Podcast Summary: ACTEC Trust & Estate Talk

Episode: Gift Tax Blunders: Common Mistakes on Form 709
Date: December 9, 2025
Host: Travis Hayes, ACTEC Fellow
Guest: Steve Bono, ACTEC Fellow

Overview

This episode of ACTEC Trust & Estate Talk, hosted by Travis Hayes with guest Steve Bono, provides a practical guide for tax professionals and estate planners on the common pitfalls in preparing IRS Form 709 (United States Gift and Generation-Skipping Transfer Tax Return). Drawing from a summer meeting presentation, Steve uses a fictional case study to illustrate real-world mistakes, classifying them from "grains of sand" to "boulders" based on their severity and complexity.

Key Discussion Points & Insights

The Case Study Framework

• Characters: The discussion revolves around “Harry and Wanda Grosseux,” nicknamed “Mr. and Mrs. Big Bucks.”
• Classification System: Mistakes are categorized like sedimentary rock:
  • Grain of sand (minor)
  • Pebble (moderate)
  • Cobblestone (significant)
  • Boulder (major)

1. Minor Mistake ("Grain of Sand"): Failing to Report Deceased Spouse's DSUE Amount

• Context: Wanda passed away mid-2024. Harry’s timely filed 2024 gift tax return didn’t report the Deceased Spousal Unused Exclusion (DSUE) amount since Wanda’s estate return wasn’t filed yet.
• Steve Bono (01:45):
  “This is a very common situation. The fix to this issue, it’s very minor... What you can do is one of two things. [Harry] was going to be filing an amended gift tax return...simply complete Schedule C, report the DSUE amount…then compute the applicable credit amount.”
• Fix:
  • File an amended return to report DSUE on Schedule C.
  • If not amending, report DSUE in the following year’s return.
• Relevant Segment: [01:10]–[02:23]

2. Moderate Mistake ("Pebble"): Misreporting Trust Transfer as a Direct Skip

• Context: Harry transferred assets to an irrevocable trust post-Wanda’s death for two grandchildren and a 501(c)(4) organization. The preparer incorrectly reported it as a direct skip.
• Steve Bono (03:02):
  “There’s a non-skip person, this 501(c)(4) organization, that has an interest in this irrevocable trust. As a result, this transfer should not have been categorized as a direct skip.”
• What Went Wrong:
  • The trust included a non-skip person (the 501(c)(4)), so it should be reported under Schedule A, Part 3—an indirect skip—not Part 2.
• Fix:
  • Amend the return, correctly report under Schedule A, Part 3.
  • Determine whether to affirmatively allocate or opt out of GST exemption under §2642.
• Relevant Segment: [02:30]–[05:08]

3. Significant Mistake ("Cobblestone"): Invalid Split-Gift Election to SLAT

• Context: Harry and Wanda made a transfer to a Spousal Lifetime Access Trust (SLAT), electing to split gifts. However, the trust’s terms made the election invalid.
• Steve Bono (06:25):
  “There was no portion of this transfer that was eligible for gift splitting election under 2513...also for GST purposes, [Harry] should have been the only transferor.”
• What Went Wrong:
  • Beneficiaries were Wanda (the consenting spouse) and descendants, with the trustee having broad discretion. As their interests aren’t ascertainable, split gifting isn’t allowed.
  • They erroneously split both gift and GST reporting 50/50.
• Fix:
  • Amend both returns, treating Harry as the sole donor/transferor for both gift and GST purposes.
• Relevant Segment: [05:09]–[07:10]

4. Significant Mistake ("Cobblestone"): Inadvertent Opt-Out of GST Automatic Allocation

• Context: Harry transferred assets to a descendants’ trust after Wanda’s death and accidentally elected OUT of the automatic GST exemption allocation—contrary to his intention.
• Steve Bono (08:00):
  “The fix would be 2642...Harry has essentially a mechanism to kind of undo that inadvertent election.”
• Resolution Mechanism:
  • Apply final regulations under §2642, allowing Harry to file a supplemental return within a 6-month extension to affirmatively allocate GST exemption without a Private Letter Ruling (PLR) or user fee.
• Relevant Segment: [07:11]–[09:01]

5. Major Mistake ("Boulder"): Botched Late Allocation of GST Exemption

• Context: Harry made a late GST allocation to a trust created in 2020, choosing to use the value from March 1, 2024, without filing the return within the required period.
• Steve Bono (09:50):
  “In order for this rule to apply...would have needed to have filed his return by end of March...He actually filed on April 15, 2025. So now the value...is not that on March 1st, but the value on the date of allocation.”
• What Went Wrong:
  • The trust value went up: March 1, 2024, value was $500,000, but on filing date (April 15, 2025), it was $600,000.
  • Allocated $500,000, leading to an inclusion ratio of 0.167.
• Fix:
  • File another return to allocate enough GST exemption to reach an inclusion ratio of zero.
• Relevant Segment: [09:02]–[11:37]

Notable Quotes & Memorable Moments

• Steve Bono on levels of mistakes:
  “We used the imagery from our description when we used classification of sedimentary rock. And so we had grains of sand, pebbles, cobblestones and boulder.” [01:24]
• On GST allocation relief:
  “The best thing about this is that Harry’s return was timely filed…There is a six month extension period that is going to apply…He’s not going to have to file a PLR and he’s not going to have to pay a user fee.” [08:35]
• On the importance of correct reporting:
  “So they should go back, file amended returns for both Harry and Wanda and have the entire amount...treated as Harry as the donor for gift tax purposes.” [07:03]
• Cautionary closing:
  “Those are my five problems or issues that I went through during our session in June.” [11:35]

Timestamps for Key Segments

• [01:10] - Failure to report DSUE amount: “grain of sand” mistake
• [02:30] - Misreporting trust transfer as a direct skip: “pebble” mistake
• [05:09] - SLAT split-gift election error: “cobblestone” mistake
• [07:11] - Inadvertent GST opt-out: “cobblestone” mistake
• [09:02] - Botched late GST allocation: “boulder” mistake
• [13:37] - Host recap and thanks

Conclusion

Steve Bono’s breakdown highlights both the technical and practical considerations for professionals completing Form 709. Even small errors can have significant downstream tax consequences. By understanding common blunders—from minor reporting oversights to major allocation missteps—practitioners can better protect clients and avoid costly remediation.

For further learning, visit actec.org.