Instructions for Form 706-GS(T) - Introductory Material Future Developments What’s New GST exemption increased. Reminder General Instructions Purpose of Form Who Must File When To File Where To File Amending Form 706-GS(T) Trusts Nonexplicit trusts. Separate trusts. Terminations Subject to GST Tax Exceptions Irrevocable trusts. Trusts containing qualified terminable interest property. Additions to irrevocable trusts. Medical and educational exclusion. Transition Rule for Revocable Trusts Amendments to revocable trusts. Additions to revocable trusts. Transition Rule in Case of Mental Disability Exceptions to Additions Rule Definitions Skip Persons Interest Non-Skip Person Generation Assignment Generation Assignment Where Intervening Parent Is Deceased Ninety-day rule. Multiple Skips Penalties and Interest Return preparer. Signature Specific Instructions Part I—General Information Line 1b. Trust's Employer Identification Number Part II—Trust Information Line 4 Line 7 Schedule A (Lines 1–4) Note. Line 2 Line 3 Line 4 Terminations of interests in trusts to which additions have been made. Column a. Item no. Column b. Description of property. Real estate. Stocks and bonds. Other personal property. Column d. Valuation date. Column e. Value. Schedules B(1) and B(2) Schedule B(1)—General Trust Debts, Expenses, and Taxes Column a. Item no. Column b. Description. Column c. Amount. Line 2. Schedule B(2)—Specific Termination-Related Debts, Expenses, and Taxes Column a. Item no. Column b. Description. Column c. Amount. Schedule A (Lines 5–10) Line 7. Inclusion Ratio Applicable fraction. Numerator. GST exemption. Denominator. Valuation of trust assets. Transfers subject to an estate tax inclusion period. Multiple transfers. Charitable lead annuity trusts. Line 8 Part III—Tax Computation Line 9b Line 12 Instructions for Form 706-GS(T) - Notices Paperwork Reduction Act Notice. Instructions for Form 706-GS(T) (11/2021) Generation-Skipping Transfer Tax Return for Terminations Section references are to the Internal Revenue Code unless otherwise noted. Revised: 11/2021 Instructions for Form 706-GS(T) - Introductory Material Future Developments For the latest information about developments related to Form 706-GS(T) and its instructions, such as legislation enacted after they were published, go to IRS.gov/Form706GST. What’s New GST exemption increased. The generation skipping tax (GST) exemption amount increased for 2021. See Numerator. GST exemption., later. Reminder For federal tax purposes, marriages of couples of the same sex are treated the same as marriages of couples of the opposite sex. The term “spouse” includes an individual married to a person of the same sex. However, individuals who have entered into a registered domestic partnership, civil union, or other similar relationship that isn’t considered a marriage under state law aren’t considered married for federal tax purposes. If you believe the new law may affect your estate or gift tax liability or filing requirement, please continue to monitor IRS.gov for additional guidance. General Instructions Purpose of Form 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. Who Must File 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. When To File Generally, the trustee must file Form 706-GS(T) by April 15 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. 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. Where To File File Form 706-GS(T) at the following address. Department of the Treasury Internal Revenue Service Center Kansas City, MO 64999 If using a private delivery service, send Form 706-GS(T) to: Internal Revenue Service 333 W. Pershing Road Kansas City, MO 64108 Amending Form 706-GS(T) The address for filing an amended Form 706-GS(T) is: Internal Revenue Service Center Attn: E&G, Stop 824G 7940 Kentucky Drive Florence, KY 41042-2915 If using a private delivery service, send amended Form 706-GS(T) to: Internal Revenue Service Center Attn: E&G, Stop 824G 7940 Kentucky Drive Florence, KY 41042-2915 Trusts Nonexplicit trusts. An arrangement that has substantially the same effect as a trust will be treated as a trust even though it is not an explicit trust. Examples of such arrangements are insurance and annuity contracts, arrangements involving life estates and remainders, and estates for years. In general, a transfer of property in which the identity of the transferee is conditioned on the occurrence of an event is a transfer in trust. This rule does not apply to a testamentary trust, however, if the event is to occur within 6 months of the transferor's date of death. Nonexplicit trusts do not include decedents' estates. In the case of a nonexplicit trust, the person in actual or constructive possession of the property involved is considered the trustee and is liable for filing Form 706-GS(T). If you are filing this return for a nonexplicit trust, see the instructions for line 1b. Separate trusts. You must treat as separate trusts: Portions of a trust that are attributable to transfers from different transferors, and Substantially separate and independent shares of different beneficiaries in a trust. If you are the trustee for separate trusts as described above, you must file a single Form 706-GS(T) but separate Schedules A for each separate trust, as that term is used here. Terminations Subject to GST Tax 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. Exceptions Irrevocable trusts. Except as described under Additions to irrevocable trusts below, the GST tax does not apply to any termination of an interest in a trust that was irrevocable on September 25, 1985. Any trust in existence on September 25, 1985, will be considered irrevocable unless: 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. For more information, see Regulations section 26.2601-1(b)(i) and (ii). Trusts containing qualified terminable interest property. Irrevocable trusts in existence on September 25, 1985, that hold qualified terminable interest property (QTIP) (as defined in section 2056(b)(7)) as a result of an election under section 2056(b)(7) or 2523(f), are treated for purposes of the GST tax as if the QTIP election had not been made. Thus, transfers from such a trust will not be subject to the GST tax. Additions to irrevocable trusts. If an addition has been made after September 25, 1985, to an irrevocable trust, the termination of any interest in the trust may be subject in part to the GST tax. Additions include constructive additions described in Regulations section 26.2601-1(b)(1)(v). Medical and educational exclusion. If all of the property to which the termination applied has been distributed and used for medical or educational expenses of the transferee such that if the transfer had been made inter vivos by an individual, it would not have been subject to gift tax by reason of the medical and educational exclusion, then the termination is not a generation-skipping transfer, and you do not have to file this form to report the termination. Transition Rule for Revocable Trusts 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, later, 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. Amendments to revocable trusts. An amendment to a revocable trust in existence on October 21, 1986, will not be considered to result in the creation of, or an increase in the amount of, a generation-skipping transfer where: 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 later). See Regulations section 26.2601-1(b)(2)(vii) for examples demonstrating these rules. Additions to revocable trusts. If an addition (including a constructive addition) to a revocable trust is made after October 21, 1986, and before the death of the settlor, all subsequent terminations of interests in the trust will be subject to the GST tax if the other requirements of taxability are met. For settlors dying before January 1, 1987, any addition made to a revocable trust after the death of the settlor will be treated as made to an irrevocable trust. Transition Rule in Case of Mental Disability 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. Exceptions to Additions Rule 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). Definitions Skip Persons 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. Interest 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. Non-Skip Person A non-skip person is any person who is not a skip person. Generation Assignment 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. Generation Assignment Where Intervening Parent Is Deceased 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. Ninety-day rule. For purposes of determining if an individual's parent is deceased at the time of a testamentary transfer, an individual's parent who dies no later than 90 days after a transfer occurring by reason of the death of the transferor is treated as having predeceased the transferor. The 90-day rule applies to transfers occurring on or after July 18, 2005. See Regulations section 26.2651-1(a)(2)(iii). Multiple Skips 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. Penalties and Interest 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. Section 6662 provides penalties for underpayments of GST taxes due to negligence, intentional disregard of rules and regulations, or a substantial or gross valuation understatement. 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. No penalty will be assessed if the underpayment of GST tax, attributable to substantial or gross valuation understatement, does not exceed $5,000. 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. Return preparer. The Small Business and Work Opportunity Act of 2007 extended return preparer penalties to all return preparers. Return preparers who prepare any return or claim for refund that reflects an understatement of tax liability due to an unreasonable position are subject to a penalty equal to the greater of $1,000 or 50% of the income derived (or to be derived) for the preparation of each such return. Return preparers who prepare a return or claim for refund that reflects an understatement of tax liability due to willful or reckless conduct are subject to a penalty of $5,000 or 75% of the income derived (or income to be derived), whichever is greater, for the preparation of each such return. See sections 6694(a) and 6694(b), the related regulations, and Ann. 2009-15, 2009-11 I.R.B. 687 (available at IRS.gov/pub/irs-irbs/irb09-11.pdf) for more information. Signature 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. Note. A paid preparer may sign original or amended returns by rubber stamp, mechanical device, or computer software program. Specific Instructions Complete Form 706-GS(T) in the following order: Parts I and II, Schedule A (through line 4), Schedule B, Schedule A (lines 5 through 10), Part III. Part I—General Information Line 1b. Trust's Employer Identification Number All trusts filing Form 706-GS(T) must have an employer identification number (EIN). A nonexplicit trust, defined above, must have an EIN that is separate from any other entity's EIN and that will be used only by the entity in its capacity as the nonexplicit trust. A trust or nonexplicit trust that does not have an EIN should apply for one on Form SS-4, Application for Employer Identification Number. You can get Form SS-4, and other IRS tax forms and publications, by visiting IRS.gov/Forms. Send Form SS-4 to the address listed under Where To File. If you do not receive the EIN by the due date for the 706-GS(T), write "Applied for" on line 1b. You can also apply for an EIN at IRS.gov/EIN. Part II—Trust Information Line 4 Whenever property is transferred into a pre-existing trust, the inclusion ratio must be refigured. See Multiple transfers, later, for the rule on how to refigure the inclusion ratio. Line 7 If a qualified terminable interest property deduction was taken by the settlor as donor spouse or by the executor of a deceased settlor's estate for the transfer of any property into this trust, the donor spouse or the executor, as the case may be, may have made an election at that time to treat such transfer for the purpose of the GST tax as if it was not qualified terminable interest property. In this case, you must refer to the gift tax return (Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return) of the donor spouse or the deceased settlor's estate tax return (Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return) for the information needed to figure the inclusion ratio. Schedule A (Lines 1–4) Note. If you need more than one Schedule A, make copies before completing it. Also, make a copy of Schedule B for each Schedule A you will file. If you need additional space to provide all the required information for any given schedule, attach a separate sheet of the same size to that schedule. Combine on a single Schedule A all terminations from a single trust that have the same inclusion ratio (as discussed later). However, you must complete a separate Schedule A for each terminating interest that has a different inclusion ratio. Number each Schedule A consecutively in the space provided at the top. Line 2 For the purposes of line 2, termination means the conclusion (for example, by death, lapse of time, or release of power, etc.) of an interest in property held in trust unless: Immediately after the termination, a non-skip person has an interest in such property; or At no time after the termination is it possible for a distribution (including distributions on termination) to be made from the trust to a skip person. Also, if you are reporting separate trusts, defined above, on this Form 706-GS(T), explain why you are treating parts of the trust as separate trusts. Line 3 You may elect alternate valuation under section 2032 for all terminations in the same trust that occurred at the same time as and as a result of the death of an individual. If you elect alternate valuation, you must use it to value all property included in those terminations. You may not elect alternate valuation unless the election will decrease both the total value of the property interests that were subject to the termination and the total net GST tax due after the allowable credit. Check the box on line 3 of all the applicable Schedules A if you elect alternate valuation. Once made, the election cannot be revoked. You may make the election on a late filed Form 706-GS(T), provided it is not filed later than 1 year after the due date (including extensions). If you elect alternate valuation, value the property interest that has been terminated as follows. Any property distributed or otherwise disposed of or separated from the trust within 6 months after the termination is valued on the date of distribution or other disposition. Value the property on the date it ceases to form a part of the trust; that is, on the date the title passes as a result of its distribution or other disposition. Any property not distributed or otherwise disposed of within 6 months following the termination is valued on the date 6 months after the termination. Any property or interest that is affected by mere lapse of time is valued as of the time of termination. However, you may change this date of termination value to the value as of the date of distribution or other disposition to account for any change that is not due to mere lapse of time. If the alternate valuation date falls after the initial due date of the return, you must request an extension to file on Form 7004. The extension is automatic, so you do not have to sign the form or provide a reason for your request. See Form 7004 for more information. Line 4 Terminations of interests in trusts to which additions have been made. As described earlier, when an addition is made to an irrevocable trust after September 25, 1985, only the portion of the trust resulting from the addition is subject to the GST tax. For terminations, this portion is the product of the allocation fraction and the value of the property subject to the termination (including accumulated income and appreciation on that property). The allocation fraction is a fraction, the numerator of which is the value of the addition as of the date it was made (regardless of whether it was subject to gift or estate tax). The denominator of the fraction is the fair market value of the entire trust immediately after the addition, less any amount of expenses, indebtedness, or taxes that would be allowable as a deduction under section 2053. When there is more than one addition, the allocation fraction must be revised after each addition. The numerator of the revised fraction is the sum of: The value of the portion of the trust subject to the GST tax immediately before the last addition, and The amount of the latest addition. The denominator of the revised fraction is the total value of the entire trust immediately after the latest addition. If the addition results from a generation-skipping transfer, reduce both the numerator and denominator by the amount of any GST tax imposed on the transfer and recovered from the trust. Round off the allocation fraction to five decimal places (for example, ".00123"). Column a. Item no. Identify by separate item number all property in which an interest has terminated during the tax year. You may combine under the same item number all property that has the same termination date, valuation date, and unit value, such as stocks or bonds. Otherwise, assign a separate item number to each article of property. Column b. Description of property. Describe each article of property assigned an item number as follows. Real estate. Describe the real estate in enough detail so that the IRS can easily locate it for inspection and valuation. For each parcel of real estate, report the area and, if the parcel is improved, describe the improvements. For city or town property, report the street number, ward, subdivision, block and lot, etc. For rural property, report the township, range, landmarks, etc. Stocks and bonds. For stocks, give: Number of shares; Whether common or preferred; Issue; Par value where needed for valuation; Price per share; Exact name of corporation; Principal exchange upon which sold, if listed on an exchange; and CUSIP number. For bonds, give: Quantity and denomination; Name of obligor; Date of maturity; Principal exchange, if listed on an exchange; Interest rate; Interest due date; and CUSIP number. If the stock or bond is unlisted, show the company's principal business office. The CUSIP (Committee on Uniform Security Identification Procedure) number is a nine-digit number assigned to all stocks and bonds traded on major exchanges and many unlisted securities. Usually, the CUSIP number is printed on the face of the stock certificate. If the CUSIP number is not printed on the certificate, it may be obtained through the company's transfer agent. Other personal property. Any interest in personal property involved in a termination must be described in enough detail that the IRS can value it. Column d. Valuation date. Unless you elected alternate valuation by checking the box on line 3 of Schedule A, the valuation date should be the same as the termination date. Column e. Value. Reduce the value of any property being reported on Schedule A by the amount of any consideration provided by the skip person. Explain how the values reported in column e were figured and attach copies of any appraisals. Schedules B(1) and B(2) To figure the taxable amount for a taxable termination, you may deduct expenses similar to those deductible under section 2053 from the value of the property subject to the termination. Schedule B(1)—General Trust Debts, Expenses, and Taxes Report here only those expenses related to the entire trust. Examples of such expenses are trustee's fees, administrative expenses, financial advisor's fees, and accounting fees. Column a. Item no. Assign an item number to each separate expense. These will not necessarily correspond with the item numbers on Schedule A. Column b. Description. List the names and addresses of persons to whom the expenses are payable and describe the nature of the expenses. Column c. Amount. Enter here the entire amount of the expense for the tax year for which the return is being filed. Line 2. Figure the percentage of expense to allocate to the property involved in the termination as follows. Divide the value of the interest that has been terminated by the total value of the trust at the time of the termination; and Multiply the result by a fraction, the numerator of which is the number of days in the year through the date of the termination, and the denominator of which is the total number of days in the year (or, if the entire trust was terminated during the year, the total number of days the trust was in existence during the year). If there is more than one termination during the year, you must reduce the total expense used in the allocation by the expense allocated to the prior terminations. For example, assume that the total administrative expense for the year was $1,000 and $300 was allocated to the first termination. The expense allocated to the second termination would be a percentage of $700, not of the entire $1,000. Schedule B(2)—Specific Termination-Related Debts, Expenses, and Taxes Report here only those expenses related solely to the interest that has terminated. Examples of these expenses are property tax on real estate, the cost of selling property, or attorney's fees for defending the title to property. Column a. Item no. Assign an item number to each separate expense. This will not necessarily correspond with the item numbers on Schedule A. Column b. Description. List the names and addresses of persons to whom the expenses are payable and describe the nature of the expense. List the item number(s) from Schedule A to which the expense relates. Column c. Amount. If the expense relates to more property than that involved in the termination but less than the entire trust, enter in column c only the amount attributable to the property involved in the termination. Determine this amount by multiplying the total expense times a fraction. The numerator of the fraction is the value of the property involved in the termination and to which the expense relates. The denominator is the total value of the property to which the expense relates. Schedule A (Lines 5–10) Line 7. Inclusion Ratio The trustee must figure the inclusion ratio for every termination. All terminations, or any parts of a single termination, that have different inclusion ratios must be shown on separate Schedules A. Identify the separate trusts by Schedule A number when showing your inclusion ratio calculation. The inclusion ratio is the excess of 1 over the applicable fraction determined for the trust in which the termination occurred. Applicable fraction. The applicable fraction is a fraction, the numerator of which is the amount of the GST exemption. The denominator of the fraction is: The value of the property transferred to the trust, minus The sum of: Any federal estate tax or state death tax actually recovered from the trust attributable to the property, and Any charitable deduction allowed under section 2055 or 2522 with respect to the property. Round the applicable fraction to at least the nearest one-thousandth (for example, ".001"). Numerator. GST exemption. Every individual settlor is allowed a lifetime GST exemption against property that the individual has transferred. For generation-skipping transfers made through 1998, the amount of the exemption was $1 million. The GST exemption amounts thereafter are as follows: Year of Transfer GST Exemption 1999 $1,010,000 2000 $1,030,000 2001 $1,060,000 2002 $1,100,000 2003 $1,120,000 2004 and 2005 $1,500,000 2006, 2007, and 2008 $2,000,000 2009 $3,500,000 2010 and 2011 $5,000,000 2012 $5,120,000 2013 $5,250,000 2014 $5,340,000 2015 $5,430,000 2016 $5,450,000 2017 $5,490,000 2018 $11,180,000 2019 $11,400,000 2020 $11,580,000 2021 $11,700,000 . A valid Deceased Spousal Unused Exclusion Amount ("DSUE" or portability) election by an executor of a deceased spouse's estate does not apply to or impact GST tax exemption.. For existing trusts, transferors may allocate the additional GST exemption amount attributable to indexing adjustments if they otherwise qualify under the existing rules for late allocations. For more information, see section 2632 and Multiple transfers, later. Once made, allocations are irrevocable. Allocation of the GST exemption is made by the settlor on Form 709 or on Form 706 by the executor of the settlor's estate. Therefore, you should obtain information regarding the allocation of the exemption to this trust from the settlor or the executor of the settlor's estate, as applicable. If the settlor's entire GST exemption is not allocated by the due date (including extensions) of the settlor's estate tax return, the exemption is automatically allocated to the settlor's generation-skipping transfers under the rules of section 2632. Denominator. Valuation of trust assets. In general, for an inter vivos transfer, you should use the gift tax value in the denominator of the applicable fraction as long as the allocation of the GST exemption was made on a timely filed gift tax return or was deemed made under section 2632(b)(1). If the allocation of the exemption to an inter vivos transfer is not made on a timely filed gift tax return and is not deemed made under section 2632(b)(1), the value for purposes of the applicable fraction is the value of the property transferred at the time the allocation under section 2632(a) is filed with the IRS. The value of a testamentary transfer is generally the estate tax value. For qualified terminable interest property (QTIP) that is included in the estate of the surviving spouse of the settlor because of section 2044, if the surviving spouse is considered the transferor under section 2652(a) for GST purposes, the value is the estate tax value in the estate of the surviving spouse. A special QTIP election allows property for which a QTIP election was made for estate or gift tax purposes to be treated for GST tax purposes as if the QTIP election had not been made. If the special QTIP election has been made, the predeceased settlor spouse is the transferor and the value is that spouse's estate or gift tax value under the rules described above. The settlor spouse or the executor of the predeceased settlor spouse's estate must have made the special QTIP election. Transfers subject to an estate tax inclusion period. If a transferor made an inter vivos transfer, and the property transferred would have been includible in the transferor's estate if he or she had died immediately after the transfer (other than by reason of the transferor dying within 3 years of making the gift), for purposes of determining the inclusion ratio, an allocation of GST exemption will only become effective at the close of the estate tax inclusion period (ETIP). The value of the property for the purpose of figuring the inclusion ratio is the estate tax value if the property is includible in the transferor's gross estate. Otherwise, the property is valued at the close of the ETIP, provided that the GST exemption is allocated on a timely filed gift tax return for the calendar year in which the ETIP closes. The ETIP closes at the earliest of: The time the transferred property would no longer be includible in the settlor's estate, The date of a generation-skipping transfer of the property, or The date of death of the settlor. If the allocation is not made on a timely filed gift tax return, the property is valued at the time of the late allocation. Multiple transfers. When a transfer is made to a pre-existing trust, the applicable fraction must be refigured. The numerator of the new fraction is the sum of: The exemption allocated to the current transfer, and The nontax portion of the trust immediately before the current transfer (the product of the applicable fraction and the value of all the property in the trust immediately before the current transfer). The denominator of the new fraction is the sum of: The value of the current transfer (minus any federal estate tax or state death tax actually paid by the trust attributable to such property and any charitable deduction allowed for such property), and The value (determined under the rules described above) of all property in the trust immediately before the current transfer. To figure the inclusion ratio, use only the value of the total additions made to the trust after October 22, 1986. Charitable lead annuity trusts. For termination of an interest in a charitable lead annuity trust, the numerator of the applicable fraction is the adjusted GST exemption as defined below. The denominator is the value of the trust immediately after the termination of the charitable lead annuity interest. The adjusted GST exemption is the sum of: The exemption allocated to the trust, and Interest on the exemption determined at the interest rate used to figure the estate or gift deduction for the charitable lead annuity and for the actual period of the charitable lead annuity. In the case of a late allocation, the amount of interest accrued prior to the date of allocation is zero. Line 8 Enter, from the table below, the applicable tax rate at the time the generation-skipping transfer occurred. Table of Maximum Tax Rates If the generation-skipping transfer occurred The maximum tax rate is After December 31, 2002, but before January 1, 2004 49% After December 31, 2003, but before January 1, 2005 48% After December 31, 2004, but before January 1, 2006 47% After December 31, 2005, but before January 1, 2007 46% After December 31, 2006, but before January 1, 2010 45% After December 31, 2009, but before January 1, 2011 0% After December 31, 2010, but before January 1, 2013 35% After December 31, 2012 40% Part III—Tax Computation Line 9b If you have more than six Schedules A attached to this form, enter the total GST tax from all Schedules A in excess of six. Line 12 Make checks payable to the "United States Treasury." Please write the trust's EIN, the year of the transfer, and "Form 706-GS(T)" on the check to ensure posting to the proper account. Enclose, but do not attach, the payment with Form 706-GS(T). No checks of $100 million or more accepted. The IRS cannot accept a single check (including a cashier's check) for amounts of $100,000,000 ($100 million) or more. If you're sending $100 million or more by check, you'll need to spread the payments over two or more checks, with each check made out for an amount less than $100 million. The $100 million or more amount limit does not apply to other methods of payment (such as electronic payments), so please consider paying by means other than check. Instructions for Form 706-GS(T) - Notices Paperwork Reduction Act Notice. We ask for the information on this form to carry out the Internal Revenue laws of the United States. You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to figure and collect the right amount of tax. You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by section 6103. The time needed to complete and file this form will vary depending on individual circumstances. The average estimated time is: Form Recordkeeping Learning about the law or the form Preparing the form Copying, assembling, and sending the form to the IRS 706-GS(T) 39 min. 32 min. 32 min. 20 min. Schedule A 13 min. 13 min. 32 min. 20 min. Schedule B 13 min. 9 min. 19 min. 20 min. We welcome your comments about these instructions and your suggestions for future editions. You can send us comments through IRS.gov/FormComments. Or, you can write to the Internal Revenue Service, Tax Forms and Publications, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224. Although we can't respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax forms, instructions, and publications. Do not send tax questions, tax returns, or payments to the above address. Instead, see Where To File, earlier.
