IRS Instruction 706-GS(D-1) – In the complex world of estate planning and taxation, the generation-skipping transfer (GST) tax plays a crucial role in preventing tax avoidance across multiple generations. If you’re a trustee managing a generation-skipping trust, IRS Form 706-GS(D-1) is an essential document for reporting taxable distributions. This SEO-optimized article breaks down the latest instructions for Form 706-GS(D-1), revised in December 2025, to help trustees, estate planners, and beneficiaries navigate compliance requirements. We’ll cover the purpose, filing obligations, key definitions, step-by-step completion guidance, and more, drawing from official IRS sources for accuracy and reliability.
Whether you’re searching for “IRS Form 706-GS(D-1) instructions” or “generation-skipping trust distribution notification,” this guide provides actionable insights to ensure timely and correct filings.
What Is IRS Form 706-GS(D-1) and Its Purpose?
IRS Form 706-GS(D-1), titled “Notification of Distribution From a Generation-Skipping Trust,” is a reporting tool used by trustees to notify the IRS and skip person distributees about distributions subject to the GST tax. The primary purpose is twofold: to report taxable distributions from a trust and to furnish the recipient (the skip person) with the necessary information to calculate and pay any GST tax due on Form 706-GS(D).
This form ensures transparency in estate transfers that “skip” a generation, such as gifts or bequests to grandchildren while bypassing children. By filing, trustees help prevent underreporting of taxes on these transfers, which are taxed at a flat rate (currently 40% as of 2025). It’s particularly relevant for irrevocable trusts established for long-term wealth preservation.
Who Must File Form 706-GS(D-1)?
In general, the trustee of any trust making a taxable distribution to a skip person is required to file Form 706-GS(D-1) for each such distributee. This obligation applies even if the inclusion ratio (a key factor in determining tax liability) is zero, meaning no tax is ultimately due.
- Trustees of Explicit Trusts: If you’re the named trustee, you’re responsible.
- Nonexplicit Trusts: Arrangements like life insurance policies, annuities, or life estates that function like trusts are treated as such. The person in actual or constructive possession of the property acts as the trustee and must file.
- Separate Trusts or Shares: If a single trust has portions from different transferors or separate shares for beneficiaries, treat them as distinct trusts and report them separately.
Failure to file can result in penalties, so trustees should err on the side of caution and report all potentially taxable distributions.
Key Definitions in Generation-Skipping Trust Taxation
Understanding the terminology is vital for accurate reporting. Here are the core concepts from the IRS instructions:
- Generation-Skipping Trust: A trust where distributions are made to skip persons, potentially bypassing one or more generations to avoid estate taxes in intermediate generations.
- Skip Person:
- A natural person assigned to a generation two or more below the transferor (e.g., a grandchild).
- A trust where all interests are held by skip persons, or where no current interest exists but future distributions can only go to skip persons.
- Non-Skip Person: Anyone not meeting the skip person criteria, such as a child or spouse of the transferor.
- Taxable Distribution: Any transfer from a trust to a skip person that’s not a taxable termination or direct skip. This includes cash, property, or even GST tax paid by the trust on behalf of the distributee. Exclusions apply for qualified medical or educational expenses under section 2503(e).
- Inclusion Ratio: Calculated as 1 minus the applicable fraction, this determines the portion of the distribution subject to GST tax. The applicable fraction is the GST exemption allocated divided by the value of the property transferred (minus certain deductions and taxes). For 2025, the GST exemption is $13,990,000, adjusted annually for inflation.
- Generation Assignment: Based on family lines or age differences (e.g., someone 12.5–37.5 years younger is one generation below). Special rules apply for deceased parents or adoptions.
These definitions help classify distributions and compute taxes correctly.
When and Where to File Form 706-GS(D-1)?
Timing is critical to avoid penalties. File Copy A with the IRS and send Copy B to the distributee by April 15 of the year following the calendar year of the distribution. If April 15 falls on a weekend or holiday, the deadline shifts to the next business day.
- Where to Send Copy A: Mail to the Department of the Treasury, Internal Revenue Service Center, Stop 824G, 7940 Kentucky Drive, Florence, KY 41042-2915. Private delivery services can use the same address.
- Amending a Return: If you need to supplement or correct a filed form, submit a new Form 706-GS(D-1) marked “Supplemental Information” at the top, attach the original, and include a statement of changes.
Electronic filing isn’t available for this form; paper submission is required.
How to Complete Form 706-GS(D-1): Step-by-Step Guide?
The form is divided into parts for general information, distributions, and trust details. Follow these specific instructions:
Part I: General Information
- Line 1b: Enter the skip person’s Social Security Number (SSN) or “unknown/none” if unavailable. For trusts as skip persons, use the trust’s Taxpayer Identification Number (TIN).
- Line 2b: Provide the trust’s TIN. If applying for one, note “Applied for.”
Part II: Distributions
Report all taxable distributions here, using consecutive item numbers.
- Column (a) Item Number: Start from 1 and increment.
- Column (b) Description of Property: Provide detailed descriptions (e.g., “100 shares of XYZ Corp stock, CUSIP #123456”).
- Column (d) Inclusion Ratio: Compute as described above; round to three decimal places.
- Column (e) Value: Fair market value at the time of distribution.
For multiple transfers or additions to trusts, recompute the inclusion ratio accordingly.
Part III: Trust Information
- Line 4: Confirm if the arrangement is a nonexplicit trust.
- Line 5: Indicate if the inclusion ratio was refigured for prior transfers.
Signature and Preparer Information
The trustee or authorized representative must sign. Paid preparers should also sign and provide their details.
Exceptions and Special Rules for GST Tax
Several exemptions apply:
- Distributions from irrevocable trusts established before September 25, 1985, are generally exempt unless additions were made post-date.
- QTIP trusts (Qualified Terminable Interest Property) may not trigger GST tax if treated as non-QTIP.
- Transition rules for revocable trusts or mentally disabled settlors provide relief.
For trusts with post-1985 additions, only the added portion is taxable, requiring separate calculations.
Penalties for Non-Compliance
Failing to file or providing incomplete information can lead to penalties under IRC sections 6651 (failure to file) and 6662 (accuracy-related). Trustees should maintain records of valuations, exemption allocations, and TIN applications to support filings.
Recent Updates for the December 2025 Revision
The 2025 revision updates the GST exemption to $13,990,000 and incorporates inflation adjustments. It also clarifies rules for multiple skips and ETIP (Estate Tax Inclusion Period) transfers. Always check the IRS website for the latest forms, as changes may occur due to legislative updates.
For the official PDF download, visit IRS Form 706-GS(D-1) Instructions.
This guide equips you with the knowledge to handle Form 706-GS(D-1) effectively. Consult a tax professional for personalized advice, as estate tax rules can be intricate. Stay compliant and optimize your estate planning strategy today.