Notification of Distribution From a Generation-Skipping Trust

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Instructions for Form 706-GS(D-1)

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Instructions for
Form 706-GS(D-1)

Department of the Treasury
Internal Revenue Service

(Rev. January 2003)
Notification of Distribution From a Generation-Skipping Trust
Section references are to the Internal Revenue Code unless otherwise noted.

General Instructions Trusts
Purpose of Form

Nonexplicit Trusts

A trustee uses Form 706-GS(D-1) to
report certain distributions from a
trust that are subject to the
generation-skipping transfer tax and
to provide the skip person distributee
with information needed to figure the
tax due on the distribution.

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(D-1).
If you are filing this return for a
nonexplicit trust, see Line 2a. Trust’s
Employer Identification Number on
page 3.

Who Must File
In general, the trustee of any trust
that makes a taxable distribution must
file a Form 706-GS(D-1) for each skip
person. See Distributions Subject
to GST Tax below for a discussion of
what constitutes a taxable
distribution. The trustee must file a
return for each skip person even if the
inclusion ratio applicable to the
distribution is zero. See Column d —
Inclusion Ratio on page 4.

When To File
Generally, the trustee must file Copy
A of Form 706-GS(D-1) with the IRS
and send Copy B to the distributee by
April 15th of the year following the
calendar year when the distribution
was made. If the due date falls on a
Saturday, Sunday, or legal holiday,
file on the next business day.

Separate Trusts
You must treat as separate trusts: (a)
portions of a trust that are attributable

Where To File
The trustee must send Copy A of Form 706-GS(D-1) to the IRS. Mail it to
the Internal Revenue Service Center indicated below.
Then the address is:
If the settlor is (or was at death) a . . . Internal Revenue Service Center
Resident U.S. citizen or resident alien

Cincinnati, OH 45999

Resident U.S. citizen or resident alien
(private delivery service)

201 W. Rivercenter Blvd.
Covington, KY 41011

Nonresident U.S. citizen or alien

Philadelphia, PA 19255, USA

Note: You must enter the address of the service center at the bottom of Copy B
of Form 706-GS(D-1) in the space instructing the distributee where to file.
Cat. No. 10926L

to transfers from different transferors,
and (b) substantially separate and
independent shares of different
beneficiaries in a trust.
You must report such separate
trusts under different item numbers in
column a of line 3, even if they have
the same inclusion ratios.

Distributions Subject to
GST Tax
In general, all taxable distributions
are subject to the GST tax. A taxable
distribution is any distribution from a
trust to a skip person (other than a
taxable termination or a direct skip).
If any GST tax imposed on a
distribution is paid out of the trust
from which the distribution was made,
the amount of tax paid by the trust is
also a taxable distribution.
A distribution is not considered a
taxable distribution if, had it been
made inter vivos by an individual, it
would have been a nontaxable gift
because of section 2503(e) (relating
to transfers made for certain
educational or medical expenses).
Also, a distribution (or any portion
thereof) is not a taxable distribution to
the extent that: (a) the property
distributed was previously subject to
GST tax, and (b) the distributee in the
prior distribution is assigned to a
generation the same as or lower than
the distributee in the current
distribution. This rule does not apply if
the transfers have the effect of
avoiding GST tax for any transfer.

Exceptions
Irrevocable trusts. The GST tax
does not apply to any distribution
from a trust that was irrevocable on
September 25, 1985. Any trust in
existence on September 25, 1985,
will be considered irrevocable unless:
1. 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

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Instructions for Form 706-GS(D-1)

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settlor’s gross estate for Federal
estate tax purposes by reason of
section 2038 if the settlor had died on
September 25, 1985, or
2. 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).
Trusts containing qualified
terminable interest property. If an
irrevocable trust in existence on
September 25, 1985, holds 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), the trust will be
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. To
the extent that a distribution from a
trust is from an addition to an
irrevocable trust made after
September 25, 1985, such
distribution is subject to the GST tax.
Additions include constructive
additions described in Regulations
section 26.2601-1(b)(1)(v).
For purposes of figuring the
inclusion ratio (defined on page 4),
use only the value of the total
additions made to the trust after
September 25, 1985.
Distributions from trusts to which
additions have been made. As
described above, when an addition is
made after September 25, 1985, to
an irrevocable trust, only the portion
of the trust resulting from the addition
is subject to the GST tax. For
distributions, this portion is the
product of the allocation fraction and
the value of the property distributed
(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 trust amount that is similar to
expenses, indebtedness, or taxes
that would be allowable as a
deduction under section 2053.
When there is more than one
addition, the allocation fraction is
revised after each addition. The
numerator of the revised fraction is
the sum of:
1. The value of the trust subject to
the GST tax immediately before the
last addition, and
2. 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
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.

Transition Rule for
Revocable Trusts
The GST tax will not apply to any
distributions from a revocable trust,
provided:
1. The trust was executed before
October 22, 1986;
2. 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;
3. Except as provided below, no
addition was made to the trust; and
4. 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 above)
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 above 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 (a) the amendment is
administrative or clarifying in nature,
or (b) it is designed to perfect a
marital or charitable deduction for an
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existing transfer, and it only
incidentally increases the amount
transferred to a skip person.
Addition 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 distributions from the
trust will be subject to the GST tax,
provided 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
if made to an irrevocable trust.
See Regulations section
26.2601-1(b)(2)(vii) for examples
demonstrating the operation of these
rules.

Transition Rule in Case of
Mental Disability
If the settlor was under a disability on
October 22, 1986, the GST tax may
not apply. See Regulations section
26.2601-1(b)(3) for a definition of
mental disability and details on the
application of this rule.

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 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)(4)(ii).

Definitions
Skip Persons
For GST tax purposes, skip person
means:
1. A natural person assigned to a
generation that is two or more
generations below the settlor’s
generation, or
2. A trust that meets the following
conditions:
a. All interests in the trust are held
by skip persons, or
b. 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.

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Instructions for Form 706-GS(D-1)

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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:
1. Where the beneficiary is a lineal
descendant of a grandparent of the
transferor (e.g., 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.
2. 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.
3. For this purpose, a relationship
by adoption is considered a blood
relationship. A relationship by
half-blood is considered a relationship
by whole blood.
4. 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.
5. 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. A person who was born not
more than 121/2 years after the
transferor is in the transferor’s
generation;
b. A person born more than 121/2
years, but not more than 371/2 years,
after the transferor is in the first
generation younger than the
transferor;
c. 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 the property, each
individual who has a beneficial
interest in the entity is treated as
having an interest in the property.
The individual is then assigned to a
generation using the rules described
above.
Governmental entities and certain
charitable organizations are assigned
to the transferor’s generation.
Distributions to them will never be
generation-skipping transfers.

Generation Assignment
Where Intervening Parent Is
Dead
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
dead, 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 greatgrandchildren.
This rule is also applied to your
lineal descendants below the level of
grandchild. For example, if your
grandchild is dead, your
greatgrandchildren who are lineal
descendants of the dead 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 dead 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.
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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.

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 distributions from the
trust involving that property, the
settlor 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.

Signature
The trustee, or an authorized
representative of the trustee, must
sign Form 706-GS(D-1).
If someone prepares your return
and does not charge you, that person
should not sign the return. Generally,
anyone who is paid to prepare your
return must sign it in the space
indicated.

Specific Instructions
Part I. General
Information
Line 1a. Skip Person
Distributee’s Identifying
Number
Enter here the social security number
of an individual distributee. (If the
number is unknown or the individual
has no number, indicate “unknown” or
“none.”) If the distributee is a trust,
enter the trust’s employer
identification number (EIN).

Line 2a. Trust’s Employer
Identification Number
Enter here the EIN of the trust from
which the distribution was made.
A nonexplicit trust as described on
page 1 under Who Must File must
have an EIN that is separate from any
other entity’s EIN and that will be
used only by 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

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forms and publications, by calling
1-800-TAX-FORM (1-800-829-3676)
or by accessing the IRS Web Site at
www.irs.gov.
Send Form SS-4 to the same
Internal Revenue Service Center
where you file Form 706-GS(D-1). If
the EIN has not been received by the
filing time for the GST form, write
“Applied for” on line 2a.

Part II. Distributions
Report all taxable distributions made
during the year from the trust listed
on line 2 to the skip person
distributee listed on line 1. Report a
distribution even if its inclusion ratio is
zero.

Column a — Item no.
Assign consecutive numbers to each
distribution made during the year.
Different items of property having
different inclusion ratios must be
listed separately in Part II. Include
under a single item number any
properties having the same inclusion
ratio even if they were distributed at
different times. An exception to this is
distributions from “separate trusts” as
that term is defined on page 1. You
must report distributions from such
separate trusts under different item
numbers even if they have the same
inclusion ratio.

Column b — Description of
Property
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 location 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
indicate:
• 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
• CUSIP number.
For bonds indicate:
• Quantity and denomination
• Name of obligor

•
•
•
•

Date of maturity
Interest rate
Interest due date
Principal exchange, if listed on an
exchange
• 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 that is 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
personal property distributed must be
described in enough detail that the
IRS can value it.

Column d — Inclusion Ratio
The trustee must provide the
inclusion ratio for every
distribution.
All distributions, or any part of a
single distribution, that have different
inclusion ratios must be listed as
separate items in column a.
The inclusion ratio is the excess of
1 over the applicable fraction
determined for the trust from which
the distribution was made.
Applicable fraction. The applicable
fraction is a fraction, the numerator of
which is the amount of the GST
exemption allocated to the trust. The
denominator of the fraction is:
1. The value of the property
transferred to the trust, minus
2. The sum of:
a. Any Federal estate tax or state
death tax actually recovered from the
trust attributable to the property, and
b. 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
(.001).
Numerator (GST exemption). Every
individual settlor is allowed a lifetime
GST exemption to be allocated
against property that the individual
has transferred. For
generation-skipping transfers made
through 1998, the exemption is $1
million. For generation-4-

skipping transfers made after 1998,
the exemption is indexed for inflation.
If the transfer is
made in . . .
1999
2000
2001
2002
2003

The exemption
amount is . . .
$1,010,000
$1,030,000
$1,060,000
$1,100,000
$1,120,000

The IRS will announce future
exemption amounts in an annual
revenue procedure.

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 on page 5.
Once made, allocations are
irrevocable.
Allocation of the GST exemption is
made by the settlor on Form 709,
United States Gift (and GenerationSkipping Transfer) Tax Return, and/or
Form 706, United States Estate (and
Generation-Skipping Transfer) Tax
Return, 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
under the rules of section 2632.
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 included in the transferor’s gross
estate, or its value at the close of the
ETIP.
The ETIP closes at the earliest of:

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1. The time the transferred
property would no longer be
includible in the settlor’s estate,
2. The date of a generationskipping transfer of the property, or
3. The date of death of the settlor.
Denominator (valuation of trust
assets). In general, the value to be
used in the applicable fraction is the
gift tax value for an inter vivos
transfer as long as the allocation of
the GST exemption was made on a
timely filed gift tax return. The value
of a testamentary transfer is generally
the estate tax value.
If the allocation of the exemption to
an inter vivos transfer is not made on
a timely filed gift tax return, the value
for purposes of the applicable fraction
is the value of the property
transferred at the time the allocation
is filed with the IRS.
QTIP property. For qualified
terminable interest property (QTIP)
that is included in the estate of the
surviving spouse of the settlor
because of section 2044, unless a
special QTIP election has been made
under section 2652(a)(3), the
surviving spouse is considered the
transferor under section 2652(a) for
GST purposes, and 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 this 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.
Either the settlor spouse or the
executor of the settlor spouse’s
estate must make the special QTIP
election.
ETIP. If an individual could not
make a timely allocation of exemption
because of an ETIP, the value of the
property for the purpose of computing
the inclusion ratio is the estate tax
value if the property is includible in
the transferor’s gross estate. If the
property is not includible in the
transferor’s gross estate, 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.

Multiple transfers into a trust.
When a transfer is made to a
pre-existing trust, the applicable
fraction must be recomputed. The
numerator of the new fraction is the
sum of:
1. The exemption allocated to the
current transfer, and
2. The nontax portion of the trust
immediately before the current
transfer (the product of the applicable
fraction and the value of all of the
property in the trust immediately
before the current transfer).
The denominator of the new
fraction is the sum of:
1. 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
with respect to such property, and
2. The value of all property in the
trust immediately before the current
transfer.
Charitable lead annuity trusts. For
distributions from 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 termination of
the charitable lead annuity.
The adjusted GST exemption is
the sum of:
1. The exemption allocated to the
trust, and
2. 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.

Column e — Value
Enter the value of the property
distributed from the trust at the time
of distribution.

Part III. Trust Information
Line 4
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,
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and estates for years. Nonexplicit
trusts do not include decedent’s
estates.
In the case of a nonexplicit trust,
the trustee is the person in actual or
constructive possession of the
property involved.

Line 5
Whenever property is transferred into
a pre-existing trust, the inclusion ratio
must be refigured. See Multiple
transfers into a trust above for the
rule on how to refigure the inclusion
ratio.
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
estimated average time is:
Recordkeeping . . . . .

1 hr., 33 min.

Learning about the
law or the form . . .

1 hr., 46 min.

Preparing the form . .

42 min.

Copying, assembling,
and sending the
form to the IRS . . .

20 min.

If you have comments concerning
the accuracy of these time estimates
or suggestions for making this form
simpler, we would be happy to hear
from you. You can write to the Tax
Forms Committee, Western Area
Distribution Center, Rancho Cordova,
CA 95743-0001. Do not send the tax
form to this address. Instead, see
Where To File on page 1.