What IRS Form 706-GS(D) (2011) Is For
IRS Form 706-GS(D) is the official tax return used to report distributions subject to the generation-skipping transfer tax. It applies when assets are transferred through a trust that skips one or more generations, typically from grandparents to grandchildren. The form helps the Internal Revenue Service determine whether any taxable distribution occurred during the tax year.
This filing ensures proper tracking of transfer taxes and confirms that wealthy families pay the appropriate amount of federal estate tax. It identifies skip persons, such as individuals two or more generations younger than the grantor. The form serves as a compliance tool to prevent attempts to avoid estate taxes through generation-skipping transfers.
Form 706-GS(D) applies to anyone receiving taxable distributions from a trust that transferred assets beyond direct descendants. It distinguishes between taxable and exempt transfers under the federal estate and gift tax system. Each filer must review inclusion ratios to determine whether their generation-skipping transfer is taxable.
Taxpayers can use Estate, Gift, and Trust Forms to review related forms used in estate and trust compliance.
When You’d Use IRS Form 706-GS(D) (2011)
Form 706-GS(D) applies when a trust beneficiary receives a taxable distribution subject to the generation-skipping transfer tax. Taxpayers must file if the inclusion ratio for any transfer exceeds zero. The return covers generation-skipping transfers made during the previous calendar year and must be submitted by April 15.
For the 2011 tax year, the due date was April 17, 2012, since the standard deadline fell on a weekend and a federal holiday. Taxpayers could request an automatic six-month extension using Form 7004, which applied only to filing, not to payment.
Filers must report each trust’s Employer Identification Number and attach Form 706-GS(D-1). Timely filing ensures compliance and avoids interest or penalties.
Key Rules or Details for 2011
The 2011 generation-skipping transfer tax rate was 35 percent, which was lower than the rates applied in previous years under the federal estate tax system. The federal estate tax exemption was $5 million for an individual and $10 million for a married couple. This exemption amount could be allocated to trusts or transferred to reduce the taxable portion of distributions.
Each taxable distribution required the calculation of an inclusion ratio, which indicated whether the transfer was exempt or taxable. A ratio of zero meant the distribution was fully exempt, while a ratio of one meant the full amount was taxable. Trustees reported this information on Form 706-GS(D-1) for beneficiaries.
The same exemption also applied for gift tax purposes, aligning gift and estate tax planning rules. Proper allocation of exemptions could help reduce estate taxes and future GST tax liability. Accurate recordkeeping was essential for verifying taxable distributions.
Step-by-Step (High Level)
Step 1. Obtain Form 706-GS(D-1) from the Trustee
The trustee provides Form 706-GS(D-1), which lists each taxable distribution, trust identification number, and inclusion ratio for the generation-skipping transfer. Each taxpayer should review every detail carefully to determine whether Form 706-GS(D) must be filed. Accurate information confirms which transfers are subject to the GST tax.
Step 2. Complete the Required Parts of Form 706-GS(D)
The preparer enters identifying information in Part I and lists each taxable distribution in Part II. The filer calculates the generation-skipping transfer tax in Part III using the 35 percent GST tax rate. The trustee must ensure the value of assets transferred is reported correctly.
Step 3. Attach, Sign, and Mail the Return
The filer must attach all Forms 706-GS(D-1), sign the return, and mail it to the correct IRS address.
Common Mistakes and How to Avoid Them
Accurate reporting of generation-skipping transfers and gift or estate tax details requires careful preparation. The table below presents common filing mistakes and clear actions to avoid them effectively.
Below is a list of common Form 706-GS(D) filing mistakes and how to avoid them:
1. Failing to request the trustee’s form
- How to avoid it: Obtain Form 706-GS(D-1) from the trustee before filing so taxable distributions can be verified accurately.
2. Reporting incorrect values
- How to avoid it: Use the fair market value on the date of transfer to calculate the correct tax amount and gift-tax rate.
3. Leaving out attachments
- How to avoid it: Include all required Forms 706-GS(D-1) and any documents related to irrevocable trusts or outright gifts.
4. Misapplying exemptions
- How to avoid it: Apply the correct gift tax exemption, annual exclusion, and any automatic GSTT exemption allocations.
5. Filing after the deadline
- How to avoid it: Submit the form promptly when a taxable distribution occurs to remain compliant and avoid penalties.
Avoiding these mistakes supports compliance, accuracy, and efficient IRS processing for all beneficiaries.
What Happens After You File
After submission, the IRS reviews Form 706-GS(D) to confirm accuracy and completeness. If a payment was included, the IRS processes it through the Treasury system and credits it toward your federal tax account. The IRS issues refunds for overpayment after completing its review.
The IRS may examine inclusion ratios or valuations for discrepancies. If errors are found, a notice will be mailed to request clarification or payment of any additional tax. Retain all documentation, including Forms 706-GS(D-1), appraisals, and receipts, for at least three years to support your filing.
The generation-skipping transfer tax is separate from income and gift taxes. The IRS may assess penalties for late payment or underreporting. Consistent and accurate filings help protect your estate plan, ensure compliance with transfer taxes, and avoid disputes with the federal government.
FAQs
What is the generation-skipping transfer tax?
The generation-skipping transfer tax applies when assets pass to younger generations, such as grandchildren or great-grandchildren. It prevents wealthy individuals from bypassing estate taxes by transferring assets beyond direct descendants. The GSTT exemption limits how much can be transferred to future generations without tax.
How does the GST tax differ from the estate and gift tax?
The GST tax applies to transfers skipping generations, while estate and gift taxes apply to direct heirs. Together, they ensure fair taxation of the family’s wealth across generations. Proper exemption allocation allows transfers that avoid incurring unnecessary tax liability.
Who qualifies as a skip person under IRS rules?
A skip person is two or more generations younger than the person making the transfer. This includes grandchildren, great-grandchildren, or trust beneficiaries. The classification ensures the grantor pays the correct GSTT amount.
How can taxpayers reduce GSTT liability?
Taxpayers can reduce GSTT by using the lifetime exemption, annual exclusion, or automatic allocation rules. Transfers made directly to a medical provider or educational institution may be tax-free. Proper planning protects family wealth and supports future generations.
Are direct skips always subject to tax?
Direct skips are not always taxable when they meet GSTT exemption limits or qualify for a federal estate tax exemption. Payments after a child’s death or outright transfers to a surviving spouse may qualify for exclusion. Accurate exemption use keeps transfers compliant with federal rules.
Taxpayers can use Federal Fillable Tax Forms to locate related forms for amendments, payments, or adjustments if needed.
