IRS Form 706-GS(D): Generation-Skipping Transfer Tax Return for Trust Distributions

Understanding Form 706-GS(D): Generation-Skipping Transfer Tax Return for Distributions

IRS Form 706-GS(D) is a specialized tax document used to determine the tax liability on trust distributions subject to the generation-skipping transfer tax (GSTT). This form is essential when assets skip a generation, such as passing directly to grandchildren, to minimize estate taxes.

When an individual passes away, they might aim to reduce estate taxes by transferring assets directly to heirs beyond their children, often their grandchildren. By doing so, if the children never actually receive the assets, estate taxes can be avoided. Trusts are a common tool to facilitate this type of transfer.

Despite assets bypassing the children, the grantor can still provide benefits to them, such as granting rights to income generated by the trust assets, while the principal remains designated for grandchildren.

Key Points to Remember

• Form 706-GS(D) calculates the GSTT on trust distributions.
• It must be filed by anyone receiving taxable distributions from a trust subject to GSTT.
• The filing deadline spans from January 1st through the tax deadline of the year following the distribution.

Who Is Required to File Form 706-GS(D)?

Individuals who receive taxable distributions from a generation-skipping trust—known as skip distributees—are responsible for filing Form 706-GS(D). This ensures proper reporting and payment of any GSTT owed.

The form should be submitted between January 1 and the tax filing deadline for the year after the trust distribution. If more time is needed, filers can request an extension by submitting Form 7004.

Important Note

If you cannot meet the filing deadline, an automatic six-month extension is available by filing Form 7004.

Step-by-Step Guide to Filing Form 706-GS(D)

The form is divided into sections: Part I collects basic information such as the distributee's name and Social Security Number, the filer’s details if different, and the trust’s employer identification number. Part II requires a description of the distributions received, followed by Part III, which calculates the tax owed.

You can download Form 706-GS(D) directly from the official IRS website.

Comparing Form 706-GS(D), Form 706-GS(D-1), and Form 706

Form 706-GS(D-1) is filed by trustees when assets are transferred to them under a generation-skipping trust and is a component of the broader Form 706, which covers estate tax filings. Form 706-GS(D) specifically addresses the generation-skipping transfer tax related to trust distributions.

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