After property included in the gross estate is identified and valued, the Form 706 process applies reductions for obligations that legally diminish the estate’s taxable value. These reductions reflect the estate tax system’s recognition that debts of the decedent and certain administration expenses represent claims against the estate rather than transferable wealth.
Why debts and expenses are applied after asset valuation
The estate tax system first establishes the gross estate to ensure that all includible property is identified under uniform rules. Only after this baseline is set does the system reduce the estate by allowable obligations. This sequence preserves consistency in valuation and prevents selective netting of assets and liabilities.
The official structure and statutory role of Form 706 and its schedules are described on the IRS Form 706 document page.
Debts of the decedent
Debts that existed at the time of death may reduce the taxable estate when they represent enforceable claims against the decedent. These include personal liabilities, outstanding obligations, and certain claims that the estate is legally required to satisfy. The estate tax system evaluates whether such debts are bona fide and properly deductible before allowing them as reductions.
Claims that are contingent, disputed, or subject to later resolution are handled through specific procedural mechanisms within the Form 706 framework.
Administration expenses and losses
Expenses incurred in administering the estate may also reduce the taxable estate when they are directly connected to settling the decedent’s affairs. These expenses are recognized because they diminish the value ultimately available for transfer. Certain losses occurring during estate administration may also be taken into account under defined conditions.
Whether and when these expenses are deductible depends on how the system evaluates timing, payment, and finality.
Interaction with other stages of the filing process
Reductions for debts and expenses are integrated into the Form 706 process after asset inclusion but before final tax calculation. They influence the net estate value that is then tested against deduction provisions, exclusions, and tax rates.
The way these reductions fit into the broader filing sequence is explained in how the Form 706 filing process works.
Continuing effects and later adjustments
Some obligations or expenses are not fully resolved at the time of filing and may affect the estate after Form 706 is submitted. The estate tax system provides structured methods for addressing these situations without reopening the entire valuation process.
Situations involving later changes or corrections are addressed in amending a previously filed Form 706, while the overall context for all related scenarios is available in the Form 706 overview.