trust and estate administration lawyer, often in coordination with a tax professional, to ensure accuracy and compliance.
Common Challenges in Filing a Federal Estate Tax Return
Even when an estate appears straightforward, challenges can arise during the process:
- Valuation disputes. Determining the fair market value of unique assets such as real estate, collectibles, or business interests can be complex. If the IRS disagrees with the reported value, it may issue an adjustment or audit.
- Deadlines. Executors often underestimate the amount of time needed to gather documents and arrange appraisals. Missing the nine-month deadline can have lasting consequences.
- Coordination with state requirements. While California does not impose its own estate tax, other states may. Families with property in multiple jurisdictions may face additional filing obligations.
- Portability elections. Mistakes in completing the required sections of Form 706 can prevent the surviving spouse from using the DSUE later.
These challenges underscore why professional guidance can be essential.
The Role of a California Trust and Estate Administration Lawyer
Losing a loved one is already overwhelming, and handling complex IRS requirements only adds to the stress. A California trust and estate administration lawyer can assist with:
- Evaluating whether a federal estate tax return is required
- Advising whether filing is beneficial even if not mandatory
- Coordinating with appraisers and tax professionals to prepare the return
- Ensuring deadlines are met to avoid penalties
- Preserving portability benefits for a surviving spouse
Perhaps most importantly, having legal support provides reassurance that the estate is being handled correctly and that no opportunities or obligations are overlooked.
Deciding whether to file a federal estate tax return is not always straightforward. The primary rule is clear: if the estate exceeds the exemption threshold, filing is mandatory. But even when not required, filing may offer long-term advantages such as portability, accurate asset valuations, and peace of mind. Because the rules are detailed and mistakes can be costly, many families choose to work with a qualified California trust and estate administration lawyer for guidance.
If you are serving as an executor or trustee, you do not have to navigate this process alone. Professional assistance can help you understand your obligations, protect your loved one’s legacy, and make informed decisions during a difficult time.
