Instructions for Form 706-GS(D-1)
(Rev. October 2008)
Notification of Distribution From a Generation-Skipping Trust
Section references are to the Internal Revenue Code unless otherwise noted.
Department of the Treasury Internal Revenue Service
Purpose of Form
A trustee uses Form 706-GS(D-1) to report certain distributions from a trust that are subject to the generationskipping transfer (GST) tax and to provide the skip person distributee with information needed to figure the tax due on the distribution.
Who Must File
In general, the trustee of any trust that makes a taxable distribution must file a Form 706-GS(D-1) for each skip person. See Distributions Subject to GST Tax below for a discussion of what constitutes a taxable distribution. The trustee must file a return for each skip person even if the inclusion ratio applicable to the distribution is zero. See Column d. Inclusion Ratio on page 4.
When To File
Generally, the trustee must file Copy A of Form 706-GS(D-1) with the IRS and send Copy B to the distributee by April 15th of the year following the calendar year when the distribution was made. If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day.
event is a transfer in trust. This rule does not apply to a testamentary trust, however, if the event is to occur within 6 months of the transferor's date of death. Nonexplicit trusts do not include decedents' estates. In the case of a nonexplicit trust, the person in actual or constructive possession of the property involved is considered the trustee and is liable for filing Form 706-GS(D-1). If you are filing this return for a nonexplicit trust, see Line 2a. Trust's Employer Identification Number on page 3. Separate trusts. You must treat the following as separate trusts: · Portions of a trust that are attributable to transfers from different transferors and · Substantially separate and independent shares of different beneficiaries in a trust. You must report such separate trusts under different item numbers in column a of line 3, even if they have the same inclusion ratios.
This rule does not apply if the transfers have the effect of avoiding GST tax for any transfer.
Irrevocable trusts. The GST tax does not apply to any distribution from a trust that was irrevocable on September 25, 1985. Any trust in existence on September 25, 1985, will be considered irrevocable unless: · On September 25, 1985, the value of the trust could have been included in the settlor's gross estate for federal estate tax purposes by reason of section 2038 if the settlor had died on September 25, 1985, or · Regarding a policy of life insurance that is treated as a trust under section 2652(b), the insured was an owner on September 25, 1985, and this would have caused the insurance proceeds to be included in the insured's gross estate for federal estate tax purposes if the insured had died on September 25, 1985. For more information, see Regulations section 26.2601-1(b). Trusts containing qualified terminable interest property. If an irrevocable trust in existence on September 25, 1985, holds qualified terminable interest property (QTIP) (as defined in section 2056(b)(7)) as a result of an election under section 2056(b)(7) or 2523(f), the trust may elect to be treated for purposes of the GST tax as if the QTIP election had not been made. Thus, transfers from such a trust will not be subject to the GST tax. Additions to irrevocable trusts. To the extent that a distribution from a trust is from an addition to an irrevocable trust made after September 25, 1985, such distribution is subject to the GST tax. Additions include constructive additions described in Regulations section 26.2601-1(b)(1)(v). For purposes of figuring the inclusion ratio (defined on page 4), use only the value of the total additions made to the trust after September 25, 1985. Distributions from trusts to which additions have been made. As described above, when an addition is made after September 25, 1985, to an irrevocable trust, only the portion of the
Distributions Subject to GST Tax
In general, all taxable distributions are subject to the GST tax. A taxable distribution is any distribution from a trust to a skip person (other than a taxable termination or a direct skip). If any GST tax imposed on a distribution is paid out of the trust from which the distribution was made, the amount of tax paid by the trust is also a taxable distribution. A distribution is not considered a taxable distribution if, had it been made while an individual was alive, it would have been a nontaxable gift because of section 2503(e) (relating to transfers made for certain educational or medical expenses). Also, a distribution (or any portion thereof) is not a taxable distribution to the extent that: · The property distributed was previously subject to GST tax and · The distributee in the prior distribution is assigned to a generation the same as or lower than the distributee in the current distribution.
Cat. No. 10926L
Where To File
The trustee must send Copy A of Form 706-GS(D-1) to the following address: Department of the Treasury Internal Revenue Service Center Cincinnati, OH 45999
Nonexplicit trusts. An arrangement that has substantially the same effect as a trust will be treated as a trust even though it is not an explicit trust. Examples of such arrangements are insurance and annuity contracts, arrangements involving life estates and remainders, and estates for years. In general, a transfer of property in which the identity of the transferee is conditioned on the occurrence of an
trust resulting from the addition is subject to the GST tax. For distributions, this portion is the product of the allocation fraction and the value of the property distributed (including accumulated income and appreciation on that property). The allocation fraction is a fraction, the numerator of which is the value of the addition as of the date it was made (regardless of whether it was subject to gift or estate tax). The denominator of the fraction is the fair market value of the entire trust immediately after the addition, less any trust amount that is similar to expenses, indebtedness, or taxes that would be allowable as a deduction under section 2053. When there is more than one addition, the allocation fraction is revised after each addition. The numerator of the revised fraction is the sum of: 1. The value of the trust subject to the GST tax immediately before the last addition and 2. The amount of the latest addition. The denominator of the revised fraction is the total value of the entire trust immediately after the latest addition. If the addition results from a generation-skipping transfer, reduce the numerator and denominator by the amount of any GST tax imposed on the transfer and recovered from the trust. Round off the allocation fraction to five decimal places (for example, ".00001").
be considered to result in the creation of or an increase in the amount of a generation-skipping transfer where: · The amendment is administrative or clarifying in nature or · It is designed to perfect a marital or charitable deduction for an existing transfer, and it only incidentally increases the amount transferred to a skip person. Addition to revocable trusts. If an addition (including a constructive addition) to a revocable trust is made after October 21, 1986, and before the death of the settlor, all subsequent distributions from the trust will be subject to the GST tax, provided the other requirements of taxability are met. For settlors dying before January 1, 1987, any addition made to a revocable trust after the death of the settlor will be treated as if made to an irrevocable trust. See Regulations section 26.2601-1(b)(2)(vii) for examples demonstrating the operation of these rules.
Transition Rule in Case of Mental Disability
If the settlor was under a disability on October 22, 1986, the GST tax may not apply. See Regulations section 26.2601-1(b)(3) for a definition of the term "mental disability" and details on the application of this rule.
Exceptions to Additions Rule
Do not treat as an addition to a trust any addition that is made pursuant to an instrument or arrangement that is covered by the rules discussed above under Transition Rule for Revocable Trusts and Transition Rule in Case of Mental Disability. This also applies to inter vivos transfers if the same property would have been added to the trust by such an instrument. For examples illustrating this rule, see Regulations section 26.2601-1(b)(4)(ii).
Transition Rule for Revocable Trusts
The GST tax will not apply to any distributions from a revocable trust, provided: 1. The trust was executed before October 22, 1986; 2. The trust as it existed on October 21, 1986, was not amended after October 21, 1986, in any way that created or increased the amount of a generation-skipping transfer; 3. Except as provided below, no addition was made to the trust; and 4. The settlor died before January 1, 1987. A revocable trust is any trust that on October 22, 1986, was not an irrevocable trust (as defined above) and would not have been an irrevocable trust had it been created before September 25, 1985. The instructions under Trusts containing qualified terminable interest property on page 1 apply also to revocable trusts covered by these transition rules. Amendments to revocable trusts. An amendment to a revocable trust in existence on October 21, 1986, will not
Generation assignment. A generation is determined along family lines as follows: 1. Where the beneficiary is a lineal descendant of a grandparent of the transferor (for example, the donor's cousin, niece, nephew, etc.), the number of generations between the transferor and the descendant is determined by subtracting the number of generations between the grandparent and the transferor from the number of generations between the grandparent and the descendant. 2. Where the beneficiary is the lineal descendant of a grandparent of a spouse (or former spouse) of the transferor, the number of generations between the transferor and the descendant is determined by subtracting the number of generations between the grandparent and the spouse (or former spouse) from the number of generations between the grandparent and the descendant. 3. For this purpose, a relationship by adoption is considered a blood relationship. A relationship by half-blood is considered a relationship by whole blood. 4. The spouse or former spouse of a transferor or lineal descendant is considered to belong to the same generation as the transferor or lineal descendant, as the case may be. 5. A person who is not assigned to a generation according to the rules above is assigned to a generation based on his or her birth date as follows. a. A person who was born not more than 121/2 years after the transferor is in the transferor's generation. b. A person born more than 121/2 years, but not more than 371/2 years, after the transferor is in the first generation younger than the transferor. c. Similar rules apply for a new generation every 25 years. If more than one of the rules for assigning generations applies to a beneficiary, the beneficiary is generally assigned to the youngest of the generations that apply. If an entity such as a partnership, corporation, trust, or estate has an interest in the property, each individual who has a beneficial interest in the entity is treated as having an interest in the property. The individual is then assigned to a generation using the rules described above. Governmental entities and certain charitable organizations are assigned to the transferor's generation. Distributions to them will never be generation-skipping transfers.
Skip persons. For GST tax purposes, skip person means: 1. A natural person assigned to a generation that is two or more generations below the settlor's generation, or 2. A trust that meets the following conditions: a. All interests in the trust are held by skip persons, or b. No person holds an interest in the trust, and at no time after the transfer to the trust may a distribution be made to a non-skip person. Non-skip person. A non-skip person is any person who is not a skip person.
Generation assignment where intervening parent is deceased. If you made a gift or bequest to your grandchild and at the time you made the gift or bequest, the grandchild's parent (who is your or your spouse's or your former spouse's child) is deceased, then for purposes of generation assignment, your grandchild will be considered to be your child rather than your grandchild. Your grandchild's children will be treated as your grandchildren rather than your great-grandchildren. This rule is also applied to your lineal descendants below the level of grandchild. For example, if your grandchild is deceased, your great-grandchildren who are lineal descendants of the deceased grandchild are considered your grandchildren for purposes of the GST tax. This rule also applies to other lineal descendants. For example, if property is transferred to an individual who is a descendant of a parent of the transferor, and that individual's parent (who is a lineal descendant of the parent of the transferor) is deceased at the time the transfer is subject to gift or estate tax, then for purposes of generation assignment, the individual is treated as if he or she is a member of the generation that is one generation below the lower of: · The transferor's generation or · The generation assignment of the youngest living ancestor of the individual, who is also a descendant of the parent of the transferor. The same rules apply to the generation assignment of any descendant of the individual. This rule does not apply to a transfer to an individual who is not a lineal descendant of the transferor if the transferor has any living lineal descendants. If any transfer of property to a trust would have been a direct skip except for this generation assignment rule, then the rule also applies to transfers from the trust attributable to such property. Ninety-day rule. For purposes of determining if an individual's parent is deceased at the time of a testamentary transfer, an individual's parent who dies no later than ninety days after a transfer occurring by reason of the death of the transferor is treated as having predeceased the transferor. The ninety-day rule applies to transfers occurring on or after July 18, 2005. See Regulations section 26.2651-1 for more information. Multiple skips. If after a generation-skipping transfer the
property transferred is held in trust, then for the purpose of determining the taxability of subsequent distributions from the trust involving that property, the settlor of the property is assigned to the first generation above the highest generation of any person who has an interest in the trust immediately after the initial transfer.
line 2 to the skip person distributee listed on line 1. Report a distribution even if its inclusion ratio is zero.
Column a. Item no.
Assign consecutive numbers to each distribution made during the year. Different items of property having different inclusion ratios must be listed separately in Part II. Include under a single item number any properties having the same inclusion ratio even if they were distributed at different times. An exception to this is distributions from "separate trusts" as that term is defined on page 1. You must report distributions from such separate trusts under different item numbers even if they have the same inclusion ratio.
The trustee, or an authorized representative of the trustee, must sign Form 706-GS(D-1). If someone prepares your return and does not charge you, that person should not sign the return. Generally, anyone who is paid to prepare your return must sign it in the space indicated.
Column b. Description of Property
Real estate. Describe the real estate in enough detail so that the IRS can easily locate it for inspection and valuation. For each parcel of real estate, report the location and, if the parcel is improved, describe the improvements. For city or town property, report the street number, ward, subdivision, block and lot, etc. For rural property, report the township, range, landmarks, etc. Stocks and bonds. For stocks, give: · Number of shares; · Whether common or preferred; · Issue; · Par value where needed for valuation; · Price per share; · Exact name of corporation; · Principal exchange upon which sold, if listed on an exchange; and · CUSIP number. For bonds, give: Quantity and denomination; Name of obligor; Date of maturity; Interest rate; Interest due date; Principal exchange, if listed on an exchange; and · CUSIP number.
Part I--General Information
Line 1a. Skip Person Distributee's Identifying Number
Enter the social security number of an individual distributee. (If the number is unknown or the individual has no number, indicate "unknown" or "none.") If the distributee is a trust, enter the trust's employer identification number (EIN).
Line 2a. Trust's Employer Identification Number
Enter the EIN of the trust from which the distribution was made. A nonexplicit trust as described on page 1 under Who Must File must have an EIN that is separate from any other entity's EIN and that will be used only by the nonexplicit trust. A trust or nonexplicit trust that does not have an EIN should apply for one on Form SS-4, Application for Employer Identification Number. You can get Form SS-4, and other IRS tax forms and publications, by calling 1-800-TAX-FORM (1-800-829-3676) or by accessing the IRS website at www.irs.gov. Send Form SS-4 to the Internal Revenue Service Center listed under Where to File on page 1. If the EIN has not been received by the filing time for the GST form, write "Applied for" on line 2a.
· · · · · ·
If the stock or bond is unlisted, show the company's principal business office. The CUSIP (Committee on Uniform Security Identification Procedure) number is a nine-digit number that is assigned to all stocks and bonds traded on major exchanges and many unlisted securities. Usually the CUSIP number is printed on the face of the stock certificate. If the CUSIP number is not printed on the certificate, it may be obtained through the company's transfer agent. Other personal property. Any personal property distributed must be
Report all taxable distributions made during the year from the trust listed on
described in enough detail that the IRS can value it.
Column d. Inclusion Ratio
Note. The trustee must provide the inclusion ratio for every distribution. All distributions, or any part of a single distribution, that have different inclusion ratios must be listed as separate items in column a. The inclusion ratio is the excess of 1 over the applicable fraction determined for the trust from which the distribution was made. Applicable fraction. The applicable fraction is a fraction, the numerator of which is the amount of the GST exemption allocated to the trust. The denominator of the fraction is: 1. The value of the property transferred to the trust, minus 2. The sum of: a. Any federal estate tax or state death tax actually recovered from the trust attributable to the property and b. Any charitable deduction allowed under section 2055 or 2522 with respect to the property. Round the applicable fraction to at least the nearest one-thousandth (for example, ".001"). Numerator (GST exemption). Every individual settlor is allowed a lifetime GST exemption to be allocated against property that the individual has transferred. For generation-skipping transfers made through 1998, the exemption was $1 million. The GST exemption amounts for 1999 through 2009 are as follows:
Year 1999 . . . . . . . . . . . . . 2000 . . . . . . . . . . . . . 2001 . . . . . . . . . . . . . 2002 . . . . . . . . . . . . . 2003 . . . . . . . . . . . . . 2004 and 2005 . . . . . . 2006, 2007, and 2008 . 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amount $1,010,000 $1,030,000 $1,060,000 $1,100,000 $1,120,000 $1,500,000 $2,000,000 $3,500,000
information regarding the allocation of the exemption to this trust from the settlor or the executor of the settlor's estate, as applicable. If the settlor's entire GST exemption is not allocated by the due date (including extensions) of the settlor's estate tax return, the exemption is automatically allocated under the rules of section 2632. Transfers subject to an estate tax inclusion period. If a transferor made an inter vivos transfer, and the property transferred would have been includible in the transferor's estate if he or she had died immediately after the transfer (other than by reason of the transferor dying within 3 years of making the gift), for purposes of determining the inclusion ratio, an allocation of GST exemption will only become effective at the close of the estate tax inclusion period (ETIP). The value of the property for the purpose of figuring the inclusion ratio is the estate tax value if the property is included in the transferor's gross estate, or its value at the close of the ETIP. The ETIP closes at the earliest of: 1. The time the transferred property would no longer be includible in the settlor's estate, 2. The date of a generationskipping transfer of the property, or 3. The date of death of the settlor. Denominator (valuation of trust assets). In general, the value to be used in the applicable fraction is the gift tax value for an inter vivos transfer as long as the allocation of the GST exemption was made on a timely filed gift tax return. The value of a testamentary transfer is generally the estate tax value. If the allocation of the exemption to an inter vivos transfer is not made on a timely filed gift tax return, the value for purposes of the applicable fraction is the value of the property transferred at the time the allocation is filed with the IRS. Qualified terminable interest property. For qualified terminable interest property (QTIP) that is included in the estate of the surviving spouse of the settlor because of section 2044, unless a special QTIP election has been made under section 2652(a)(3), the surviving spouse is considered the transferor under section 2652(a) for GST purposes, and the value is the estate tax value in the estate of the surviving spouse. A special QTIP election allows property for which a QTIP election was made for estate or gift tax purposes to be treated for GST tax purposes as if
this QTIP election had not been made. If the special QTIP election has been made, the predeceased settlor spouse is the transferor and the value is that spouse's estate or gift tax value under the rules described above. Either the settlor spouse or the executor of the settlor spouse's estate must make the special QTIP election. ETIP. If an individual could not make a timely allocation of exemption because of an ETIP, the value of the property for the purpose of computing the inclusion ratio is the estate tax value if the property is includible in the transferor's gross estate. If the property is not includible in the transferor's gross estate, the property is valued at the close of the ETIP, provided that the GST exemption is allocated on a timely filed gift tax return for the calendar year in which the ETIP closes. Multiple transfers into a trust. When a transfer is made to a pre-existing trust, the applicable fraction must be recomputed. The numerator of the new fraction is the sum of: 1. The exemption allocated to the current transfer and 2. The nontax portion of the trust immediately before the current transfer (the product of the applicable fraction and the value of all of the property in the trust immediately before the current transfer). The denominator of the new fraction is the sum of: 1. The value of the current transfer (minus any federal estate tax or state death tax actually paid by the trust attributable to such property) and any charitable deduction allowed with respect to such property and 2. The value of all property in the trust immediately before the current transfer. Charitable lead annuity trusts. For distributions from a charitable lead annuity trust, the numerator of the applicable fraction is the adjusted GST exemption as defined below. The denominator is the value of the trust immediately after termination of the charitable lead annuity. The adjusted GST exemption is the sum of: 1. The exemption allocated to the trust and 2. Interest on the exemption determined at the interest rate used to figure the estate or gift deduction for the charitable lead annuity and for the actual period of the charitable lead annuity. In the case of a late allocation, the amount of interest accrued prior to the date of allocation is zero.
For existing trusts, transferors may allocate the additional GST exemption amount attributable to section 2631(c) increases if they otherwise qualify under the existing rules for late allocations. For more information, see section 2632 and Multiple transfers into a trust below. Once made, allocations are irrevocable. Allocation of the GST exemption is made by the settlor on Form 709, United States Gift (and GenerationSkipping Transfer) Tax Return, and/or Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, by the executor of the settlor's estate. Therefore, you should obtain
Column e. Value
Enter the value of the property distributed from the trust at the time of distribution.
Part III--Trust Information
An arrangement that has substantially the same effect as a trust will be treated as a trust even though it is not an explicit trust. Examples of such arrangements are insurance and annuity contracts, arrangements involving life estates and remainders, and estates for years. Nonexplicit trusts do not include decedent's estates. In the case of a nonexplicit trust, the trustee is the person in actual or constructive possession of the property involved.
Whenever property is transferred into a pre-existing trust, the inclusion ratio must be refigured. See Multiple transfers into a trust on page 4 for the rule on how to refigure the inclusion ratio.
Paperwork Reduction Act Notice. We ask for the information on this form to carry out the Internal Revenue laws of the United States. You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to figure and collect the right amount of tax. You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by section 6103. The time needed to complete and file this form will vary depending on individual circumstances. The estimated average time is:
Recordkeeping . . . . . Learning about the law or the form . . . Preparing the form . . Copying, assembling, and sending the form to the IRS . . .
1 hr., 33 min. 1 hr., 46 min. 42 min.
If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we would be happy to hear from you. You can write to the Internal Revenue Service, Tax Products Coordinating Committee, SE:W:CAR:MP:T:T:SP, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224. Do not send the tax form to this address. Instead, see Where To File on page 1.