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Column C. 2632(b) Election

gifts in Part 3 in the chronological order

numbered items from Schedule A are

that you made them.

gifts to your spouse for which you are

If you elect under section 2632(b)(3) to

claiming the marital deduction.

not have the automatic allocation rules of

Column C. 2632(c) Election

section 2632(b) apply to a transfer, enter

Do not enter on line 4 any gifts to

Section 2632(c) provides for the

a check in column C next to the transfer.

TIP

your spouse who was not a U.S.

automatic allocation of the donor’s

You must also attach a statement to Form

citizen at the time of the gift.

unused GST exemption to indirect skips.

709 clearly describing the transaction and

This section also sets forth three different

You may deduct all gifts of

the extent to which the automatic

elections you may make regarding the

nonterminable interests made during the

allocation is not to apply. Reporting a

allocation of exemption.

year that you entered on Schedule A

direct skip on a timely filed Form 709 and

Election 1. You may elect not to have the

regardless of amount, and certain gifts of

paying the GST tax on the transfer will

automatic allocation rules apply to the

terminable interests as outlined below.

qualify as such a statement.

current transfer made to a particular

Terminable interests. Generally, you

How to report generation-skipping

trust.

cannot take the marital deduction if the

transfers after the close of an ETIP. If

Election 2. You may elect not to have the

gift to your spouse is a terminable

you are reporting a generation-skipping

automatic rules apply to both the

interest. In most instances, a terminable

transfer that was subject to an ETIP

current transfer and any and all future

interest is nondeductible if someone other

(provided the ETIP closed as a result of

transfers made to a particular trust.

than the donee spouse will have an

something other than the death of the

Election 3. You may elect to treat any

interest in the property following the

transferor; see Form 706), and you are

trust as a GST trust for purposes of the

termination of the donee spouse’s

also reporting gifts made during the year,

automatic allocation rules.

interest. Some examples of terminable

complete Schedule A as you normally

See section 2632(c)(5) for details.

interests are:

would with the following changes.

•

A life estate,

When to make an election. Election (1)

•

Report the transfer subject to an ETIP

An estate for a specified number of

is timely made if it is made on a timely

on Schedule A, Part 2.

years, or

filed gift tax return for the year the transfer

•

Any other property interest that after a

Column B. In addition to the

was made or was deemed to have been

period of time will terminate or fail.

information already requested, describe

made.

the interest that is closing the ETIP;

Elections (2) and (3) may be made on

If you transfer an interest to your

explain what caused the interest to

a timely filed gift tax return for the year for

spouse as sole joint tenant with yourself

terminate; and list the year the gift portion

or as a tenant by the entirety, the interest

which the election is to become effective.

of the transfer was reported and its item

is not considered a terminable interest

To make one of these elections, check

number on Schedule A that was originally

just because the tenancy may be

column C next to the transfer to which the

filed to report the gift portion of the ETIP

severed.

election applies. You must also attach an

transfer.

explanation as described below. If you

Life estate with power of appointment.

Column E. Give the date the ETIP

are making election (2) or (3) on a return

You may deduct, without an election, a

closed rather than the date of the initial

on which the transfer is not reported,

gift of a terminable interest if all four

gift.

simply attach the statement described

requirements below are met:

below.

Columns F, G, and H. Enter “N/A” in

1. Your spouse is entitled for life to all

these columns.

If you are reporting a transfer to a trust

of the income from the entire interest;

for which election (2) or (3) was made on

2. The income is paid yearly or more

The value is entered only in Column B

a previously filed return, do not make an

often;

of Part 1, Schedule C. See Column B on

entry in column C for that transfer and do

3. Your spouse has the unlimited

page 10.

not attach a statement.

power, while he or she is alive or by will,

Split Gifts—Gifts Made by

to appoint the entire interest in all

Attachment. You must attach a

Spouse

circumstances; and

statement to Form 709 that describes the

4. No part of the entire interest is

election you are making and clearly

See this heading under Part 1 on page 8.

subject to another person’s power of

identifies the trusts and/or transfers to

Part 3—Indirect Skips

appointment (except to appoint it to your

which the election applies.

spouse).

Some gifts made to trusts are subject only

Split Gifts—Gifts Made by

to gift tax at the time of the transfer but

If either the right to income or the

Spouse

later may be subject to GST tax. The GST

power of appointment given to your

tax could apply either at the time of a

See this heading under Part I on page 8.

spouse pertains only to a specific portion

distribution from the trust, at the

Part 4—Taxable Gift

of a property interest, the marital

termination of the trust, or both.

deduction is allowed only to the extent

Reconciliation

Section 2632(c) defines indirect skips

that the rights of your spouse meet all

and applies special rules to the allocation

four of the above conditions. For

Line 2

of GST exemption to such transfers. In

example, if your spouse is to receive all of

Enter the total annual exclusions you are

general, an indirect skip is a transfer of

the income from the entire interest, but

claiming for the gifts listed on Schedule A.

property that is subject to gift tax (other

only has a power to appoint one-half of

See Annual Exclusion on page 2. If you

than a direct skip) and is made to a GST

the entire interest, then only one-half

split a gift with your spouse, the annual

trust. A GST trust is a trust that could

qualifies for the marital deduction.

exclusion you claim against that gift may

have a generation-skipping transfer with

A partial interest in property is treated

not be more than the smaller of your half

respect to the transferor, unless the trust

as a specific portion of an entire interest

of the gift or $12,000.

provides for certain distributions of trust

only if the rights of your spouse to the

corpus to non-skip persons. See section

Deductions

income and to the power constitute a

2632(c)(3)(B) for details.

fractional or percentile share of the entire

Line 4. Marital deduction

List in Part 3 those gifts that are

property interest. This means that the

indirect skips as defined in section

Enter on line 4 all of the gifts to your

interest or share will reflect any increase

2632(c) or may later be subject to GST

spouse that you listed on Schedule A and

or decrease in the value of the entire

tax. This includes indirect skips for which

for which you are claiming a marital

property interest. If the spouse is entitled

election (2), described below, will be

deduction. Do not enter any gift that you

to receive a specified sum of income

made in the current year or has been

did not include on Schedule A. On the

annually, the capital amount that would

made in a previous year. You must list the

dotted line on line 4, indicate which

produce such a sum will be considered

-9-

Instructions For Form 709 - United States Gift (And Generation-Skipping Transfer) Tax Return - 2006 Page 9

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