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Under section 2603(a)(2), the GST

R-1 if the total of all the tentative

Year of transfer

GST exemption

tax on direct skips from a trust (as

maximum direct skips from the

1999

1,010,000

defined for GST tax purposes) is to be

company is $250,000 or more.

2000

1,030,000

paid by the trustee and not by the

Otherwise, it should be reported on

2001

1,060,000

estate. Schedule R-1 serves as a

2002

1,100,000

Schedule R.

notification from the executor to the

2003

1,120,000

trustee that a GST tax is due.

Similarly, if an annuity is includible

2004 and 2005

1,500,000

on Schedule I and its survivor benefits

2006, 2007, and 2008

2,000,000

For a direct skip to be reportable on

are payable to a beneficiary who is a

2009

3,500,000

Schedule R-1, the trust must be

skip person, then the estate tax value

includible in the decedent’s gross

The amount of each increase can

of the annuity should be reported as a

estate.

only be allocated to transfers made (or

direct skip on Schedule R-1 if the total

If the decedent was the surviving

appreciation that occurred) during or

tentative maximum direct skips from the

spouse life beneficiary of a marital

after the year of the increase. The

entity paying the annuity is $250,000 or

deduction power of appointment (or

following example shows the

more.

QTIP) trust created by the decedent’s

application of this rule:

spouse, then transfers caused by

Executor as trustee. If any of the

Example. In 2003, G made a direct

reason of the decedent’s death from

executors of the decedent’s estate are

skip of $1,120,000 and applied her full

that trust to skip persons are direct

trustees of the trust, then all direct skips

$1,120,000 of GST exemption to the

skips required to be reported on

for that trust must be shown on

transfer. G made a $450,000 taxable

Schedule R-1.

Schedule R and not on Schedule R-1

direct skip in 2004 and another of

If a direct skip is made “from a trust”

even if they would otherwise have been

$90,000 in 2006. For 2004, G can only

under these rules, it is reportable on

required to be shown on Schedule R-1.

apply $380,000 of exemption ($380,000

Schedule R-1 even if it is also made “to

inflation adjustment from 2004) to the

This rule applies even if the trust has

a trust” rather than to an individual.

$450,000 transfer in 2004. For 2006, G

other trustees who are not executors of

can apply $90,000 of exemption to the

the decedent’s estate.

Similarly, if property in a trust (as

2006 transfer, but nothing to the

defined for GST tax purposes) is

transfer made in 2004. At the end of

How To Complete Schedules

included in the decedent’s gross estate

2006, G would have $410,000 of

under section 2035, 2036, 2037, 2038,

R and R-1

unused exemption that she can apply

2039, 2041, or 2042 and such property

to future transfers (or appreciation)

Valuation. Enter on Schedules R and

is, by reason of the decedent’s death,

starting in 2007.

R-1 the estate tax value of the property

transferred to skip persons, the

Special QTIP election. In the case of

transfers are direct skips required to be

interests subject to the direct skips. If

property for which a marital deduction is

reported on Schedule R-1.

you elected alternate valuation (section

allowed to the decedent’s estate under

2032) and/or special-use valuation

Special rule for trusts other than

section 2056(b)(7) (QTIP election),

(section 2032A), you must use the

ordinary trusts. An ordinary trust is a

section 2652(a)(3) allows you to treat

alternate and/or special-use values on

trust as defined in Regulations section

such property for purposes of the GST

Schedules R and R-1.

301.7701-4(a) as “an arrangement

tax as if the election to be treated as

created by a will or by an inter vivos

qualified terminable interest property

How To Complete Schedule

declaration whereby trustees take title

had not been made.

to property for the purpose of protecting

The 2652(a)(3) election must include

or conserving it for the beneficiaries

the value of all property in the trust for

under the ordinary rules applied in

Part 1. GST Exemption

which a QTIP election was allowed

chancery or probate courts.” Direct

Reconciliation

under section 2056(b)(7).

skips from ordinary trusts are required

Part 1, line 6 of both Parts 2 and 3, and

to be reported on Schedule R-1

If a section 2652(a)(3) election is

line 4 of Schedule R-1 are used to

regardless of their size unless the

made, then the decedent will, for GST

allocate the decedent’s GST

executor is also a trustee (see Executor

tax purposes, be treated as the

exemption. This allocation is made by

as trustee, below).

transferor of all the property in the trust

filing Form 706 and attaching a

for which a marital deduction was

Direct skips from trusts that are

completed Schedule R and/or R-1.

allowed to the decedent’s estate under

trusts for GST tax purposes but are not

Once made, the allocation is

section 2056(b)(7). In this case, the

ordinary trusts are to be shown on

irrevocable. You are not required to

executor of the decedent’s estate may

Schedule R-1 only if the total of all

allocate all of the decedent’s GST

allocate part or all of the decedent’s

tentative maximum direct skips from the

exemption. However, the portion of the

GST exemption to the property.

entity is $250,000 or more. If this total

exemption that you do not allocate will

is less than $250,000, the skips should

You make the election simply by

be allocated by the IRS under the

be shown on Schedule R. For purposes

listing qualifying property on line 9 of

deemed allocation at death rules of

of the $250,000 limit, “tentative

Part 1.

section 2632(e).

maximum direct skips” is the amount

Line 2. These allocations will have

you would enter on line 5 of Schedule

been made either on Forms 709 filed

Note. If the estate elected modified

R-1 if you were to file that schedule.

by the decedent or on Notices of

carryover basis treatment on Form

A liquidating trust (such as a

Allocation made by the decedent for

8939, DO NOT attach this schedule to

bankruptcy trust) under Regulations

inter vivos transfers that were not direct

the return to allocate GST exemption.

section 301.7701-4(d) is not treated as

skips but to which the decedent

Instead, use Form 8939’s Schedule R.

an ordinary trust for the purposes of

allocated the GST exemption. These

this special rule.

allocations by the decedent are

For transfers made through 1998,

irrevocable.

the GST exemption was $1 million.

If the proceeds of a life insurance

Beginning in 2010, the GST exemption

policy are includible in the gross estate

Also include on this line allocations

is $5,000,000; however, the tax rate on

and are payable to a beneficiary who is

deemed to have been made by the

generation-skipping transfers made in

a skip person, the transfer is a direct

decedent under the rules of section

2010 is 0%. The exemption amounts

skip from a trust that is not an ordinary

2632. Unless the decedent elected out

for 1999 through 2009 are as follows:

trust. It should be reported on Schedule

of the deemed allocation rules,

-36-

Part Instructions

Instructions For Form 706 - United States Estate (And Generation-Skipping Transfer) Tax Return - 2011 Page 36

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