What Form 706-GS(D) (2017) Is For
IRS Form 706-GS(D) is an Internal Revenue Service tax return used to report the generation-skipping transfer tax on taxable distributions. The GST tax applies when property transferred through a trust or estate moves to younger generations, including grandchildren, trust beneficiaries, or unrelated persons over 37½ years younger. This federal gift and estate tax filing ensures that transfer taxes are properly assessed when assets move beyond immediate heirs through generation-skipping or irrevocable trusts.
A skip person, such as a grandchild or other younger recipient, must file the form if certain distributions are partially taxable. The filing documents GST tax obligations, GST tax exemption allocations, and exemption details related to lifetime or outright transfers. The filing process ensures fairness in federal gift reporting and helps wealthy families take advantage of automatic allocation rules for skipping generations or qualified severance events.
Taxpayers can check estate, gift, and trust forms for related filings that may apply to skip-person distributions.
When You’d Use Form 706-GS(D) (2017)
Form 706-GS(D) applies to skip persons who received taxable distributions during the 2017 calendar year. Taxpayers use it to report the generation-skipping transfer tax on distributions from trusts that transfer assets across multiple generations. It also applies when a taxable gift, indirect skip, or direct skip involves property transferred without applying a GST exemption or when a significant amount of assets passes outside the immediate family line.
The Internal Revenue Service requires filing between January 1 and April 15 of the following year. A taxpayer may file Form 7004 to obtain a six-month extension that extends the deadline to October 15. Late filing can result in added tax, interest charges, and penalties for unreported gift or estate tax liabilities.
This filing requirement applies even when the transfer involves a surviving spouse or distributions paid to a medical provider. Form 706-GS(D) ensures complete reporting for GSTT purposes, protecting the accuracy of federal tax and estate tax systems.
Key Rules or Details for 2017
The GST tax rate for 2017 was 40 percent, consistent with the federal estate tax rate. Each taxpayer had a GST exemption of $5.49 million, which aligned with the lifetime exemption amount for gift tax purposes. These thresholds limit how much wealth can be transferred without creating additional tax liability.
The inclusion ratio is central to calculating GST tax, as it determines what portion of the distribution is taxable. A ratio of one means the transfer is fully taxable, while a ratio of zero means the transfer is fully exempt. A ratio between zero and one indicates that part of the transfer is taxable.
These factors ensure that taxable terminations and taxable distributions are reported accurately. Taxpayers can apply their GST exemption to protect future generations and estate plans.
Step-by-Step (High Level)
- Gather Required Documents: The preparer must gather Form 706-GS(D-1) from trustees, valuation appraisals, and prior transfer tax filings.
- Complete Part I: The taxpayer or preparer must enter the legal name, Social Security number, or Employer Identification Number (EIN) in Part I.
- Report Distributions: The form should report each taxable distribution, its inclusion ratio, and the value of assets transferred to skip persons.
- Compute the Tax: The preparer computes the GST tax by applying the rate to taxable distributions and deducting allowable filing expenses.
- Submit to the Internal Revenue Service: The filer submits completed forms and payments to the designated Internal Revenue Service center.
Accurate filing prevents additional tax assessments and preserves GST exemption allocations for future use. Organized documentation also simplifies estate plan administration.
Common Mistakes and How to Avoid Them
Taxpayers often make errors while completing Form 706-GS(D), which can delay processing and create compliance problems. The following table lists common filing mistakes and specific ways to prevent them through accurate documentation and timely action. Careful review before submission ensures that the Internal Revenue Service receives a complete and accurate tax return.
Below is a list of common Form 706-GS(D) mistakes and how to avoid them:
1. Failing to file when required
- How to avoid it: Determine whether each distribution is taxable, fully exempt, or partially taxable before preparing the return.
2. Using incorrect property values
- How to avoid it: Obtain professional appraisals to ensure accurate fair market values for both GSTT and estate tax reporting.
3. Omitting Form 706-GS(D-1) attachments
- How to avoid it: Request all trustee documents early and include every required Form 706-GS(D-1) for each distribution received.
4. Claiming unverified expenses
- How to avoid it: Report only documented preparation fees and verified medical expenses related to the filing.
5. Filing after the deadline
- How to avoid it: File Form 7004 before April 15 to extend the due date and avoid late penalties or interest.
Preventing these errors ensures compliance, strengthens record accuracy, and supports efficient Internal Revenue Service processing.
Preventing these errors ensures compliance, strengthens record accuracy, and supports efficient Internal Revenue Service processing.
What Happens After You File
After submitting Form 706-GS(D), the Internal Revenue Service reviews the inclusion ratio, exemption amount, and GST exemption allocated to each taxable distribution. The agency processes most returns within eight to twelve weeks and may request clarification for complex estate plans or dynasty trusts. Processing times depend on completeness, accuracy, and documentation quality.
If any additional tax is owed, the taxpayer must pay interest and penalties that accrue from the original due date. The IRS may also initiate an audit if large valuation differences or omissions appear. Proper documentation and organized schedules prevent delays in processing and maintain record accuracy.
Taxpayers should retain copies of all filings, including trust appraisals and correspondence, for at least four years. Maintaining complete records ensures that transferred assets are correctly reported for future generations.
FAQs
What is the purpose of Form 706-GS(D) (2017)?
Form 706-GS(D) (2017) reports GST tax on taxable distributions from trusts to skip persons. The Internal Revenue Service uses it to ensure compliance with federal estate, transfer, and gift tax requirements that apply to generation-skipping transfers.
What is a skip person for GSTT purposes?
A skip person is a beneficiary two or more generations younger than the transferor or an unrelated person more than 37½ years younger. Skip persons receive taxable distributions subject to the GSTT, which applies the generation-skipping transfer GST reporting rules.
How does the inclusion ratio affect GST tax?
The inclusion ratio determines whether a distribution is fully taxable, partially taxable, or fully exempt. Accurate inclusion ratios protect GST exemption allocations, prevent additional GSTT assessments, and maintain fairness in federal estate tax calculations.
Are dynasty trusts subject to GSTT?
Yes, dynasty trusts that transfer wealth to younger generations may trigger GST tax when distributions exceed the GST exemption or involve taxable terminations. Proper allocation of GSTT exemption helps preserve assets for future generations.
How can married couples manage GST tax exposure?
Married couples can apply lifetime gifts, gift or estate tax exclusions, and annual gift tax exemptions to manage GST tax exposure. Coordinated estate plans ensure each spouse’s GST exemption is allocated effectively for future generation-skipping transfers.
