IRS Form 706 (Schedule H) – In the complex world of estate planning and taxation, IRS Form 706 plays a pivotal role for estates exceeding certain thresholds. Specifically, Schedule H of Form 706 addresses powers of appointment, a key element in determining what assets are includible in a decedent’s gross estate. This guide breaks down everything you need to know about IRS Form 706 Schedule H, including its purpose, when it’s required, and step-by-step instructions for completion. Whether you’re an executor, tax professional, or beneficiary navigating estate taxes, understanding powers of appointment can help ensure compliance and potentially minimize tax liabilities.
What Is IRS Form 706 Schedule H?
IRS Form 706, known as the United States Estate (and Generation-Skipping Transfer) Tax Return, is filed for decedents whose gross estate exceeds the basic exclusion amount (set at $13,990,000 for deaths in 2025, subject to annual adjustments). Schedule H specifically reports property over which the decedent held a general power of appointment at the time of death. Under Internal Revenue Code (IRC) section 2041, such property is included in the gross estate, even if the power was not exercised, released, or had lapsed.
A general power of appointment allows the decedent to direct property to themselves, their estate, creditors, or the creditors of their estate without needing consent from others. This could stem from instruments like wills, trusts, or deeds. Importantly, it includes “5 and 5 lapsing” powers under section 2041(b)(2), where lapsed powers are treated as releases if they exceed the greater of $5,000 or 5% of the asset’s value. However, powers limited by an ascertainable standard (e.g., for health, education, support, or maintenance) or those requiring consent from someone with a substantial adverse interest are typically excluded.
The schedule ensures that these powers are properly valued and reported, contributing to the overall estate tax calculation on Form 706, Part V, line 9.
When Do You Need to Complete Schedule H?
You must complete and attach Schedule H to Form 706 if the decedent possessed, exercised, or released a general power of appointment that makes property includible in the gross estate. This is triggered by answering “Yes” to line 14 in Part IV of Form 706: “Did the decedent ever possess, exercise, or release any general power of appointment?”
Key scenarios include:
- The decedent held the power at death, regardless of exercise.
- The power was exercised or released before death in a way that treats it as a taxable transfer (e.g., retaining a life estate or revocable control).
- For estates electing alternate valuation under section 2032 or special use valuation under 2032A, Schedule H must still be filed if applicable.
If the gross estate plus adjusted taxable gifts is below the basic exclusion amount and the form is filed solely for portability of the deceased spousal unused exclusion (DSUE) amount, you may estimate values for certain assets without full details, but still identify the property on Schedule H. If no general powers exist, simply enter zero on Part V, line 9, and you may not need to attach the schedule unless to support the zero value.
Step-by-Step Guide: How to Fill Out IRS Form 706 Schedule H
Filling out Schedule H requires careful attention to detail. Start by entering the decedent’s name and Social Security Number as they appear on Form 706. If you’ve elected alternate valuation on Form 706, Part III, line 1, complete both the “Alternate value” and “Value at date of death” columns; otherwise, use only the date-of-death value.
Here’s a breakdown of the main sections:
Line 1: Property Subject to General Power of Appointment
List all property over which the decedent had a general power. Use the following columns:
| Column | Description | Tips |
|---|---|---|
| (i) Item Number | Sequential numbering for each entry. | Start from 1 and continue if using additional sheets. |
| (ii) Description | Detailed description of the property (e.g., “Trust under will dated MM/DD/YYYY” or “Residence at [address]”). Include type, location, and identifiers. | Separate principal and income if relevant; note any dispositions within 6 months for alternate valuation. |
| (iii) Alternate Valuation Date | Date six months after death (or sale date if earlier). | Only if alternate valuation is elected. |
| (iv) Alternate Value | Fair market value on the alternate date. | Round to the nearest whole dollar. |
| (v) Value at Date of Death | Fair market value as of the decedent’s death. | Based on IRC sections 2031 and 2041. |
If space is insufficient, use Schedule W (Form 706) or additional statements and reference them.
Lines 2-4: Totals
- Line 2: Sum the values from column (iv) or (v), depending on valuation method.
- Line 3: Add totals from any attached Schedule W or statements.
- Line 4: Grand total (lines 2 + 3). Transfer this to Form 706, Part V, line 8 (note: instructions may reference item 8 or 9; confirm with current form).
For partial powers (e.g., exercisable only with others), include only the decedent’s proportionate share. Values should align with other schedules, such as Schedule F for trusts.
Required Attachments for Schedule H
To support your entries:
- Attach certified copies of the instrument creating the power (e.g., will, trust agreement).
- Include copies of any exercise or release documents, even if you contest the power’s generality.
- Label attachments as “Exhibit to Schedule H.”
- For foreign property or complex trusts, provide additional certifications.
Failure to attach these can delay processing or trigger audits.
Special Rules and Exceptions for Powers of Appointment
- Exclusions: Property isn’t includible if the power was fully released without retained interest, or if it’s not a general power (e.g., limited standards or adverse interests).
- Lapsed Powers: Only include if exceeding the 5/5 threshold.
- Chained Powers: If a power is exercised to create another, the creation date is the exercise date.
- Penalties: Underreporting can lead to a 20% accuracy-related penalty under IRC section 6662. Always use fair market values and consult professionals.
- Portability Filings: Simplified reporting for low-value estates focused on DSUE.
For the latest revisions (e.g., August 2025 for Schedule H), download from the IRS website.
Conclusion: Navigating Estate Taxes with Confidence
Mastering IRS Form 706 Schedule H is essential for accurate estate tax reporting, especially when powers of appointment are involved. By properly documenting and valuing these assets, you can avoid penalties and ensure a smooth filing process. Always refer to the official IRS instructions and consider consulting a tax advisor for personalized guidance. For more details, visit the IRS website or download the form directly.
This article is for informational purposes only and not tax advice. Stay updated with IRS changes, as thresholds and rules evolve annually.