2003 Tax Help Archives  
  Home > Tax Help Archives > 2003 > Instructions > Form 706-GST
Instructions for Form 706-GS(T) 2003 Tax Year

Specific Instructions

This is archived information that pertains only to the 2003 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

Table of Contents

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 14),
Part III.

Part I

Line 1b. Employer Identification Number

All trusts filing Form 706-GS(T) must have an employer identification number (EIN). 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 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 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 Form 706-GS(T) is filed. If you do not receive the EIN by the filing time for the GST form, write “Applied for” on line 1b.

Part II

Line 4

Whenever property is transferred into a pre-existing trust, the inclusion ratio must be refigured. See Multiple transfers on page 6 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 decedent 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 decedent'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 on page 5). 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 termination (e.g., 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 (as that term is described under Who Must File on page 1) 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:

  1. 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.
  2. Any property not distributed or otherwise disposed of within 6 months following the termination is valued on the date 6 months after the termination.
  3. 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 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 2758. Indicate as the reason for the requested extension that you are going to elect alternate valuation and that the alternate valuation date falls after the initial due date of the return.

Line 4

Terminations of interests in trusts to which additions have been made.   As described beginning on page 1, 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 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 must be revised after each addition. The numerator of the revised fraction is the sum of:
  1. The value of the portion 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 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.

Column a.   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). 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 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
  • Principal exchange, if listed on an exchange
  • Interest rate
  • Interest due date
  • 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.   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.   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 determined and attach copies of any appraisals.

Schedules B(1) and B(2)

To determine 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)

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.   Assign an item number to each separate expense. These will not necessarily correspond with the item numbers on Schedule A.

Column b.   List the names and addresses of persons to whom the expenses are payable and describe the nature of the expenses.

Column c.   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:
  1. Divide the value of the interest that has been terminated by the total value of the trust at the time of the termination; and
  2. 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)

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.   Assign an item number to each separate expense. This will not necessarily correspond with the item numbers on Schedule A.

Column b.   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.   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 5–14)

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:
  1. The value of the property transferred to the trust, minus
  2. The sum of:

    1. Any Federal estate tax or state death tax actually recovered from the trust attributable to the property, and
    2. 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 (e.g., .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 is $1 million. For generation-skipping transfers made after 1998, the exemption is indexed for inflation.

If the transfer is made in . . . The exemption amount is . . .
1999 $1,010,000
2000 $1,030,000
2001 $1,060,000
2002 $1,100,000
2003 $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 6.

  Once made, allocations are irrevocable.

  Allocation of the GST exemption is made by the settlor on Form 709, and/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:
  1. The time the transferred property would no longer be includible in the settlor's estate,
  2. The date of a generation-skipping transfer of the property, or
  3. 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:
  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 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 for such property), and
  2. 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 September 25, 1985.

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:
  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.

Line 8

Enter, using the table below, the maximum Federal estate tax rate in effect at the time the generation-skipping transfer occurred.

Table of Maximum Tax Rates
If the generation-skipping transfer occurred The maximum tax rate is
Before January 1, 2002 55%
After December 31, 2001 but before January 1, 2003 50%
After December 31, 2002 but before January 1, 2004 49%
After December 31, 2003 but before January 1, 2005 48%

Line 11

If the taxable termination occurs at the same time as and as a result of the death of an individual, you are entitled to a credit for any generation-skipping transfer tax paid to a state in regard to any property that is also included in the termination(s) reported on this form. Enter on line 11 the total state GST tax, if any, that meets these requirements.

Line 12

The credit for state GST taxes cannot exceed 5% of the gross GST tax.

Part III

Line 9b

If you have more than six Schedules A attached to this form, enter on the line indicated the total net GST tax from all Schedules A in excess of six.

Line 12

Make your check payable to the United States Treasury. Please write the trust's EIN, the year, and “Form 706-GS(T)” on the check to assist us in posting it to the proper account. Enclose, but do not attach, the payment with Form 706-GS(T).

Prev | First | Next

Instructions Index | 2003 Tax Help Archives | Tax Help Archives | Home