What IRS Form 706-GS(D) (2013) Is For
IRS Form 706-GS(D) (2013) applies when beneficiaries receive distributions from trusts that are subject to the generation-skipping transfer tax. The Internal Revenue Service uses this document to track taxable distribution activity and ensure accurate federal estate tax reporting. It protects revenue from transfers that skip generations, such as distributions made to grandchildren or unrelated persons more than two generations younger than the grantor.
The form identifies skip persons responsible for paying the additional tax associated with generation-skipping transfers. This filing also complements other estate and gift tax obligations, allowing the IRS to verify compliance with federal estate taxes and transfer taxes. It remains essential for beneficiaries of irrevocable trusts where estate assets pass between generations.
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) (2013)
Beneficiaries file this form after receiving a taxable distribution from a generation-skipping transfer GST trust that manages assets transferred across multiple generations. The Internal Revenue Service defines a skip person as an individual who is two or more generations younger than the person making the transfer. The form documents taxable events for GST tax exemption purposes and ensures fair reporting of federal gift, estate, and GST taxes.
The filing period follows the annual exclusion schedule for gift tax purposes and aligns with the April 15 filing deadline. Wealthy families and trust beneficiaries use this process to apply GST tax exemption rules and the annual gift tax exclusion while ensuring distributions remain consistent across generations. Certain outright transfers, medical expenses, and payments to an educational institution qualify as exceptions that help avoid taxes legally.
Timely filing ensures proper calculation of GSTT liabilities and prevents penalties for large estate distributions when a trust terminates or other gifts occur.
Key Rules or Details for 2013
The GST tax rate for 2013 was 40 percent, matching the federal gift or estate tax applied to similar lifetime gifts. The GST exemption amount of $5.25 million allowed taxpayers to offset part of their liability, though transfers were not necessarily tax-free. The skipping transfer tax (GSTT) applied to distributions that exceeded the exemption limit or did not qualify for exclusion.
The Internal Revenue Service required each grantor to allocate exemptions through Form 709 to track lifetime gifts and maintain compliance. The law used a flat-rate system to ensure consistency in valuation between non-skip and skip-person transfers. Wealthy families often took advantage of exemptions to pass the same amount of assets to future generations, including their own children.
Step-by-Step (High Level)
Step 1: The tax preparer must collect all Forms 706-GS(D-1) provided by the trustee and review every entry to confirm the correct generation level for reporting.
Step 2: The filer must enter the beneficiary’s name, trust information, and identification number, including the taxable gift amount subject to the current gift tax rate.
Step 3: The executor calculates the total GST tax owed by applying the applicable rate and verifying the federal estate tax exemption allocation.
Step 4: The tax professional ensures that the grantor pays any remaining balance when the transfer does not incur additional liability.
Step 5: The authorized representative attaches the required forms, signs the return, submits payment to the Internal Revenue Service, and retains all trust records for potential audits or future filings.
Common Mistakes and How to Avoid Them
Below is a list of common Form 706-GS(D) filing mistakes and how to avoid them:
1. Filing when all inclusion ratios equal zero
- How to avoid it: Review each Form 706-GS(D-1) to confirm that a taxable distribution actually exists before filing.
2. Using prior-year GST tax rates
- How to avoid it: Ensure the correct 2013 GST tax rate of 40% is applied.
3. Forgetting attachments
- How to avoid it: Include all required trustee forms and documentation for every taxable event.
4. Incorrectly prorating expenses
- How to avoid it: Allocate deductible expenses proportionally based on each applicable inclusion ratio.
5. Disputing trustee valuations without evidence
- How to avoid it: Provide professional appraisals or written explanations to support any differences in reported values.
Proper documentation protects beneficiaries from errors that increase GST tax liability or affect federal estate reporting accuracy. Reviewing each entry before submission ensures compliance with Internal Revenue Service procedures and legally reduces estate taxes.
What Happens After You File
Once submitted, the Internal Revenue Service reviews each return for calculation accuracy and verifies the supporting documentation. Payments are applied to the beneficiary’s federal tax account, while any overpayments may result in a refund. The IRS may also review attached Forms 706-GS(D-1) to confirm inclusion ratio consistency with reported taxable distributions.
Processing may take up to twelve weeks, depending on the number of trusts involved and the complexity of each transfer. If the filing is late or incomplete, penalties and interest accrue until the tax is fully paid. Beneficiaries should maintain copies of all filings, estate plan documentation, and exemption allocations for future audits or amended returns.
Keeping accurate records ensures long-term compliance with federal estate and gift tax obligations related to generation-skipping transfer.
FAQs
What is a generation-skipping transfer tax?
It is a federal tax that applies when assets are transferred to beneficiaries two or more generations younger than the transferor. The GST tax helps the Internal Revenue Service collect revenue that would otherwise be lost through skipped estate taxes. This tax ensures that wealth transfers between generations remain subject to fair federal estate and gift tax obligations.
Who must file Form 706-GS(D)?
Skip persons who receive taxable distributions from irrevocable trusts must file the form and report the GST tax due. The requirement applies to both direct skips and indirect skips associated with transferring assets to younger generations. The filing ensures that all taxable distributions and generation-skipping transfers are properly recorded for GSTT purposes.
Can married couples combine exemptions?
Married couples may combine their lifetime exemption amounts to reduce estate taxes. Each spouse can allocate the GSTT exemption separately under the federal estate tax system. This approach helps couples maximize tax savings and manage estate planning efficiently.
What qualifies as an indirect skip?
An indirect skip occurs when the transfer passes through another beneficiary before reaching a skip person. This may include transfers from irrevocable trusts or outright gifts designated for great-grandchildren. The Internal Revenue Service considers these transactions taxable if they exceed the GST exemption limits.
How long should records be kept?
Beneficiaries should retain documentation, trust valuations, and estate tax filings for at least seven years after submission. Proper recordkeeping ensures compliance during audits and future taxable terminations. These records also help verify exemption allocations and prevent filing discrepancies.
Taxpayers can review Federal Fillable Tax Forms to identify other federal filings connected to trust distributions.
