Form 706 vs. 709: Differences in Estate and Gift Tax

The Internal Revenue Service (IRS) utilizes two primary forms to monitor taxable transfers of assets and assess any resulting tax obligations. Form 706, the U.S. Estate (and Generation-Skipping Transfer) Tax Return, and Form 709, the U.S. Gift (and Generation-Skipping Transfer) Tax Return, are the documents in this process. While they both relate to transfer taxes, they serve distinct purposes and are triggered by different circumstances.

Understanding Form 706 The Federal Estate Tax Return

Form 706 is filed after an individual’s death to calculate the value of their estate and determine the amount of federal estate tax owed. The responsibility for preparing and filing this return falls to the executor of the decedent’s estate. This individual is tasked with a comprehensive accounting of everything the decedent owned or had an interest in at the time of their death.

A Form 706 is not required for every estate. The requirement to file is based on the value of the decedent’s “gross estate.” For a death occurring in 2025, a return must be filed if the gross estate, combined with certain lifetime taxable gifts, exceeds $13.99 million. This threshold is indexed for inflation and can change from year to year.

The gross estate includes a wide array of assets, valued at their fair market value on the date of death. These assets encompass real estate, cash, stocks, bonds, business interests, and life insurance proceeds. From this gross figure, certain deductions can be subtracted to arrive at the “taxable estate.” Allowable deductions include the decedent’s debts, mortgages, funeral expenses, and bequests to qualified charities. Assets left to a surviving spouse are covered by the unlimited marital deduction.

The deadline for filing Form 706 and paying any associated estate tax is nine months after the date of the decedent’s death. The IRS allows for a six-month extension for filing the return if it is requested by the original due date. This extension provides additional time to file the form, but it does not extend the time to pay the tax.

Understanding Form 709 The Federal Gift Tax Return

Form 709 is used by individuals to report gifts made to others during a calendar year that are subject to the federal gift tax. The responsibility for filing Form 709 and paying any gift tax falls on the donor—the person who makes the gift. The recipient of the gift does not have a filing obligation or tax liability.

The primary trigger for filing Form 709 is the annual gift tax exclusion. For 2025, an individual can give up to $19,000 to any number of people without any gift tax consequences. A Form 709 is required if a donor gives more than this exclusion amount to any single individual in a year. Gifts made directly to a medical or educational institution for tuition or medical expenses do not count toward this annual limit.

When a gift exceeds the annual exclusion, the donor must file Form 709. Married couples have an option known as “gift splitting.” This allows them to combine their individual annual exclusions, enabling them to give up to $38,000 to a single recipient in 2025 without triggering a taxable gift. To take advantage of gift splitting, both spouses must consent, and a Form 709 must be filed to show this election.

The filing deadline for Form 709 is April 15th of the year following the year in which the gift was made. If a taxpayer files for an extension for their income tax return, that extension automatically applies to their Form 709 as well. This pushes the deadline to October 15th.

The Connection Between Lifetime Gifts and the Estate

The federal government links the taxes on lifetime gifts and transfers at death through a unified credit system. This system provides a single exemption amount that can be applied against taxable gifts made during one’s life or against the value of an estate at death. For 2025, this lifetime exemption is $13.99 million per individual. This ensures that an individual’s total tax-free transfers are subject to the same overall limit.

The filing of Form 709 directly affects the amount of exemption available to an estate. When a person makes a taxable gift—that is, a gift exceeding the annual exclusion amount—it must be reported on Form 709. The amount of the taxable gift then reduces the donor’s available lifetime exemption. For instance, if an individual with a $13.99 million exemption makes a taxable gift of $1 million, their remaining lifetime exemption is reduced to $12.99 million.

Each Form 709 filed throughout a person’s life serves as a record, chipping away at their unified credit. When that person dies, the executor of their estate must account for all prior taxable gifts reported on past Form 709s. The total of these lifetime taxable gifts is added back to the gross estate value to calculate the final estate tax, using whatever exemption remains.

For married couples, the concept of “portability,” allows a surviving spouse to use any of their deceased spouse’s unused lifetime exemption, known as the Deceased Spousal Unused Exclusion (DSUE). This election is not automatic; it must be made on a timely filed Form 706 for the deceased spouse’s estate. An estate may need to file Form 706 even if its value is below the filing threshold, simply to secure the DSUE amount for the survivor.

The amount of a deceased spouse’s available DSUE is their full lifetime exemption minus any taxable gifts they reported on Form 709s during their life. By filing Form 706 to claim this unused portion, the surviving spouse can add it to their own exemption. This combined amount can then be used to shelter their own future gifts reported on Form 709 or to reduce the tax on their own estate.