IRS Form 706 Schedule G Guide: Lifetime Transfers Rules

1. Introduction – What is Form 706 (Schedule G)?

IRS Form 706 (Schedule G), officially titled Schedule G – Transfers During Decedent’s Life, is a mandatory supporting schedule attached to IRS Form 706 (United States Estate Tax Return). Governed by the Internal Revenue Service (IRS), it is used by estate executors to report property transfers made by a decedent during their lifetime that remain subject to federal estate tax.

Under federal estate tax law, transferring property before death does not automatically remove it from your gross estate. If a decedent created a revocable trust, retained control over transferred assets, or kept the right to receive income or live in a property, federal tax law treats those assets as part of the taxable gross estate.

Schedule G provides an itemized accounting of all revocable transfers, retained life estates, 3-year lookback transfers, and gift taxes paid within 3 years of death under Sections 2035, 2036, 2037, and 2038 of the Internal Revenue Code.

2. Purpose of the Form

The primary purpose of Schedule G is to prevent taxpayers from evading federal estate tax by making incomplete or controlled property transfers prior to death.

Schedule G solves the problem of “string attached” lifetime transfers. Congress enacted Sections 2035 through 2038 to ensure that if a person gives away property during life but retains enjoyment, income, or the power to revoke the gift, that property is pulled back into the taxable gross estate at death.

Additionally, Schedule G enforces the Gift Tax Gross-Up Rule under Section 2035(b). This rule requires any federal gift taxes paid by the decedent within 3 years of death to be added back into the gross estate, preventing deathbed tax avoidance strategies.

3. Who Needs to File This Form

Schedule G must be completed and attached to Form 706 whenever the deceased individual made transfers during their lifetime that trigger federal estate tax inclusion rules.

An estate executor must list items on Schedule G for any of the following transfer categories:

• Revocable Living Trusts (Section 2038): Any trust established by the decedent during life where they retained the power to alter, amend, revoke, or terminate trust terms (e.g., standard Revocable Living Trusts).
• Retained Life Estates (Section 2036): Property transferred during life where the decedent kept the right to live in the property, receive rental income, or designate who receives the income/possession.
• Transfers Within 3 Years of Death (Section 2035): Life insurance policies transferred within 3 years of death, or the relinquishment of Section 2036/2038 powers within 3 years of death.
• Gift Tax Gross-Up (Section 2035(b)): Total federal gift taxes paid by the decedent or estate on gifts made within 3 years prior to the date of death.
• Transfers Taking Effect at Death (Section 2037): Transfers where possession can only be obtained by surviving the decedent, and the decedent retained a reversionary interest exceeding 5% of asset value.

4. Who Is Exempt / Not Required to File

Schedule G excludes completed, bona fide lifetime transfers where the decedent relinquished all ownership and control.

You should NOT list transfers on Schedule G in the following situations:

• Outright Completed Lifetime Gifts: Absolute, completed gifts made during life where the decedent retained zero control, zero income, and zero economic benefit (these are reported on lifetime Form 709 returns, not Schedule G).
• Bona Fide Sales: Sales or transfers made during life for full and adequate financial consideration in money or money’s worth.
• No Lifetime Trust or Retained Transfers: Estates where the decedent never created a revocable trust, never retained life estates, and paid no gift taxes within 3 years of death.

5. When to File

Schedule G is an integrated supporting schedule attached to Form 706 and shares the exact same filing deadline as the primary return.

Review the primary submission timing deadlines:

• Nine-Month Due Date: Schedule G must be submitted attached to Form 706 within 9 months of the decedent’s date of death.
• Six-Month Extension: If the executor files Form 4768 to request an automatic 6-month filing extension, Schedule G is submitted when Form 706 is filed (15 months from the date of death).

6. Where and How to File

Schedule G is attached directly behind Schedule F in alphabetical order on Form 706. It is filed by paper mail as part of the complete estate tax return package.

Mail the complete Form 706 package—including Schedule G, certified copies of all trust agreements, appraisal reports, and lifetime Form 709 gift tax returns—to the designated IRS submission center address listed in the official Form 706 instructions (typically the IRS Center in Kansas City, MO).

7. Step-by-Step Instructions to Fill the Form

Schedule G requires answering preliminary disclosure questions, followed by an itemized table detailing transferred property and trust terms. Review the breakdown below.

Schedule G Section	Section Title / Column	Key Information Required to Report
Item A	Lifetime Transfer Check	Must answer Yes/No if decedent made transfers described in Sections 2035, 2036, 2037, or 2038.
Item B	Gift Tax Gross-Up	Report total federal gift tax paid on gifts made within 3 years of death (Section 2035(b)).
Column 1	Item Number	Sequential numbering for each transfer or trust entry (1, 2, 3…).
Column 2	Description of Transferred Property	Trust legal name, trust creation date, EIN, legal property descriptions, and details of retained powers.
Columns 3–5	Valuations	Alternate valuation date, alternate value, and date of death Fair Market Value of transferred assets.

Item B – The Gift Tax Gross-Up Rule

Calculate total federal gift taxes paid by the decedent or their estate on any gifts made within the 3-year window ending on the date of death. This total gift tax dollar amount must be entered on Item B and added directly to the gross estate.

Column 2 – Reporting Revocable Trusts and Retained Life Estates

Provide complete details for each transfer item:

• Revocable Living Trusts: State the exact trust title, creation date, trust Employer Identification Number (EIN), and attach a copy of the trust agreement. Itemize all assets held inside the trust (real estate, stock accounts, bank balances) at their date-of-death Fair Market Values.
• Retained Real Estate (Section 2036): Describe real estate where the decedent transferred title (e.g., to a child) but retained the right to reside or collect rent. State the transfer date and attach an independent appraisal report.
• Life Insurance Transfers (Section 2035): List policies transferred within 3 years of death and attach Form 712.

Total Line

Sum all values listed in Column 5 (including Item B gift taxes paid). Carry this total sum over to **Form 706, Part 5 (Recapitulation), Line 7**.

8. Required Documents/Information Needed Before Filling

Executors must gather comprehensive legal trust documents and lifetime tax records before completing Schedule G.

Ensure you have the following verification materials ready:

• Certified Trust Documents: Copies of all revocable and irrevocable trust agreements, trust amendments, and certificates of trust.
• Lifetime Gift Tax Returns (Form 709): Copies of all federal gift tax returns filed by the decedent during their lifetime.
• Proof of Gift Taxes Paid: Bank receipts or canceled checks proving gift tax amounts paid within 3 years of death.
• Certified Appraisals: Independent appraisal reports for real estate, closely held businesses, or collectibles held inside trusts.
• Form 712 (Life Insurance Statement): Form 712 for any life insurance policy transferred within 3 years of death.

9. Common Mistakes to Avoid

Omitting trust assets or failing to apply 3-year lookback rules on Schedule G frequently triggers IRS estate tax audits. Avoid these common errors:

• Listing Revocable Trust Assets on Schedule A or B: Reporting assets held in a Revocable Living Trust on Schedule A (Real Estate) or Schedule B (Stocks). All assets held inside a revocable trust **must be reported on Schedule G**.
• Omitting the Gift Tax Gross-Up: Forgetting to add back federal gift taxes paid within 3 years of death on Item B under Section 2035(b).
• Ignoring Informal Retained Life Estates: Deeding a home to a child but allowing the decedent to continue living there rent-free without reporting the home on Schedule G. The IRS views unwritten agreements as retained life estates under Section 2036.
• Failing to Attach Trust Instruments: Submitting Schedule G without attaching complete copies of governing trust documents.
• Assuming Irrevocable Trusts Are Automatically Excluded: Excluding an irrevocable trust where the decedent retained the power to substitute assets or control trustee distribution decisions.

10. Penalties for Non-Filing or Errors

Failing to report revocable trust assets or omitting 3-year transfers on Schedule G carries severe statutory civil penalties under the Internal Revenue Code.

Key penalty risks include:

• Accuracy-Related Underpayment Penalty (IRC Section 6662): A 20% civil penalty applies to estate tax underpayments resulting from omitted trust assets or unreported 3-year transfers.
• Civil Fraud Penalty (IRC Section 6663): A 75% penalty applies if the IRS proves that trust assets were intentionally concealed to evade federal estate tax.
• Audit Adjustments and Interest: Omitted trust property triggers extended IRS field audits, resulting in back taxes, accrued compounding interest, and delayed estate closing letters.

11. Related Forms or Schedules

Schedule G operates alongside several core Form 706 schedules and lifetime gift forms:

• Form 706: United States Estate (and Generation-Skipping Transfer) Tax Return.
• Form 709: United States Gift (and Generation-Skipping Transfer) Tax Return.
• Form 712: Life Insurance Statement (for Section 2035 policy transfers).
• Form 706 (Schedule A): Real Estate.
• Form 706 (Schedule D): Insurance on Decedent’s Life.
• Form 8971: Information Regarding Beneficiaries Acquiring Property From a Decedent.

12. Frequently Asked Questions

1. What is IRS Form 706 Schedule G?

IRS Form 706 Schedule G is the supporting schedule used by estate executors to report property transfers made during life that remain subject to federal estate tax, including revocable trusts and retained life estates.

2. Where are assets held in a Revocable Living Trust reported on Form 706?

Assets held inside a Revocable Living Trust at the date of death are reported on Schedule G under Section 2038, rather than on Schedules A, B, or C.

3. What is the Section 2035 Gift Tax “Gross-Up Rule”?

Under Section 2035(b), any federal gift tax paid by the decedent or their estate on gifts made within 3 years prior to death must be added back to the gross estate on Schedule G.

4. What happens if a parent deeded a house to a child but kept living there?

If a decedent deeded a residence to a child but retained the right to occupy the property rent-free until death, the entire Fair Market Value of the house is included in the gross estate on Schedule G under Section 2036.

5. Are completed lifetime gifts reported on Schedule G?

No. Outright, completed gifts made during life where the decedent kept zero control or income rights are reported on lifetime Form 709 gift tax returns and included in the taxable estate calculation on Form 706, Part 2, as adjusted taxable gifts.

6. What is the 3-year rule for life insurance transfers on Schedule G?

Under Section 2035, if a decedent transferred ownership of a life insurance policy on their life within 3 years prior to death, the full policy death proceeds are pulled back into the gross estate on Schedule G.

13. Conclusion

IRS Form 706 (Schedule G) is a vital compliance schedule for evaluating revocable trusts and lifetime property transfers. By applying federal estate tax inclusion rules under Sections 2035 through 2038, executors ensure all retained property rights are accurately taxed.

To prepare an error-free Schedule G, assemble all trust agreements and Form 709 gift tax returns, calculate the 3-year gift tax gross-up amount, report revocable trust assets properly, attach certified appraisals, and carry total values over to Form 706.