IRS Instruction 706-GS(T) -In the complex world of estate planning, the generation-skipping transfer (GST) tax plays a crucial role in ensuring that wealth transfers across generations are taxed appropriately. Designed to prevent families from avoiding estate taxes by skipping a generation, the GST tax applies to transfers to grandchildren or more distant descendants. For trustees managing trusts that undergo terminations subject to this tax, IRS Form 706-GS(T) is the essential filing tool. This comprehensive guide breaks down everything you need to know about IRS Instruction 706-GS(T), including filing requirements, key instructions, and updates for 2026, to help you navigate this process efficiently.
What Is the Generation-Skipping Transfer Tax (GST Tax)?
The GST tax is a federal tax imposed on transfers of property that skip one or more generations, such as from a grandparent to a grandchild. Enacted as part of the Tax Reform Act of 1986, it aims to close loopholes where assets could bypass estate taxation at each generational level. The current GST tax rate stands at a flat 40%, applied to transfers exceeding the GST exemption amount.
For 2026, the GST exemption has been permanently set at $15 million per individual (adjusted for inflation in subsequent years) under the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025. This aligns with the estate and gift tax exemptions, providing significant relief for high-net-worth individuals planning multi-generational wealth transfers.
Trust terminations can trigger the GST tax if they result in a “taxable termination,” where an interest in trust property concludes without immediate taxation at the skipped generation’s level. Form 706-GS(T) is specifically for reporting and calculating the tax due on such events.
Purpose of IRS Form 706-GS(T) and Its Instructions
Form 706-GS(T), titled “Generation-Skipping Transfer Tax Return for Terminations,” is used by trustees to calculate and report the GST tax owed on certain trust terminations. The accompanying Instructions for Form 706-GS(T) (Rev. December 2025) provide detailed guidance on completing the form for terminations occurring after December 31, 2024.
The form includes sections for:
- Identifying the trust and transferor.
- Calculating the inclusion ratio (the portion of the trust subject to GST tax).
- Reporting the value of terminated interests.
- Computing the tax due.
Unlike Form 706 (United States Estate and Generation-Skipping Transfer Tax Return), which is filed by executors for decedents’ estates, Form 706-GS(T) focuses solely on trust terminations.
Who Must File Form 706-GS(T)?
The trustee of any trust experiencing a taxable termination must file Form 706-GS(T). A taxable termination occurs when an interest in trust property ends, and:
- No non-skip person retains an interest.
- The property is distributed to a skip person (e.g., a grandchild).
- The termination isn’t exempt under specific IRS rules, such as immediate post-death interests or certain charitable transfers.
All taxable terminations are subject to GST tax unless the trust’s inclusion ratio is zero (meaning the full GST exemption was allocated). If multiple terminations occur in the same year, they can be reported on a single form.
Exemptions apply if the termination doesn’t meet the taxable criteria, but trustees should consult the instructions to confirm.
When and Where to File Form 706-GS(T)?
Filing Deadline
The form must generally be filed by April 15 of the year following the calendar year in which the termination occurs. For example, a termination in 2025 would require filing by April 15, 2026. If the due date falls on a weekend or holiday, it shifts to the next business day.
Extensions may be requested using Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns, potentially extending the deadline by up to six months. However, extensions to file do not extend the time to pay any tax due—interest and penalties may accrue on unpaid amounts.
Where to File?
Mail the completed form to:
- Department of the Treasury, Internal Revenue Service, Kansas City, MO 64999 (for regular mail).
- Or use a private delivery service address if applicable.
Electronic filing options for related forms like Form 709 have expanded, but as of 2026, Form 706-GS(T) is still primarily paper-based. Check IRS.gov for any updates on e-filing availability.
Payment of Tax
Any tax due must be paid by the filing deadline. Use IRS payment options like EFTPS or direct pay via IRS.gov/Payments. Include the trust’s EIN (obtained via Form SS-4) on all payments.
Step-by-Step Guide to Filling Out Form 706-GS(T)
The instructions divide the form into general and specific sections. Here’s a high-level overview:
- Part I: General Information – Enter the trust’s name, EIN, trustee details, and termination date.
- Part II: Trust Information – Detail the transferor (original asset owner), allocation of GST exemption, and inclusion ratio. The inclusion ratio determines the taxable portion (formula: 1 – (GST exemption allocated / value of transfer)).
- Part III: Taxable Terminations – List each termination, including the fair market value of property at termination, any deductions, and the taxable amount.
- Part IV: Tax Computation – Calculate the GST tax by multiplying the taxable amount by the 40% rate, adjusted for the inclusion ratio. Subtract any credits or prepayments.
Key tips from the instructions:
- Use fair market values as of the termination date.
- Attach supporting documents like trust agreements, appraisals, and prior Form 709 filings if GST exemption was allocated.
- For multiple trusts or terminations, consolidate where possible to avoid duplicate filings.
Common mistakes include miscalculating the inclusion ratio or omitting deductions for administrative expenses. The instructions include examples and tables for complex scenarios.
Penalties for Non-Compliance
Failure to file or pay on time can result in penalties under IRC Section 6651, including:
- Late filing: Up to 5% per month (max 25%).
- Late payment: 0.5% per month (max 25%).
- Combined max penalty: 47.5% if both apply.
Underpayment due to negligence may add 20%, while fraud can lead to 75% penalties or criminal charges. Reasonable cause (e.g., reliance on professional advice) may waive penalties. Always document efforts to comply.
Updates for 2026 and Beyond
With the OBBBA, the GST exemption rises to $15 million in 2026, reducing the number of taxable terminations for many estates. This follows a trend of declining estate tax filings, with a 36.5% drop in Form 706 series returns from 2023 to 2024.
The IRS continues to modernize, with expanded e-filing for gift taxes (Form 709) via MeF. Estate planners should monitor for similar updates to GST forms. Inflation adjustments will apply annually post-2026.
FAQs About IRS Form 706-GS(T)
What if my trust termination isn’t taxable?
You don’t need to file, but review the instructions to confirm exemption status.
Can I amend a filed Form 706-GS(T)?
Yes, file an amended return with explanations. Refunds or additional payments may apply.
How does the GST exemption work with multiple transfers?
Exemption is allocated via Form 709 or Form 706; track it carefully to avoid over-taxation.
Where can I download the latest form and instructions?
Visit IRS.gov/Form706GST for the Rev. December 2025 version.
For personalized advice, consult a tax professional or estate attorney. Proper planning can minimize GST tax burdens and ensure smooth generational wealth transfers. Stay updated via IRS.gov for any legislative changes.