IRS Form 706 (Schedule M) – In estate planning, minimizing tax liabilities is crucial, and one powerful tool is the marital deduction. IRS Form 706, the United States Estate (and Generation-Skipping Transfer) Tax Return, includes Schedule M for reporting bequests, devises, and other property passing to a surviving spouse. This schedule allows estates to claim the marital deduction under IRC Section 2056, potentially reducing or eliminating estate taxes. If you’re an executor handling an estate valued above the basic exclusion amount (approximately $13.99 million for 2025 decedents), understanding Schedule M is essential. This guide breaks down its purpose, eligibility, completion process, and key considerations, drawing from official IRS resources.
What Is IRS Form 706?
IRS Form 706 is filed for estates of U.S. citizens or residents where the gross estate, plus adjusted taxable gifts, exceeds the basic exclusion amount. For decedents in 2025, this threshold is inflation-adjusted to around $13.99 million. The form reports the decedent’s assets, deductions, and taxes owed, including any generation-skipping transfer (GST) taxes. It’s also used to elect portability of the deceased spousal unused exclusion (DSUE) amount, allowing the surviving spouse to use any unused portion of the decedent’s exclusion for future gifts or their own estate. Schedule M specifically focuses on property passing to the surviving spouse, enabling the marital deduction to exclude that value from the taxable estate.
Even if no tax is due, filing Form 706 solely for portability is common, as it preserves tax benefits for the surviving spouse. The form must be filed within nine months of death, with extensions possible.
Overview of Schedule M: Bequests, etc., to Surviving Spouse
Schedule M (Form 706) is dedicated to listing property interests that qualify for the unlimited marital deduction. This includes outright transfers, trusts, life estates, annuities, and more that pass to the surviving spouse. The deduction defers estate tax until the spouse’s death, treating the property as if it were included in their estate.
Key features:
- Purpose: To claim deductions for spousal bequests and support the total marital deduction entered on Part V, line 21 of Form 706.
- Attachment Requirements: If space is insufficient, use Schedule W or additional statements. For portability-only filings where the estate is below the exclusion, you may identify assets without valuing them.
- PDF Resource: Download the official Schedule M form from the IRS at https://www.irs.gov/pub/irs-pdf/f706sm.pdf.
The total from Schedule M, after reductions for taxes payable from those interests, flows to the main form to calculate the taxable estate.
Eligibility for the Marital Deduction
Not all spousal transfers qualify. The property must be included in the gross estate (Schedules A through I) and pass directly or indirectly to the spouse as a beneficiary, heir, or survivor. The surviving spouse must generally be a U.S. citizen; for non-citizens, a Qualified Domestic Trust (QDOT) is required to defer taxes.
Eligible scenarios include:
- Outright ownership transfers.
- Life estates with a general power of appointment held by the spouse.
- Qualified Terminable Interest Property (QTIP) trusts, where the spouse receives income for life.
- Property via qualified disclaimers (attach documentation if applicable).
Nondeductible terminable interests (e.g., life estates without full control) don’t qualify unless elected as QTIP. Gifts made before death are generally excluded but may impact the 35% requirement for certain elections.
Types of Property Qualifying for the Deduction
Property can include real estate, securities, business interests, insurance proceeds, annuities, and residues from the estate. For QTIP:
- The spouse must have a qualifying income interest for life.
- No one else can appoint principal during the spouse’s life.
- Election is made by listing on Line 4 of Schedule M.
For non-QTIP property, list on Line 8. Values are at date of death or alternate valuation, reduced by encumbrances or prior deductions. Joint and survivor annuities may be elected out of QTIP treatment on Line 3.
| Property Type | Description | Schedule M Line |
|---|---|---|
| QTIP Interests | Trusts or annuities where spouse gets lifetime income; election required. | Line 4 |
| Non-QTIP Interests | Outright bequests, life estates with power of appointment. | Line 8 |
| QDOT for Non-Citizens | Defers tax; must meet trustee and withholding rules. | Indicated on Line 2 |
| Disclaimed Property | Passes via qualified disclaimer. | Line 1 (Yes/No) |
How to Complete IRS Form 706 Schedule M?
Follow these steps based on IRS instructions:
- Header: Enter decedent’s name and SSN.
- Line 1: Indicate if property passed via qualified disclaimer (attach copy).
- Line 2: Provide spouse’s citizenship details, birth info, and country.
- Line 3: Elect out of QTIP for annuities if desired (irrevocable).
- Line 4: List QTIP items with item number, description, CUSIP/EIN, and value.
- Lines 5-7: Total QTIP amounts, including attachments.
- Line 8: List non-QTIP items similarly.
- Lines 9-11: Total non-QTIP amounts.
- Line 12: Grand total of all property.
- Lines 13a-d: Deduct federal/state/GST taxes payable from these interests.
- Line 14: Net deduction; transfer to Part V, item 21.
Attach will copies, trust documents, and computations for residues. For portability, estimate values in tiers if not fully reporting.
Special Considerations for Schedule M
- QTIP Election: Irrevocable; includes property in the surviving spouse’s estate.
- QDOT for Non-Citizen Spouses: Required to claim deduction; file Form 706-QDT annually if distributions occur.
- Portability (DSUE): Filing Form 706 elects portability; DSUE is preliminary until final determination.
- Recent Updates: For 2025, no major changes to Schedule M, but inflation adjustments apply to exclusions. Late portability elections are allowed under Rev. Proc. 2022-32.
Common Mistakes to Avoid
- Failing to attach required documents (e.g., disclaimers, trusts).
- Incorrectly valuing property or omitting reductions for taxes.
- Not making irrevocable elections properly (e.g., QTIP on wrong line).
- Overlooking non-citizen spouse rules, leading to denied deductions.
- Ignoring portability if no tax is due—file anyway to preserve DSUE.
Consult a tax professional for complex estates.
Conclusion
IRS Form 706 Schedule M is a vital component for claiming the marital deduction on bequests to a surviving spouse, helping families defer estate taxes effectively. By properly documenting qualifying property and elections, executors can ensure compliance and maximize benefits like portability. For the latest form and instructions, visit IRS.gov or download Schedule M at https://www.irs.gov/pub/irs-pdf/f706sm.pdf. Always use current IRS guidelines to avoid penalties.