Form 706-GS(D) (Rev. August 2013) Checklist for Tax Year 2013
2013 Form Distinguishing Features
2013 Form 706-GS(D) applies a 40 percent maximum GST tax rate (increased from 35 percent for 2010-2012 distributions) and GST exemption of $5,250,000 to skip persons reporting distributions subject to generation-skipping transfer tax from trusts with an inclusion ratio greater than zero. The increase to 40 percent reflects provisions of the American Taxpayer Relief Act of 2012, which made permanent the estate, gift, and GST tax framework established under the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, while raising the top rate to match the highest individual income tax bracket.
This rate applies to all taxable distributions made during calendar year 2013, regardless of when the original transfer to the trust occurred or when the GST exemption was allocated. The 2013 GST exemption amount of $5,250,000 reflects inflation indexing from the $5,120,000 amount applicable in 2012.
Year-Specific Program Applicability
No Economic Stimulus reconciliation, ACA shared responsibility payment, or Tax Cuts and Jobs Act rules apply to 2013 Form 706-GS(D). The 40 percent GST rate applies to all distributions made after December 31, 2012, regardless of when the original transfer to the trust occurred. For 2013, the generation-skipping transfer tax operates as a separate transfer tax system layered on top of the estate and gift tax, applying when property is transferred that skips a generation.
Taxable distributions from trusts to skip persons represent one of three types of generation-skipping transfers, along with taxable terminations and direct skips. The distributee (skip person) is responsible for reporting and paying GST tax on taxable distributions, unlike taxable terminations, where the trustee pays the tax. The inclusion ratio determines the portion of each distribution subject to GST tax, based on the extent to which GST exemption has been allocated to the trust.
Ten-Step Compliance Checklist for 2013
1. Verify Skip Person Status and Distribution Receipt
Verify you are a skip person (defined by generation assignment rules in IRS instructions) who received a taxable distribution from a trust during the calendar year 2013; do not file this form if all distributions have an inclusion ratio of zero. For 2013, a skip person is an individual two or more generations below the transferor, as defined in IRC Section 2651, or a trust in which skip persons hold all interests.
Generation assignment for family members is based on lineal descent (grandchildren are two generations below grandparents). In contrast, non-family members are assigned generations based on age differences of 12.5 years per generation. Document your relationship with the original transferor to support the skip-person classification.
2. Obtain Form 706-GS(D-1) from Trustee
Obtain completed Form 706-GS(D-1) from each trust that made distributions to you in 2013; confirm each form shows an inclusion ratio greater than zero on Part II, line 3, column (d). For 2013, trustees are required to provide Form 706-GS(D-1) to each skip person distributee by the date the trustee files Form 706-GS(T) or by the due date for filing Form 706-GS(D), whichever is earlier.
The inclusion ratio shown on Form 706-GS(D-1) reflects the extent to which the trust is subject to GST tax, ranging from zero (fully exempt) to one (fully taxable). If you have not received Form 706-GS(D-1), please reach out to the trustee promptly, as not receiving the notice does not exempt you from your filing obligations.
3. Gather Documentation of Fair Market Value
Gather documentation of fair market value for each distributed asset as of the distribution date; reduce values by any outstanding liens or amounts of consideration you provided. For 2013, fair market value is the price at which a property would change hands between a willing buyer and a willing seller, neither being under compulsion to buy or sell, and both having reasonable knowledge of the relevant facts.
Obtain qualified appraisals for hard-to-value assets, including closely held business interests, real estate, artwork, and collectibles. Document any liabilities assumed or consideration paid in exchange for the distribution, as these amounts reduce the taxable distribution value. Maintain all valuation documentation for examination by the IRS.
4. Complete Part I Distributee Information
Enter on Part I, line 1a, your name as skip person distributee; enter your Social Security Number on line 1b if individual, or Employer Identification Number on line 1c if trust is distributee; include foreign address fields if applicable. For 2013, provide a complete mailing address, including street address, city, state, and ZIP code where the IRS should send correspondence.
If you have a foreign address, complete all international address fields as specified in the 2013 instructions. If a legal representative is filing on behalf of a minor or disabled distributee, provide the representative’s name and address on the designated lines and indicate the representative’s authority to act on behalf of the distributee.
5. Complete Part II Distribution Schedule
Complete Part II by entering Trust EIN (from Form 706-GS(D-1) line 2a), item number, and amount of tentative transfer (from Form 706-GS(D-1) column f) for each distribution received in 2013. For 2013, if you received multiple distributions from one or more trusts during the calendar year, each distribution must be separately reported with its corresponding trust EIN, item number, and tentative transfer amount.
The tentative transfer represents the portion of the distribution subject to GST tax, calculated by multiplying the fair market value of the distribution by the trust’s inclusion ratio. Cross-reference all amounts reported on Part II with the corresponding Forms 706-GS(D-1) to ensure accuracy.
6. Calculate Adjusted Allowable Expenses
Calculate adjusted allowable expenses on Part III, line 4, by multiplying total qualifying expenses (preparation, determination, and collection costs) by the applicable inclusion ratio; if multiple inclusion ratios exist, prorate by relative distribution value. For 2013, allowable expenses include costs, indebtedness, and taxes properly chargeable against the distributed property under IRC Section 2621, such as trustee fees, attorney fees, accountant fees, and state taxes attributable to the distribution.
Only a portion of expenses allotted to the taxable portion of the distribution (determined by the inclusion ratio) is deductible. Maintain receipts, invoices, and supporting documentation for all claimed expenses. If distributions were received from multiple trusts with different inclusion ratios, allocate expenses proportionally based on the relative value of taxable distributions from each trust.
7. Determine Taxable Amount and Apply GST Tax Rate
Determine the taxable amount on line 5 (total transfers minus allowable expenses); apply the 40 percent maximum federal estate tax rate (from line 6) to calculate GST tax on line 7 for distributions made after December 31, 2012. For 2013, the applicable rate under IRC Section 2641 equals the product of the maximum federal estate tax rate (40 percent for 2013) and the inclusion ratio.
Complete the tax computation to determine the total GST tax liability on all 2013 distributions. The taxable amount represents the net value of property distributed after reduction for allowable expenses, multiplied by the inclusion ratio to determine the portion subject to the 40 percent tax on GST.
8. Calculate Tax Due and Report Prepayments
For calendar year 2013 distributions, Form 706-GS(D) must be filed by April 15, 2014 (the year following the calendar year when distributions were made). Enter on line 8 any payment made with Form 7004 filed by April 15, 2014, due date; subtract line 8 from line 7 to determine tax due on line 9. Any Form 7004 extension request must be filed by April 15, 2014. For 2013, if you made estimated tax payments or paid GST tax with an extension request, enter the total payments on line 8.
If line 7 exceeds line 8, the difference is the tax due with the return. If line 8 exceeds line 7, the difference is an overpayment that may be refunded or applied to the following year’s estimated tax. Payment must accompany the return if a balance is due, or payment may be made electronically through EFTPS.
9. Attach Required Documentation and Sign
Attach a copy of each Form 706-GS(D-1) received during 2013; sign the declaration under penalties of perjury; if the preparer completed the return, the preparer must sign and complete the Paid Preparer Use Only area. For 2013, the distributee (or legal representative if the distributee is a minor or disabled) must sign and date the return, certifying that all information reported is accurate and that all distributions received during calendar year 2013 have been adequately reported.
If a paid preparer completes the return, they must also sign, date, and provide their preparer tax identification number (PTIN) and firm information. Keep copies of the signed return, all Forms 706-GS(D-1), and supporting documentation for recordkeeping purposes.
10. File by Deadline with Extension Option
File return between January 1, 2014, and April 15, 2014; see IRS Where to File page for 706gsd 2013 for current mailing address; request automatic 6-month extension via Form 7004 if needed by April 15 original deadline. For 2013, Form 706-GS(D) is due by April 15 of the year following the calendar year in which distributions were made.
An automatic six-month extension, extending the deadline to October 15, 2014, is available if Form 7004 is filed by the original due date of April 15, 2014. The extension applies to filing the return but does not extend the time to pay any GST tax owing. Interest accrues on unpaid tax from the original due date. Mail the completed return with all attachments to the address specified in the 2013 Where to File instructions based on your state of residence.
Form-Specific Limitations
This form applies only to skip persons; non-skip persons do not file Form 706-GS(D). Distributions with zero inclusion ratio must not be reported on this form. For 2013, if the trust has an inclusion ratio of zero (fully GST-exempt), no Form 706-GS(D-1) is required, and the distributor does not file Form 706-GS(D) for those distributions. Only taxable distributions from trusts with inclusion ratios greater than zero are required to be reported.
Non-skip persons who receive distributions from GST trusts are exempt from GST tax on those distributions and do not file this form. The trustee, not the distributor, is responsible for paying GST tax on taxable terminations. Direct skips are reported on Form 709 (if lifetime transfers) or Form 706 (if transfers at death), not on Form 706-GS(D).
Line and Schedule Changes for 2013
The August 2013 version instructions do not explicitly detail line-by-line modifications from prior years. The part structure remains: Part I (General Information), Part II (Distributions), and Part III (Tax Computation), with no added or removed sections identified in the 2013 revision.
The primary substantive change for 2013 is the increase in the maximum GST tax rate from 35 percent to 40 percent, reflecting the American Taxpayer Relief Act of 2012. The form structure and reporting requirements remain consistent with prior years, maintaining the same three-part organization for distributee information, distribution details, and tax computation.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
