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close of an ETIP, complete column B for

future, the donor could allocate the

The notice must contain the following for

such transfer as follows.

increased exemption to the trust, even

each trust (or other transfer):

•

though no additional transfers were made

Clearly identify the trust, including the

1. Provided the GST exemption is

to the trust. See Regulations section

trust’s EIN, if known;

being allocated on a timely filed gift tax

•

26.2642-4 for details on the

If this is a late allocation, the year the

return, enter the value as of the close of

redetermination of the applicable fraction

transfer was reported on Form 709;

the ETIP.

•

when additional exemption is allocated to

The value of the trust assets at the

2. If the exemption is being allocated

the trust.

effective date of the allocation;

after the due date (including extensions)

•

The amount of your GST exemption

for the gift tax return on which the transfer

You should keep a record of your

allocated to each gift (or a statement that

should be reported, enter the value as of

transfers and exemption allocations to

you are allocating exemption by means of

the time the exemption allocation was

make sure that any future increases are

a formula such as “an amount necessary

made.

allocated correctly.

to produce an inclusion ratio of zero”);

Enter on line 1 of Part 2 the maximum

and

Column C

•

GST exemption you are allowed. This will

The inclusion ratio of the trust after the

You are allowed to claim the gift tax

not necessarily be the highest indexed

allocation.

annual exclusion currently allowable with

amount if you made no GST transfers

Total the exemption allocations and

respect to your reported direct skips

during the year of the increase.

enter this total on line 6.

(other than certain direct skips to trusts —

The donor can apply this exemption to

see Note below), using the rules and

Note. Where the property involved in

inter vivos transfers (that is, transfers

limits discussed earlier for the gift tax

such a transfer is subject to an ETIP

made during the donor’s life) on Form

annual exclusion. However, you must

because it would be includible in the

709. The executor can apply the

allocate the exclusion on a gift-by-gift

donor’s estate if the donor died

exemption on Form 706 to transfers

basis for GST computation purposes. You

immediately after the transfer (other than

taking effect at death. An allocation is

must allocate the exclusion to each gift to

by reason of the donor having died within

irrevocable.

the maximum allowable amount and in

3 years of making the gift), an allocation

In the case of inter vivos direct skips, a

chronological order, beginning with the

of the GST exemption at the time of the

portion of the donor’s unused exemption

earliest gift that qualifies for the exclusion.

transfer will only become effective at the

is automatically allocated to the

Be sure that you do not claim a total

end of the ETIP. For details, seeTransfers

transferred property unless the donor

exclusion of more than $11,000 per

Subject to an Estate Tax Inclusion Period

elects otherwise. To elect out of the

donee.

on page 3 and section 2642(f).

automatic allocation of exemption, you

Note. You may not claim any annual

must file Form 709 and attach a

Part 3—Tax Computation

exclusion for a transfer made to a trust

statement to it clearly describing the

You must enter in Part 3 every gift you

unless the trust meets the requirements

transaction and the extent to which the

listed in Part 1 of Schedule C.

discussed under Direct Skip on page 6.

automatic allocation is not to apply.

Reporting a direct skip on a timely filed

Part 2—GST Exemption

Column C

Form 709 and paying the GST tax on the

Reconciliation

You are not required to allocate your

transfer will qualify as such a statement.

available exemption. You may allocate

Line 1

Special QTIP election. If you have

some, all, or none of your available

elected QTIP treatment for any gifts in

exemption, as you wish, among the gifts

Every donor is allowed a lifetime GST

trust listed on Schedule A, then you may

listed in Part 3 of Schedule C. However,

exemption. The amount of the exemption

make an election on Schedule C to treat

the total exemption claimed in column C

for 2005 is $1,500,000. For transfers

the entire trust as non-QTIP for purposes

may not exceed the amount you entered

made through 1998, the GST exemption

of the GST tax. The election must be

on line 3 of Part 2 of Schedule C.

was $1 million. The exemption amounts

made for the entire trust that contains the

for 1999 through 2004 are as follows:

You may enter an amount in column C

particular gift involved on this return. Be

that is greater than the amount you

Year

Amount

sure to identify by item number the

entered in column B.

1999 . . . . . . . . . $1,010,000

specific gift for which you are making this

2000 . . . . . . . . . $1,030,000

special QTIP election.

Column D

2001 . . . . . . . . . $1,060,000

Carry your computation to three decimal

Line 5

2002 . . . . . . . . . $1,100,000

places (for example, “1.000”).

Enter on line 5 the amount of GST

2003 . . . . . . . . . $1,120,000

exemption you are applying to transfers

2004 . . . . . . . . . $1,500,000

reported in Part 3 of Schedule A.

Part 2—Tax Computation

In general, each annual increase can only

Section 2632(c) provides an automatic

be allocated to transfers made (or

allocation to indirect skips of any unused

(Page 1 of Form 709)

appreciation occurring) during or after the

GST exemption. The unused exemption

year of the transfer.

is allocated to indirect skips to the extent

Lines 4 and 5

necessary to make the inclusion ratio

Example. A donor made $1.5 million

To compute the tax for the amount on line

zero for the property transferred. You may

in GST transfers through 2003, and

3 (to be entered on line 4) and the tax for

elect out of this automatic allocation as

allocated all $1,120,000 of the exemption

the amount on line 2 (to be entered on

explained in the instructions for Part 3 on

to those transfers. In 2004, the donor

line 5), use the Table for Computing Gift

page 9.

makes a $5,000 taxable generation-

Tax on page 12.

skipping transfer. The donor can allocate

Line 6

$5,000 of exemption to the 2004 transfer

Line 7

but cannot allocate the $375,000 of

Notice of allocation. You may wish to

If you are a citizen or resident of the

unused 2004 exemption to pre-2004

allocate GST exemption with this return to

United States, you must take any

transfers.

transfers not reported on this return, such

available unified credit against gift tax.

as a late allocation.

However, if in 2003, the donor made a

Nonresident aliens may not claim the

$1.5 million transfer to a trust that was not

To allocate your exemption to such

unified credit. If you are a nonresident

a direct skip, but from which generation-

transfers, attach a statement to this Form

alien, delete the $345,800 entry, skip line

skipping transfers could be made in the

709 and entitle it “Notice of Allocation.”

8, and write in zero on line 11.

-11-

Instructions For Form 709 - United States Gift (And Generation-Skipping Transfer) Tax Return - 2005 Page 11

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