GroundSkill
Determine generation-skipping transfer treatment and gift-tax filing requirements
Some gifts are taxed twice in one lifetime: once as a gift and again for skipping a generation. This lesson covers the generation-skipping transfer tax and the return that reports it: which transfers to grandchildren and trusts draw GST, how the exemption is allocated, and when Form 709 must be filed.
The generation-skipping transfer tax is the second layer on gifts that jump a generation. An inter vivos direct skip is a lifetime transfer that meets three tests together: it is subject to gift tax, it conveys an interest in property, and it goes to a skip person such as a grandchild.
Outright cash to a granddaughter reported on Schedule A is the textbook case, and it is reported for both taxes at once.
A direct skip is only one of three GST events: a taxable distribution is a later distribution from a trust to a skip person, and a taxable termination is the ending of an interest in trust with skip persons holding what follows, such as the close of an ETIP.
Gifts that are only gift-taxed today but can face GST at a later distribution or termination are listed in Part 3 of Schedule A. An indirect skip is the narrow statutory case inside that group: a transfer subject to gift tax, other than a direct skip, made to a GST trust that could itself produce a GST; other trust transfers that may later face GST are reported alongside it as Other Transfers in Trust.
The same return allocates the lifetime GST exemption — $13,990,000 for 2025 — to property transferred during life; the executor allocates it on Form 706 to transfers taking effect at death, and every allocation is irrevocable.
Exemption is automatically allocated to inter vivos direct skips unless the donor elects out, and to indirect skips to the extent needed to make the inclusion ratio zero; an allocation to ETIP property takes effect no earlier than the close of the period.
Transfers fully absorbed by the annual exclusion, and most spousal transfers, stay outside the GST on that return.
Howard gives $60,000 outright to his grandson and $60,000 outright to his son. The grandson's gift meets all three tests and is a direct skip reported for gift and GST tax together, with 2025 exemption allocated to it automatically unless Howard elects out. The son's gift is a nonskip transfer reported for gift tax alone. Had Howard instead funded a trust paying his children for life with remainder to grandchildren, the funding would be listed in Part 3 — an indirect skip if the trust is a GST trust, otherwise an Other Transfer in Trust — so exemption could attach early and drive the inclusion ratio to zero, while a later payout to a grandchild would be the GST event: a taxable distribution, or a taxable termination where an interest ends.
Form 709 Instructions Page 4
You must report on Form 709 the GST tax imposed on inter vivos direct skips. An inter vivos direct skip is a transfer made during the donor’s lifetime that is: • Subject to the gift tax, • Of an interest in property, and • Made to a skip person.View on the source
Form 709 Instructions Page 2
Transfers subject to the federal gift and certain generation-skipping transfer (GST) taxes and to figure the tax due, if any, on those transfers. • Allocation of the lifetime GST exemption to property transferred during the transferor’s lifetime.View on the source
Form 709 Instructions Page 4
Therefore, transfers made to political organizations, transfers made to certain exempt organizations, transfers that qualify for the medical or educational exclusion, transfers that are fully excluded under the annual exclusion, and most transfers made to your spouse are not subject to the GST tax.View on the source
Form 709 Instructions Page 13
In general, an indirect skip is a transfer of property that is subject to gift tax (other than a direct skip) and is made to a GST trust.View on the source
Form 709 Instructions Page 13
List in Part 3 those gifts that are indirect skips as defined in section 2632(c) or may later be subject to GST tax.View on the source
Form 709 Instructions Page 13
Some gifts made to trusts are subject only to gift tax at the time of the transfer but may later be subject to GST tax. The GST tax could apply either at the time of a distribution from the trust, at the termination of the trust, or both.View on the source
Form 709 Instructions Page 21
Every donor is allowed a lifetime GST exemption. The amount of the exemption for 2025 is $13,990,000.View on the source
Form 709 Instructions Page 21
The donor can apply this exemption to inter vivos transfers (that is, transfers made during the donor’s life) on Form 709. The executor can apply the exemption on Form 706 to transfers taking effect at death. An allocation is irrevocable.View on the source
Form 709 Instructions Page 21
In the case of inter vivos direct skips, a portion of the donor’s unused exemption is automatically allocated to the transferred property unless the donor elects otherwise. To elect out of the automatic allocation of exemption, you must file Form 709 and attach a statement to it clearly describing the transaction and the extent to which the automatic allocation is not to apply. Reporting a direct skip on a timely filed Form 709 and paying the GST tax on the transfer will prevent an automatic allocation.View on the source
Form 709 Instructions Page 21
Section 2632(c) provides an automatic allocation to indirect skips of any unused GST exemption. The unused exemption is allocated to indirect skips to the extent necessary to make the inclusion ratio zero for the property transferred.View on the source
In 2025 Maya makes two outright cash gifts and uses no trust: $40,000 to her granddaughter Emma and $40,000 to her daughter Lori. How are the two transfers classified for GST purposes?
An estate tax inclusion period (ETIP) delays GST reporting. While the donor retains an interest that would pull the property back into the estate at death, such as the term interest in a residence trust with remainder to a grandchild, the transfer is a completed gift reported now and a future GST transfer reported later. The direct skip inside an ETIP is deemed made only at the close of the period, and any GST exemption allocated to it takes effect no earlier than that close, with the allocation working toward an inclusion ratio of zero. On the return for the year the period closes, the GST transfer — a taxable termination — is reported on Schedule D, Part 1, even where exemption was allocated earlier, so the value and the exemption are matched at the right date. Where the period closes because the donor dies, the executor reports that taxable termination on Form 706 instead.
Ellen deeds her house into a 10-year residence trust keeping a term interest, remainder to her granddaughter. She reports the completed gift on Schedule A in the year of transfer. No GST is reported that year. When the 10-year term closes with Ellen living, she reports the taxable termination on Schedule D, Part 1 for the closing year, matching the value then against the exemption allocated to it. Had Ellen died during the term, her executor would report that taxable termination on Form 706.
Form 709 Instructions Page 5
An ETIP is the period during which, should the donor die, the value of transferred property would be includible (other than by reason of section 2035) in the gross estate of the donor or the spouse of the donor. For transfers subject to an ETIP, GST tax reporting may be required at the close of the ETIP.View on the source
Form 709 Instructions Page 5
For example, if you transfer a house to a qualified personal residence trust for a term of 10 years, with the remainder to your granddaughter, the value of the house will be includible in your estate if you die during the 10-year term. In this case, the transfer to the trust is a completed gift that should be reported on Schedule A, Part 3 because the transfer is subject to gift tax now and will later become subject to GST tax.View on the source
Form 709 Instructions Page 5
A direct skip that is subject to an ETIP is deemed to have been made only at the close of the ETIP. Any allocation of GST exemption to the transfer of property subject to an ETIP, whether a direct skip or an indirect skip, shall not be treated as made until the close of the ETIP.View on the source
Form 709 Instructions Page 5
On the Form 709 for the year in which the ETIP closes, you should report the GST transfer (a taxable termination) on Schedule D, Part 1, whether or not an allocation of GST exemption or an election under section 2632(c)(5) was previously made.View on the source
Form 709 Instructions Page 5
Note that if the ETIP closes as a result of your death, the executor of your estate will report the GST transfer on Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return.View on the source
Form 709 Instructions Page 22
Note: Where the property involved in such a transfer is subject to an ETIP, an allocation of the GST exemption at the time of the transfer will only become effective at the end of the ETIP.View on the source
In 2025 Dana transfers her house to a 10-year qualified residence trust, keeping the residence interest, with the remainder to her granddaughter. If Dana died during the term the house would be includible in her estate. How is GST reporting handled?
Form 709 is an annual, calendar-year return: one return lists all reportable gifts made during the year, and a separate return covers each year. A citizen or resident files where gifts to one person exceed $19,000, where any future interest was given even below that line, where gifts were split, and where community or jointly held property was given, with each spouse filing in the community and joint cases. Filing is excused only where all three hold at once: no gifts to a spouse, nothing over $19,000 to any donee, and every gift a present interest. The due date is April 15 of the year after the gift. An extension of the donor's calendar-year income tax return automatically extends the gift return, but Forms 4868 and 2350 may be used for the gift return only where the donor is also extending income tax; otherwise Form 8892 supplies the standalone 6-month extension. Neither extension postpones paying the tax, and any payment extension must be requested separately.
In 2025 Sam gives $12,000 each to four friends, all present interests, and splits nothing. He files no Form 709: every gift sits within the exclusion and no other trigger fires. His sister gives a $5,000 remainder interest to her nephew the same year and must file despite the small amount, because the future interest defeats the exclusion for filing purposes. Both returns, where required, are due April 15, 2026, extendable as described.
Form 709 Instructions Page 2
If you gave gifts to someone in 2025 totaling more than $19,000 (other than to your spouse), you must generally file Form 709. But see Transfers Not Subject to the Gift Tax and Gifts to Your Spouse, later, for more information on specific gifts that are not taxable. • Certain gifts, called future interests, are not subject to the $19,000 annual exclusion and you must file Form 709 even if the gift was under $19,000.View on the source
Form 709 Instructions Page 2
You must file a gift tax return to split gifts with your spouse (regardless of their amount) as described in Part III Spouse’s Consent on Gifts to Third Parties, later. • If a gift is of community property, it is considered made one-half by each spouse. For example, a gift of $100,000 of community property is considered a gift of $50,000 made by each spouse, and each spouse must file a gift tax return. • Likewise, each spouse must file a gift tax return if they have made a gift of property held by them as joint tenants or tenants by the entirety.View on the source
Form 709 Instructions Page 2
Who does not need to file. If you meet all of the following requirements, you are not required to file Form 709. • You made no gifts during the year to your spouse. • You did not give more than $19,000 to any one donee. • All the gifts you made were of present interests.View on the source
Form 709 Instructions Page 5
Generally, you must file Form 709 no earlier than January 1, but not later than April 15, of the year after the gift was made.View on the source
Form 709 Instructions Page 5
Any extension of time granted for filing your calendar year 2025 federal income tax return will also automatically extend the time to file your 2025 federal gift tax return.View on the source
Form 709 Instructions Page 5
Income tax extensions are made by using Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return; or Form 2350, Application for Extension of Time To File U.S. Income Tax Return. You may only use these forms to extend the time for filing your gift tax return if you are also requesting an extension of time to file your income tax return.View on the source
Form 709 Instructions Page 5
If you do not request an extension for your income tax return, use Form 8892, Application for Automatic Extension of Time To File Form 709 or Form 709-NA and/or Payment of Gift/Generation-Skipping Transfer Tax, to request an automatic 6-month extension of time to file your federal gift tax return.View on the source
Form 709 Instructions Page 5
Neither method extends the time to pay the gift or GST tax. If you want an extension of time to pay the gift or GST tax, you must request that separately. See Regulations section 25.6161-1.View on the source
Form 709 Instructions Page 2
Caution: All gift and GST taxes must be figured and filed on a calendar-year basis. List all reportable gifts made during the calendar year on one Form 709. This means you must file a separate return for each calendar year a reportable gift is given (for example, a gift given in 2025 must be reported on a 2025 Form 709). Do not file more than one Form 709 for the same calendar year.View on the source
In 2025 Sam makes only the gift described in one of the options below and does not split gifts. Which one requires Sam to file Form 709?
The course asks you questions like these as you learn, brings back the ones you miss, and ends with full-length practice exams.
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