What Form 706-GS(D) (2024) Is For
IRS Form 706-GS(D) (2024) is used to report and pay the Generation-Skipping Transfer (GST) tax on distributions from a trust to individuals who are two or more generations younger than the person who created the trust. This tax helps prevent families from avoiding estate and gift taxes through direct transfers that skip generations, such as from grandparents to grandchildren.
The form applies to taxable distributions from a trust when the trustee provides Form 706-GS(D-1). This supporting form reports the distribution amount, inclusion ratio, and other necessary details for calculating GST tax. A skip person who receives a taxable distribution must file and pay any applicable GST tax.
For a detailed breakdown of filing requirements, eligibility rules, and step-by-step instructions for IRS Form 706-GS(D) (2024)—Generation-Skipping Transfer Tax, see our comprehensive guide.
When You’d Use Form 706-GS(D)
Form 706-GS(D) is used when a beneficiary receives a taxable distribution from a trust that skips one or more generations, such as from a grandparent to a grandchild. It must be filed if the trustee’s Form 706-GS(D-1) shows an inclusion ratio greater than zero. The filing deadline is April 15 of the year following the distribution, with an automatic six-month extension available through Form 7004.
Key Rules or Details for 2024
For 2024, the generation-skipping transfer tax rate remains at 40 percent, applying to the taxable portion of any distribution received from a trust. The inclusion ratio, reported on Form 706-GS(D-1), determines whether the distribution is wholly or partially taxable. All distributions must be valued at fair market value on the date received, and any property transfers may require appraisals. Taxpayers must attach all supporting forms, accurately report each taxable distribution, and retain records for compliance with federal estate and gift tax requirements.
For complete details on wage reporting, withholdings, and unemployment tax filings, see our guide for estate, gift, and trust forms.
Step-by-Step (High Level)
Step 1: Gather Documentation
Collect all Forms 706-GS(D-1) received from trustees. Each includes key data such as distribution date, amount, inclusion ratio, and trust identification number.
Step 2: Complete Part I
Enter identifying information such as name, Social Security number, and mailing address. Trusts should use their name and Employer Identification Number.
Step 3: Complete Part II
List each taxable distribution with an inclusion ratio greater than zero. Include the trust’s name, employer identification number, distribution value, and tentative transfer amount. Attach explanations for any adjustments or discrepancies.
Step 4: Complete Part III
Add up all tentative transfer amounts, subtract any allowable expenses, and multiply the result by the 40 percent tax rate to determine GST tax due. Subtract payments or credits to find the balance owed.
Step 5: Sign and File
Sign and date the return. Attach all Forms 706-GS(D-1) and include payment if tax is due. Mail the return to the IRS Service Center in Kansas City, Missouri.
Common Mistakes and How to Avoid Them
Filing errors on Form 706-GS(D) can cause processing delays, penalties, or additional IRS correspondence. The following are the most common mistakes and how to avoid them:
- Filing when no GST tax is due: Do not file Form 706-GS(D) if all distributions have an inclusion ratio of zero; only taxable distributions require filing.
- Omitting required Form 706-GS(D-1): Attach all copies received from trustees to allow IRS verification and prevent delays.
- Using incorrect valuation dates: Always use the fair market value on the distribution date and include appraisal documentation for property distributions.
- Failing to prorate preparation fees: When distributions differ in taxability, prorate all preparation or administrative costs based on the inclusion ratio.
- Missing the filing deadline: File Form 706-GS(D) on time or request an extension in advance using Form 7004 to avoid penalties and interest.
- Reporting inconsistent values: Ensure reported values match those on Form 706-GS(D-1) or provide documentation explaining any differences.
A careful review of each supporting form, valuation method, and filing requirement helps ensure the timely, accurate, and penalty-free submission of Form 706-GS(D).
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
After Form 706-GS(D) is filed, the IRS processes it at the Kansas City Service Center. Processing typically takes several weeks or months, depending on the accuracy and completeness of the information. If tax is due, the payment must accompany the return to avoid additional tax or interest. The IRS may send notices requesting clarification or assessing penalties under Section 6651 for late filing or payment of taxes. Taxpayers should retain all forms, supporting documents, and proof of payment for at least three years, or longer for estate and generation-skipping transfer tax records, as required by law.
FAQs
What is IRS Form 706-GS(D) (2024) used for?
IRS Form 706-GS(D) (2024) reports and pays the generation-skipping transfer tax on taxable distributions from trusts to skip persons such as grandchildren. It ensures that wealth transfers across generations are properly taxed under federal tax rules.
How does the generation-skipping transfer tax relate to estate and gift taxes?
The generation-skipping transfer tax works in conjunction with the estate and gift taxes to prevent families from avoiding taxation by transferring assets directly to younger generations. These transfer taxes apply when wealth is transferred from one generation to another, such as from grandparents to great-grandchildren.
Who is considered a skip person under the GST tax?
A skip person is generally a beneficiary two or more generations younger than the grantor, such as a grandchild or great-grandchild. When such individuals receive taxable distributions, they are subject to the GST tax and must file a tax return.
What is the lifetime exemption for generation-skipping transfers?
The lifetime exemption establishes the amount of assets that can be transferred without incurring the generation-skipping transfer tax. This exemption amount aligns with the federal estate and gift tax exemption, adjusted annually for inflation under current tax cuts and legislation.
Are distributions from trusts always taxable under GST taxes?
Not all distributions are taxable. If the inclusion ratio on Form 706-GS(D-1) is zero, the distribution is exempt from GST tax. Only taxable distributions, direct skips, or taxable terminations are subject to generation-skipping transfer taxes.
Can married couples take advantage of the GSTT exemption?
Married couples may each use their own GSTT exemption to transfer assets to younger generations without incurring GST taxes. Proper estate planning ensures both spouses utilize available exemptions and avoid additional tax burdens on future generations.
How do estate tax rates affect generation-skipping transfers?
Estate tax rates influence the total taxation on transferred assets. While the GST tax rate remains at 40 percent, it functions as a second layer of taxation designed to prevent families from bypassing estate tax obligations through direct transfers to younger beneficiaries.
