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. October 2008)
Notification of Distribution From a Generation-Skipping Trust
Section references are to the Internal
Revenue Code unless otherwise noted.

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

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.

Where To File
The trustee must send Copy A of Form
706-GS(D-1) to the following address:
Department of the Treasury
Internal Revenue Service Center
Cincinnati, OH 45999

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(D-1).
If you are filing this return for a
nonexplicit trust, see Line 2a. Trust’s
Employer Identification Number on
page 3.
Separate trusts. You must treat the
following 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.
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
while an individual was alive, 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:
• The property distributed was
previously subject to GST tax and
• The distributee in the prior
distribution is assigned to a generation
the same as or lower than the
distributee in the current distribution.
Cat. No. 10926L

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:
• On September 25, 1985, the value of
the trust could have been included in
the settlor’s gross estate for federal
estate tax purposes by reason of
section 2038 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 was an owner on
September 25, 1985, and this 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 may
elect to 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

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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.

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 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.
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.

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 (for example, “.00001”).

Transition Rule in Case of
Mental Disability

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 on page 1 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

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 the
term “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.
Non-skip person. A non-skip person
is any person who is not a skip person.

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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 (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.
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.

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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 is also applied to your 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 ninety days after a
transfer occurring by reason of the
death of the transferor is treated as
having predeceased the transferor. The
ninety-day rule applies to transfers
occurring on or after July 18, 2005. See
Regulations section 26.2651-1 for more
information.
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 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 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 forms
and publications, by calling
1-800-TAX-FORM (1-800-829-3676) or
by accessing the IRS website at
www.irs.gov.
Send Form SS-4 to the Internal
Revenue Service Center listed under
Where to File on page 1. If the EIN has
not been received by the filing time for
the GST form, write “Applied for” on
line 2a.

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, 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;
Interest rate;
Interest due date;
Principal exchange, if listed on an
exchange; and
• CUSIP number.

•
•
•
•
•
•

If the stock or bond is unlisted, show
the company’s principal business office.

Part II—Distributions

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.

Report all taxable distributions made
during the year from the trust listed on

Other personal property. Any
personal property distributed must be

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described in enough detail that the IRS
can value it.

Column d. Inclusion Ratio
Note. 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 (for
example, “.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 was $1 million. The GST
exemption amounts for 1999 through
2009 are as follows:
Year
1999 . . . . . . . . . . . . .
2000 . . . . . . . . . . . . .
2001 . . . . . . . . . . . . .
2002 . . . . . . . . . . . . .
2003 . . . . . . . . . . . . .
2004 and 2005 . . . . . .
2006, 2007, and 2008 .
2009 . . . . . . . . . . . . .

.
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.
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.

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.
.
.
.
.

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.
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.

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Amount
$1,010,000
$1,030,000
$1,060,000
$1,100,000
$1,120,000
$1,500,000
$2,000,000
$3,500,000

For existing trusts, transferors may
allocate the additional GST exemption
amount attributable to section 2631(c)
increases if they otherwise qualify
under the existing rules for late
allocations. For more information, see
section 2632 and Multiple transfers into
a trust below.
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:
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.
Qualified terminable interest
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

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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.

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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,
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

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:

Whenever property is transferred into a
pre-existing trust, the inclusion ratio
must be refigured. See Multiple
transfers into a trust on page 4 for the
rule on how to refigure the inclusion
ratio.

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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 Internal
Revenue Service, Tax Products
Coordinating Committee,
SE:W:CAR:MP:T:T:SP, 1111
Constitution Ave. NW, IR-6526,
Washington, DC 20224. Do not send
the tax form to this address. Instead,
see Where To File on page 1.