Instructions For Form 706 - United States Estate (And Generation-Skipping Transfer) Tax Return Page 45
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55How To Complete Schedules R
persons to whom the trust can make
Special rule for trusts other than or-
future distributions (including
and R-1
dinary trusts. An ordinary trust is
distributions upon the termination of
defined in Regulations section
Valuation. Enter on Schedules R and
interests in property held in trust) are
301.7701-4(a) as “an arrangement
R-1 the estate tax value of the property
skip persons (for example, the
created by a will or by an inter vivos
interests subject to the direct skips. If
decedent's grandchildren and
declaration whereby trustees take title to
you elected alternate valuation (section
great-grandchildren). Therefore, the
property for the purpose of protecting or
2032) and/or special-use valuation
trust itself is a skip person and you
conserving it for the beneficiaries under
(section 2032A), you must use the
should show the transfer on
the ordinary rules applied in chancery or
alternate and/or special-use values on
Schedule R.
probate courts.” Direct skips from
Schedules R and R-1.
4. The will establishes a trust that is
ordinary trusts are required to be
to pay all of its income to the decedent's
reported on Schedule R-1 regardless of
How To Complete Schedule R
grandchildren for 10 years. At the end of
their size unless the executor also is a
Part 1. GST Exemption
10 years, the corpus is to be distributed
trustee (see Executor as trustee,
Reconciliation
to the decedent's children. All of the
below).
present interests in this trust are held by
Direct skips from trusts that are trusts
Part 1, line 6, of both Parts 2 and 3, and
skip persons. Therefore, the trust is a
line 4 of Schedule R-1 are used to
for GST tax purposes but are not
skip person and you should show this
allocate the decedent's GST exemption.
ordinary trusts are to be shown on
transfer on Schedule R. You should
This allocation is made by filing Form
Schedule R-1 only if the total of all
show the estate tax value of all the
706 and attaching a completed
tentative maximum direct skips from the
property transferred to the trust even
entity is $250,000 or more. If this total is
Schedule R and/or R-1. Once made, the
though the trust has some ultimate
less than $250,000, the skips should be
allocation is irrevocable. You are not
beneficiaries who are non-skip persons.
shown on Schedule R. For purposes of
required to allocate all of the decedent's
the $250,000 limit, tentative maximum
GST exemption. However, the portion of
Dividing Direct Skips Between
direct skips is the amount you would
the exemption that you do not allocate
Schedules R and R-1
enter on line 5 of Schedule R-1 if you
will be allocated by the IRS under the
were to file that schedule.
deemed allocation of unused GST
Report all generation-skipping
exemption rules of section 2632(e).
transfers on Schedule R unless
A liquidating trust (such as a
TIP
the rules below specifically
bankruptcy trust) under Regulations
For transfers made through 1998, the
provide that they are to be reported on
section 301.7701-4(d) is not treated as
GST exemption was $1 million. The
Schedule R-1.
an ordinary trust for the purposes of this
current GST exemption is $5,490,000.
special rule.
Under section 2603(a)(2), the GST tax
The exemption amounts for 1999
If the proceeds of a life insurance
on direct skips from a trust (as defined
through 2016 are as follows.
policy are includible in the gross estate
for GST tax purposes) is to be paid by
and are payable to a beneficiary who is
the trustee and not by the estate.
Year of transfer
GST exemption
a skip person, the transfer is a direct
Schedule R-1 serves as a notification
1999
$1,010,000
skip from a trust that is not an ordinary
from the executor to the trustee that a
2000
$1,030,000
trust. It should be reported on
GST tax is due.
2001
$1,060,000
Schedule R-1 if the total of all the
For a direct skip to be reportable on
2002
$1,100,000
tentative maximum direct skips from the
Schedule R-1, the trust must be
2003
$1,120,000
company is $250,000 or more.
includible in the decedent's gross
2004 and 2005
$1,500,000
Otherwise, it should be reported on
estate.
2006, 2007, and 2008
$2,000,000
Schedule R.
2009
$3,500,000
If the decedent was a surviving
Similarly, if an annuity is includible on
2010 and 2011
$5,000,000
spouse receiving benefits for his or her
Schedule I and its survivor benefits are
2012
$5,120,000
lifetime from a marital deduction power
payable to a beneficiary who is a skip
2013
$5,250,000
of appointment (or QTIP) trust created
person, then the estate tax value of the
2014
$5,340,000
by the decedent's spouse, then
annuity should be reported as a direct
2015
$5,430,000
transfers caused by reason of the
skip on Schedule R-1 if the total
2016
$5,450,000
decedent's death from that trust to skip
tentative maximum direct skips from the
persons are direct skips required to be
entity paying the annuity is $250,000 or
reported on Schedule R-1.
more.
If a direct skip is made “from a trust”
The amount of each increase can
Executor as trustee. If any of the
under these rules, it is reportable on
only be allocated to transfers made (or
executors of the decedent's estate are
Schedule R-1 even if it also is made “to
appreciation that occurred) during or
trustees of the trust, then all direct skips
a trust” rather than to an individual.
after the year of the increase. The
for that trust must be shown on
following example shows the application
Similarly, if property in a trust (as
Schedule R and not on Schedule R-1,
of this rule.
defined for GST tax purposes) is
even if they would otherwise have been
included in the decedent's gross estate
required to be shown on Schedule R-1.
Example. In 2003, G made a direct
under sections 2035, 2036, 2037, 2038,
This rule applies even if the trust has
skip of $1,120,000 and applied her full
2039, 2041, or 2042 and such property
$1,120,000 of GST exemption to the
other trustees who are not executors of
is, by reason of the decedent's death,
transfer. G made a $450,000 taxable
the decedent's estate.
transferred to skip persons, the
direct skip in 2004 and another of
transfers are direct skips required to be
$90,000 in 2006. For 2004, G can only
reported on Schedule R-1.
apply $380,000 of exemption ($380,000
Part Instructions
-45-
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