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unless the executor is also a trustee (see

exclusion. For 2005, the exemption is

1. To inter vivos direct skips, and

below).

$1.5 million.

2. Beginning with transfers made after

December 31, 2000, to lifetime transfers

Direct skips from trusts that are trusts

The previous GST exemption amounts

to certain trusts, by the decedent, that

for GST tax purposes but are not explicit

were as follows:

constituted indirect skips that were

trusts are to be shown on Schedule R-1

subject to the gift tax.

only if the total of all tentative maximum

Year of transfer

GST exemption

direct skips from the entity is $250,000 or

For more information, see section

Through 1998

$1,000,000

more. If this total is less than $250,000,

2632.

1999

1,010,000

the skips should be shown on Schedule

Line 3. Make an entry on this line if

2000

1,030,000

R. For purposes of the $250,000 limit,

you are filing Form(s) 709 for the

2001

1,060,000

“tentative maximum direct skips” is the

decedent and wish to allocate any

2002

1,100,000

amount you would enter on line 5 of

exemption.

2003

1,120,000

Schedule R-1 if you were to file that

Lines 4, 5, and 6. These lines

schedule.

2004

1,500,000

represent your allocation of the GST

A liquidating trust (such as a

The amount of each increase can only be

exemption to direct skips made by reason

bankruptcy trust) under Regulations

allocated to transfers made (or

of the decedent’s death. Complete Parts

section 301.7701-4(d) is not treated as an

appreciation that occurred) during or after

2 and 3 and Schedule R-1 before

explicit trust for the purposes of this

the year of the increase. The following

completing these lines.

special rule.

example shows the application of this

Line 9. Line 9 is used to allocate the

If the proceeds of a life insurance

rule:

remaining unused GST exemption (from

policy are includible in the gross estate

Example. In 2001, G made a direct

line 8) and to help you compute the trust’s

and are payable to a beneficiary who is a

skip of $1,060,000 and applied her full

inclusion ratio. Line 9 is a Notice of

skip person, the transfer is a direct skip

$1,060,000 of GST exemption to the

Allocation for allocating the GST

from a trust that is not an explicit trust. It

transfer. G made a $60,000 taxable direct

exemption to trusts as to which the

should be reported on Schedule R-1 if the

skip in 2002 and another of $10,000 in

decedent is the transferor and from which

total of all the tentative maximum direct

2003. For 2002, G can only apply

a generation-skipping transfer could occur

skips from the company is $250,000 or

$40,000 of exemption ($40,000 inflation

after the decedent’s death.

more. Otherwise, it should be reported on

adjustment from 2002) to the $60,000

If line 9 is not completed, the deemed

Schedule R.

transfer in 2002. For 2003, G can apply

allocation at death rules will apply to

Similarly, if an annuity is includible on

$10,000 of exemption to the 2003

allocate the decedent’s remaining unused

Schedule I and its survivor benefits are

transfer, but nothing to the transfer made

GST exemption, first to property that is

payable to a beneficiary who is a skip

in 2002. At the end of 2003, G would

the subject of a direct skip occurring at

person, then the estate tax value of the

have $10,000 of unused exemption that

the decedent’s death, and then to trusts

annuity should be reported as a direct

she can apply to future transfers (or

as to which the decedent is the transferor.

skip on Schedule R-1 if the total tentative

appreciation) starting in 2004.

If you wish to avoid the application of the

maximum direct skips from the entity

Special QTIP election. In the case of

deemed allocation rules, you should enter

paying the annuity is $250,000 or more.

property for which a marital deduction is

on line 9 every trust (except certain trusts

Executor as trustee. If any of the

allowed to the decedent’s estate under

entered on Schedule R-1, as described

executors of the decedent’s estate are

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

below) to which you wish to allocate any

trustees of the trust, then all direct skips

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

part of the decedent’s GST exemption.

with respect to that trust must be shown

such property for purposes of the GST tax

Unless you enter a trust on line 9, the

on Schedule R and not on Schedule R-1

as if the election to be treated as qualified

unused GST exemption will be allocated

even if they would otherwise have been

terminable interest property had not been

to it under the deemed allocation rules.

required to be shown on Schedule R-1.

made.

If a trust is entered on Schedule R-1,

This rule applies even if the trust has

The 2652(a)(3) election must include

the amount you entered on line 4 of

other trustees who are not executors of

the value of all property in the trust for

Schedule R-1 serves as a Notice of

the decedent’s estate.

which a QTIP election was allowed under

Allocation and you need not enter the

How To Complete Schedules R

section 2056(b)(7).

trust on line 9 unless you wish to allocate

and R-1

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

more than the Schedule R-1, line 4

made, then the decedent will for GST tax

amount to the trust. However, you must

Valuation. Enter on Schedules R and

purposes be treated as the transferor of

enter the trust on line 9 if you wish to

R-1 the estate tax value of the property

all the property in the trust for which a

allocate any of the unused GST

interests subject to the direct skips. If you

marital deduction was allowed to the

exemption amount to it. Such an

elected alternate valuation (section 2032)

decedent’s estate under section

additional allocation would not ordinarily

and/or special use valuation (section

2056(b)(7). In this case, the executor of

be appropriate in the case of a trust

2032A), you must use the alternate and/

the decedent’s estate may allocate part or

entered on Schedule R-1 when the trust

or special use values on Schedules R and

all of the decedent’s GST exemption to

property passes outright (rather than to

R-1.

the property.

another trust) at the decedent’s death.

How To Complete Schedule R

However, where section 2032A property

You make the election simply by listing

is involved, it may be appropriate to

qualifying property on line 9 of Part 1.

Part 1 — GST exemption reconciliation.

allocate additional exemption amounts to

Line 2. These allocations will have

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

the property. See the instructions for line

line 4 of Schedule R-1 are used to

been made either on Forms 709 filed by

10.

the decedent or on Notices of Allocation

allocate the decedent’s GST exemption.

This allocation is made by filing Form

made by the decedent for inter vivos

To avoid application of the

706. Once made, the allocation is

transfers that were not direct skips but to

deemed allocation rules, Form

irrevocable. You are not required to

which the decedent allocated the GST

706 and Schedule R should be

CAUTION

allocate all of the decedent’s GST

exemption. These allocations by the

filed to allocate the exemption to trusts

exemption. However, the portion of the

decedent are irrevocable.

that may later have taxable terminations

exemption that you do not allocate will be

or distributions under section 2612 even if

Also include on this line allocations

allocated by the IRS under the deemed

the form is not required to be filed to

deemed to have been made by the

allocation at death rules of section

report estate or GST tax.

decedent under the rules of section 2632.

2632(e).

Unless the decedent elected out of the

Line 9, column C. Enter the GST

Beginning with transfers made in 2004,

deemed allocation rules, allocations are

exemption included on lines 2 through 6

the GST exemption is equal to the

deemed to have been made in the

of Part 1 of Schedule R, and discussed

amount of the estate tax applicable

following order:

above, that was allocated to the trust.

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Instructions for Schedules

Instructions For Form 706 - United States Estate (And Generation-Skipping Transfer) Tax Return - 2005 Page 23

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