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before its repeal by the Taxpayer Relief

person is a trust, make this

If the decedent had not been

Act of 1997.

determination using the rules under

adjudged mentally incompetent, the

Interest in property below. These first

executor must file with the return a

Line 21. Add lines 11 (allowable

three steps are described in detail

certification from a qualified physician

unified credit) and 13 (foreign death

under the main heading, Determining

stating that in his opinion the decedent

taxes credit) of Part 2 — Tax

Which Transfers Are Direct Skips

had been mentally incompetent at all

Computation to the amount of any

below.

times on and after October 22, 1986,

credit taken (on line 15) for federal gift

and that the decedent had not regained

taxes on pre-1977 gifts (section 2012).

The fourth step is to determine

the competence to modify or revoke the

Subtract this total from Part 2 — Tax

whether to enter the transfer on

terms of the trust or will prior to his

Computation, line 8. Enter the result on

Schedule R or on Schedule R-1. See

death or a statement as to why no such

line 21 of the worksheet.

the rules under the main heading,

certification may be obtained from a

Dividing Direct Skips Between

Line 26. If you computed the marital

physician.

Schedules R and R-1.

deduction using the unlimited marital

Direct skip. The GST tax reported on

deduction in effect for decedents dying

The fifth step is to complete

Form 706 and Schedule R-1 (Form

after 1981, for purposes of determining

Schedules R and R-1 using the How To

706) is imposed only on direct skips.

the marital deduction for the reduced

Complete instructions for each

For purposes of Form 706, a direct skip

gross estate, see Revenue Ruling 90-2,

schedule.

is a transfer that is:

1990-1 C.B. 169. To determine the

•

Subject to the estate tax,

“reduced adjusted gross estate,”

Determining Which Transfers

•

Of an interest in property, and

subtract the amount on line 25 of the

Are Direct Skips

•

To a skip person (defined below).

Schedule Q Worksheet from the

All three requirements must be met

amount on line 24 of the worksheet. If

Effective dates. The rules below

before the transfer is subject to the

community property is included in the

apply only for the purpose of

GST tax. A transfer is subject to the

amount on line 24 of the worksheet,

determining if a transfer is a direct skip

estate tax if you are required to list it on

compute the reduced adjusted gross

that should be reported on Schedule R

any of Schedules A through I of Form

estate using the rules of Regulations

or R-1 of Form 706.

706. To determine if a transfer is of an

section 20.2056(c)-2 and Revenue

In general. The GST tax is

interest in property and to a skip

Ruling 76-311, 1976-2 C.B. 261.

effective for the estates of decedents

person, you must first determine if the

dying after October 22, 1986.

Schedules R and

transferee is a natural person or a trust

as defined below.

Irrevocable trusts. The GST tax

R-1—Generation-Skipping

will not apply to any transfer under a

Trust. For purposes of the GST tax, a

trust that was irrevocable on September

trust includes not only an ordinary trust

Transfer Tax

25, 1985, but only to the extent that the

(as defined in Special rule for trusts

transfer was not made out of corpus

other than ordinary trusts, below), but

Introduction and Overview

added to the trust after September 25,

also any other arrangement (other than

Schedule R is used to compute the

1985. An addition to the corpus after

an estate) which, although not explicitly

generation-skipping transfer (GST) tax

that date will cause a proportionate part

a trust, has substantially the same

that is payable by the estate. Schedule

of future income and appreciation to be

effect as a trust. For example, a trust

R-1 is used to compute the GST tax

subject to the GST tax. For more

includes life estates with remainders,

that is payable by certain trusts that are

information, see Regulations section

terms for years, and insurance and

includible in the gross estate.

26.2601-1(b)(1)(ii).

annuity contracts.

The GST tax that is to be reported

Mental disability. The term “under

Substantially separate and

on Form 706 is imposed only on “direct

independent shares of different

a mental disability” means the decedent

skips occurring at death.” Unlike the

beneficiaries in a trust are treated as

lacked the cognitive ability or

estate tax, which is imposed on the

separate trusts.

competence to execute an instrument

value of the entire taxable estate

governing the disposition of his or her

Interest in property. If a transfer is

regardless of who receives it, the GST

property, regardless of whether there

made to a natural person, it is always

tax is imposed only on the value of

was an adjudication of incompetence or

considered a transfer of an interest in

interests in property, wherever located,

an appointment of any other person

property for purposes of the GST tax.

that actually pass to certain transferees,

charged with the care of the person or

If a transfer is made to a trust, a

who are referred to as “skip persons.”

property of the transferor.

person will have an interest in the

For purposes of Form 706, the

If, on October 22, 1986, the

property transferred to the trust if that

property interests transferred must be

person either has a present right to

decedent was under a mental disability

includible in the gross estate before

to change the disposition of his or her

receive income or corpus from the trust

they are subject to the GST tax.

property and did not regain the

(such as an income interest for life) or

Therefore, the first step in computing

is a permissible current recipient of

competence to dispose of property

the GST tax liability is to determine the

before death, the GST tax will not apply

income or corpus from the trust (that is,

property interests includible in the gross

may receive income or corpus at the

to any property included in the gross

estate by completing Schedules A

discretion of the trustee).

estate (other than property transferred

through I of Form 706.

on behalf of the decedent during life

Skip person. A transferee who is a

and after October 21, 1986). The GST

The second step is to determine who

natural person is a skip person if that

tax will also not apply to any transfer

the skip persons are. To do this, assign

transferee is assigned to a generation

under a trust to the extent that the trust

each transferee to a generation and

that is two or more generations below

consists of property included in the

determine whether each transferee is a

the generation assignment of the

gross estate (other than property

“natural person” or a “trust” for GST

decedent. See Determining the

transferred on behalf of the decedent

purposes.

generation of a transferee, below.

during life and after October 21, 1986).

The third step is to determine which

A transferee who is a trust is a skip

skip persons are transferees of

If the decedent had been adjudged

person if all the interests in the property

“interests in property.” If the skip person

mentally incompetent, a copy of the

(as defined above) transferred to the

is a natural person, anything transferred

judgment or decree must be filed with

trust are held by skip persons. Thus,

is an interest in property. If the skip

this return.

whenever a non-skip person has an

-34-

Part Instructions

Instructions For Form 706 - United States Estate (And Generation-Skipping Transfer) Tax Return - 2011 Page 34

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