Table of Contents
- Purpose of Form
- Who Must File
- When To File
- Where To File
- Terminations Subject to GST Tax
- Penalties and Interest
Form 706-GS(T) is used by a trustee to figure and report the tax due from certain trust terminations that are subject to the generation-skipping transfer (GST) tax.
In general, the trustee of any trust that has a taxable termination (defined below) must file Form 706-GS(T) for the tax year in which the termination occurred.
Generally, the trustee must file Form 706-GS(T) by April 15th of the year following the calendar year in which the termination occurs. If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day.
However, for terminations in 2011, the due date for the Form 706-GS(T) will be April 17, 2012, because April 15 is a Sunday and April 16 is the Emancipation Day holiday in the District of Columbia. See section 7503.
If you are not able to file the return by the due date, you may request an extension of time to file by filing Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns. The extension is automatic, so you do not have to sign the form or provide a reason for your request. You must file Form 7004 on or before the regular due date of Form 706-GS(T). See Form 7004 for more information.
File Form 706-GS(T) at the following address:
Department of the Treasury
Internal Revenue Service
Cincinnati, OH 45999
Portions of a trust that are attributable to transfers from different transferors and
Substantially separate and independent shares of different beneficiaries in a trust.
A termination may occur by reason of death, lapse of time, release of a power, or any other means.
In general, all taxable terminations are subject to the GST tax. A taxable termination is the conclusion of an interest in property held in trust unless:
Immediately after the termination, a non-skip person has an interest in the property or
At no time after the termination may a distribution be made from the trust to a skip person.
On September 25, 1985, the settlor held a power with respect to such trust that would have caused the value of the trust to be included in the settlor's gross estate for federal estate tax purposes by reason of section 2038 (regarding revocable transfers) if the settlor had died on September 25, 1985; or
Regarding a policy of life insurance that is treated as a trust under section 2652(b), the insured possessed an incident of ownership on September 25, 1985, that would have caused the insurance proceeds to be included in the insured's gross estate for federal estate tax purposes if the insured had died on September 25, 1985.
The GST tax will not apply to any termination of an interest in a revocable trust, provided:
The trust was executed before October 22, 1986;
The trust as it existed on October 21, 1986, was not amended after October 21, 1986, in any way that created or increased the amount of a generation-skipping transfer;
Except as provided in Exceptions to Additions Rule below, no additions were made to the trust; and
The settlor died before January 1, 1987.
A revocable trust is any trust that on October 22, 1986, was not an irrevocable trust, as defined previously, and would not have been an irrevocable trust had it been created before September 25, 1985.
The instructions under Trusts containing qualified terminable interest property, previously, apply also to revocable trusts covered by these transition rules.
The amendment is administrative or clarifying in nature, and it only incidentally increases the amount transferred to a skip person (defined below), or
It is designed to perfect a marital or charitable deduction for an existing transfer, and it only incidentally increases the amount transferred to a skip person (defined below).
If the settlor was under a mental disability on October 22, 1986, the GST tax may not apply. See Regulations section 26.2601-1(b)(3) for a definition of the term “mental disability” and additional details.
Do not treat as an addition to a trust any addition that is made pursuant to an instrument or arrangement that is covered by the transition rules discussed above under Transition Rule for Revocable Trusts and Transition Rule in Case of Mental Disability. This also applies to inter vivos transfers if the same property would have been added to the trust by such an instrument. For examples illustrating this rule, see Regulations section 26.2601-1(b)(5)(ii).
For termination purposes, skip person means a trust beneficiary who is either:
A natural person assigned to a generation that is two or more generations below the settlor's generation, or
A trust that meets either of the following conditions:
All interests in the trust are held by skip persons, or
No person holds an interest in the trust, and at no time after the transfer to the trust may a distribution be made to a non-skip person.
A person holds an interest in the trust if, at the time the determination is made, the person:
Has a current right to receive income or corpus from the trust,
Is a permissible current recipient of income or corpus from the trust (other than charitable entities), or
Is a charitable or other entity described in section 2055(a) and the trust is a charitable remainder annuity trust, a charitable remainder unitrust, or a pooled income fund.
Any interest that is created primarily to postpone or avoid the GST tax is disregarded.
A generation is determined along family lines as follows:
Where the beneficiary is a lineal descendant of a grandparent of the transferor (for example, the donor's cousin, niece, nephew, etc.), the number of generations between the transferor and the descendant is determined by subtracting the number of generations between the grandparent and the transferor from the number of generations between the grandparent and the descendant.
Where the beneficiary is the lineal descendant of a grandparent of a spouse (or former spouse) of the transferor, the number of generations between the transferor and the descendant is determined by subtracting the number of generations between the grandparent and the spouse (or former spouse) from the number of generations between the grandparent and the descendant.
For this purpose, a relationship by adoption is considered a blood relationship. A relationship by half-blood is considered a relationship by whole blood.
The spouse or former spouse of a transferor or lineal descendant is considered to belong to the same generation as the transferor or lineal descendant, as the case may be.
A person who is not assigned to a generation according to the rules above is assigned to a generation based on his or her birth date as follows:
A person who was born not more than 12½ years after the transferor is in the transferor's generation.
A person born more than 12½ years, but not more than 37½ years, after the transferor is in the first generation younger than the transferor.
Similar rules apply for a new generation every 25 years.
If more than one of the rules for assigning generations applies to a beneficiary, the beneficiary is generally assigned to the youngest of the generations that apply.
If an entity such as a partnership, corporation, trust, or estate has an interest in property, each individual who has a beneficial interest in the entity (for example, partners, shareholders, and beneficiaries) is treated as having an interest in the property. The individual is then assigned to a generation using the rules described above.
Government entities and certain charitable organizations are assigned to the transferor's generation. Terminations in their favor will never be generation-skipping transfers.
If you made a gift or bequest to your grandchild and at the time you made the gift or bequest, the grandchild's parent (who is your or your spouse's or your former spouse's child) is deceased, then for purposes of generation assignment, your grandchild will be considered to be your child rather than your grandchild. Your grandchild's children will be treated as your grandchildren rather than your great-grandchildren.
This rule governs generation assignment of lineal descendants below the level of grandchild. For example, if your grandchild is deceased, your great-grandchildren who are lineal descendants of the deceased grandchild are considered your grandchildren for purposes of the GST tax.
This rule also applies to other lineal descendants. For example, if property is transferred to an individual who is a descendant of a parent of the transferor, and that individual's parent (who is a lineal descendant of the parent of the transferor) is deceased at the time the transfer is subject to gift or estate tax, then for purposes of generation assignment, the individual is treated as if he or she is a member of the generation that is one generation below the lower of:
The transferor's generation or
The generation assignment of the youngest living ancestor of the individual, who is also a descendant of the parent of the transferor.
The same rules apply to the generation assignment of any descendant of the individual.
This rule does not apply to a transfer to an individual who is not a lineal descendant of the transferor if the transferor has any living lineal descendants.
If any transfer of property to a trust would have been a direct skip except for this generation assignment rule, then the rule also applies to transfers from the trust attributable to such property.
If after a generation-skipping transfer, the property transferred is held in trust, then for the purpose of determining the taxability of subsequent transfers from the trust involving that property, the transferor of the property is assigned to the first generation above the highest generation of any person who has an interest in the trust immediately after the initial transfer.
Section 6651 provides for penalties for both late filing and for late payment unless there is reasonable cause for the delay. The law also provides penalties for willful attempts to evade payment of tax.
The late filing penalty will not be imposed if the taxpayer can show that the failure to file a timely return is due to reasonable cause.
Section 6662 provides penalties for underpayments of GST taxes which are over $5,000 and are due to valuation understatements. A substantial valuation understatement occurs when the reported value of property on Form 706-GS(T) is 65% or less of the actual value of the property. A gross valuation understatement occurs when the reported value of the property listed on Form 706-GS(T) is 40% or less of the actual value of the property.
Interest will be charged on taxes not paid by their due date, even if an extension of time to file is granted. Interest is also charged on any additions to tax imposed by section 6651 from the due date of the return (including any extensions) until the addition to tax is paid.
Form 706-GS(T) must be signed by the trustee or by an authorized representative.
If you fill in your own return, leave the Paid Preparer Use Only space blank. If someone prepares your return and does not charge you, that person should not sign the return.
Generally, anyone who is paid to prepare the return must sign the return in the space provided and fill in the Paid Preparer Use Only area. See section 7701(a)(36)(B) for exceptions.
In addition to signing and completing the required information, the paid preparer must give a copy of the completed return to the taxpayer.
A paid preparer may sign original or amended returns by rubber stamp, mechanical device, or computer software program.
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