Federal Estate Tax Return Form 706: When Maryland Executors Must File It

Most executors make the same mistake.

They look at the estate, see it's well below the $15 million federal threshold, and assume Form 706 isn't their problem. They close the estate, distribute assets, and move on. Then the surviving spouse sells the appreciated house or dies a few years later. Someone does the math. That unused exemption from the first death — gone when the executor filed the final accounting. It doesn't come back.

Estate attorneys see this constantly: a widow or widower, still processing the loss, whose family will owe estate tax that was entirely preventable. The fix would have cost legal and accounting fees at the time. The oversight costs multiples of that.

Form 706 isn't just a tax form. For many Maryland estates, it's a decision with consequences that last for decades.

The Bethesda Example — Why This Isn't Abstract

Consider a married couple in Bethesda — combined net worth $9 million: a home, retirement accounts, an investment portfolio. The first spouse dies. Their estate: roughly $4.5 million.

• Federal threshold in 2026: $15 million. No federal tax owed, no required filing.
• Maryland threshold: $5 million. No state tax owed, no required filing.

Nothing to file. Close probate, distribute assets, move on.

But here's what's actually on the table. The deceased spouse had a $15 million federal exemption and used $4.5 million of it. That leaves $10.5 million in unused federal exemption — what the IRS calls the Deceased Spouse's Unused Exemption, or DSUE. They also had Maryland's $5 million state exemption and used none of it.

If the executor does nothing, both the $10.5 million federal DSUE and the full $5 million Maryland DSUE are forfeited permanently. No petition, no appeal, no exception.

If the executor files Form 706 within 5 years and elects portability:

• Federal: surviving spouse's own $15 million + $10.5 million DSUE = $25.5 million combined shield
• Maryland: surviving spouse's own $5 million + $5 million DSUE = $10 million combined shield

The paperwork cost: legal and accounting fees. The difference in protection: potentially millions in avoided estate tax for the next generation.

What Is Form 706?

The United States Estate (and Generation-Skipping Transfer) Tax Return — IRS Form 706 — is filed when a U.S. citizen or resident dies. It inventories everything the decedent owned: real estate, investment accounts, life insurance, retirement accounts, business interests, and more, then calculates whether federal estate tax is owed.

In 2026, the federal threshold is $15 million per individual, permanently elevated — and indexed for inflation — by the One Big Beautiful Bill Act (OBBBA). For most estates, that determines whether filing is legally required.

But "required to file" and "should file" are not the same.

Two Reasons Maryland Executors Still Need to File

Reason 1: Maryland MET-1 Requires a Federal Form 706 as Its Foundation

Maryland has its own estate tax — Form MET-1 — that applies to estates above $5 million. Maryland's $5 million exemption isn't indexed for inflation, which means more estates cross the threshold every year as asset values climb.

The procedural catch: the Comptroller of Maryland requires executors to prepare a federal Form 706 before completing MET-1. Not to file it with the IRS — but because MET-1 receives its values from the federal form. Gross estate figures, deductions for funeral costs and debts, the marital deduction — all flow from 706 to MET-1. You prepare Form 706 as a calculation vehicle, and the state return has nothing accurate to work from without it.

So if the estate is between $5 million and $15 million — above Maryland's threshold, below the federal one — you owe Maryland estate tax, no federal tax, and still need to work through Form 706 to complete MET-1.

This catches executors off guard. They see "no federal tax due" and assume the federal form is irrelevant. It isn't.

If you're settling a Maryland estate and need to confirm whether MET-1 applies, the Maryland estate tax guide has the current rate tables, exemption thresholds, and MET-1 overview in one place.

Reason 2: Portability — The Exemption That Expires If You Don't Act

To elect portability and transfer the deceased spouse's unused exemption to the survivor, the executor must affirmatively file Form 706 and make the election. The IRS won't prompt you. There's no default. No safety net.

If the estate owed zero federal tax and the executor never filed, the portability opportunity closes. The surviving spouse is left with only their own $15 million federal exemption and their own $5 million Maryland exemption — not the combined shields described above. If that estate has grown significantly by the second death, the difference is real money.

This is the version of Form 706 that matters even when the estate owes nothing.

If you're settling a Maryland estate and need to evaluate whether a portability filing makes sense, the Maryland Estate Tax Toolkit has an executor portability checklist as its starting point.

The Portability Deadline — and the 5-Year Window

Standard rule: Form 706 is due 9 months from the date of death. A 6-month extension is available by filing Form 4768 before the original deadline — but any estimated tax owed must still be paid with the extension request. The extension buys filing time, not payment time.

For estates not otherwise required to file, IRS Revenue Procedure 2022-32 created a rare second chance: a 5-year window from the date of death to file a late Form 706 solely to elect portability. The IRS acknowledged that executors were losing exemptions through ignorance rather than intent and created a more forgiving path. The filing still requires certain representations, but executors no longer need to justify the delay.

There's something genuinely odd about a system that requires families to file a form they don't owe tax on, for rights that expire silently, during the worst year of their lives. Rev. Proc. 2022-32 was the IRS acknowledging that. The mulligan doesn't last forever.

Maryland Portability: Same Logic, Same Deadline

Maryland mirrors the federal structure. To elect state portability and capture the deceased spouse's unused $5 million Maryland exemption, the estate must file Form MET-1 even if no tax is due.

Maryland allows up to 5 years from death for portability-only MET-1 filings. The two elections can run simultaneously: file 706 for the federal DSUE and MET-1 for the state DSUE, both within the same 5-year window.

What's on Form 706

Form 706 organizes the estate into lettered schedules:

• Schedule A — Real estate
• Schedule B — Stocks, bonds, mutual funds — valued at date of death
• Schedule C — Mortgages, notes receivable, cash accounts
• Schedule D — Life insurance owned by the decedent (policies held in an irrevocable trust or owned by the beneficiary are excluded)
• Schedule E — Jointly owned property
• Schedule F — Miscellaneous assets: retirement accounts (IRAs, 401(k)s, pensions), vehicles, artwork, receivables, business interests — retirement accounts go here, not under Schedule B
• Schedule G — Certain lifetime transfers (gifts within 3 years of death, retained interests) — this one surprises executors most often
• Schedule H — Powers of appointment

Federal employees, state employees, and military retirees — common in Maryland — often carry significant retirement balances. These go on Schedule F and require separate valuation attention; if the estate includes a substantial 401(k), pension, or IRA, a tax professional's guidance here pays for itself.

One note on the marital deduction: assets passing outright to a surviving spouse qualify for the unlimited marital deduction, reducing the taxable estate to zero. This is beneficial — but it also means the DSUE may be smaller than expected if the estate was heavily marital-deduction-dependent. Executors should understand why the DSUE calculation works the way it does before filing.

For a portability-only filing, all schedules must still be completed accurately — the IRS uses the 706 to set the DSUE amount.

Key Deadlines at a Glance

Where to start: confirm the date of death and gross estate value. That determines which thresholds apply and whether MET-1 is required or only optionally beneficial.

The Decision an Executor Shouldn't Skip

Filing Form 706 for a below-threshold estate isn't busywork. It's a choice with long-term consequences for the surviving spouse's estate plan.

The question every executor should ask before closing: "What happens to the DSUE if I don't file?" The surviving spouse lives with this decision for decades — they deserve to understand the choice being made on their behalf.

If they have significant assets — real property, retirement savings, life insurance, or business interests — the DSUE matters. Given how much the DSUE calculation turns on professional judgment, especially for estates with retirement assets or complex marital deduction planning, this is one call worth making with a qualified estate attorney or CPA.

The 5-year window is forgiving. But it closes, and when it does, the protection is gone permanently.

The Maryland Estate Tax Toolkit starts with an executor portability checklist — the yes/no questions that determine whether a 706 filing is worth pursuing — along with a Form 706 preparation walkthrough and step-by-step MET-1 guidance.

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