Instructions For Form 706-Gs(D-1)- Notification Of Distribution From A Generation-Skipping Trust (Page 2 of 5) in pdf

The denominator of the revised

treated as if made to an irrevocable

Trusts containing qualified termina-

fraction is the total value of the entire

trust.

ble interest property. If an irrevocable

trust immediately after the latest

trust in existence on September 25,

See Regulations section

addition. If the addition results from a

1985, holds qualified terminable interest

26.2601-1(b)(2)(vii) for examples

generation-skipping transfer, reduce the

property (QTIP) (as defined in section

demonstrating the operation of these

numerator and denominator by the

2056(b)(7)) as a result of an election

rules.

amount of any GST tax imposed on the

under section 2056(b)(7) or 2523(f), the

Transition Rule in Case of

transfer and recovered from the trust.

trust may elect to be treated for

Mental Disability

Round off the allocation fraction to five

purposes of the GST tax as if the QTIP

decimal places (for example,

election had not been made. Thus,

If the settlor was under a disability on

“0.00001”).

transfers from such a trust will not be

October 22, 1986, the GST tax may not

subject to the GST tax.

apply. See Regulations section

Transition Rule for Revocable

26.2601-1(b)(3) for a definition of the

Trusts

Additions to irrevocable trusts. To

term “mental disability” and details on

the extent that a distribution from a trust

The GST tax will not apply to any

the application of this rule.

is from an addition to an irrevocable

distributions from a revocable trust,

trust made after September 25, 1985,

Exceptions to Additions Rule

provided:

such distribution is subject to the GST

Do not treat as an addition to a trust any

1. The trust was executed before

tax. Additions include constructive

addition that is made pursuant to an

October 22, 1986;

additions described in Regulations

instrument or arrangement that is

2. The trust as it existed on October

section 26.2601-1(b)(1)(v).

covered by the rules discussed earlier

21, 1986, was not amended after

For purposes of figuring the inclusion

under Transition Rule for Revocable

October 21, 1986, in any way that

ratio (defined later), use only the value

Trusts and Transition Rule in Case of

created or increased the amount of a

of the total additions made to the trust

Mental Disability. This also applies to

generation-skipping transfer;

after September 25, 1985.

inter vivos transfers if the same property

3. Except as provided later, no

would have been added to the trust by

Distributions from trusts to which

addition was made to the trust; and

such an instrument. For examples

additions have been made. As

4. The settlor died before January 1,

illustrating this rule, see Regulations

described earlier, when an addition is

1987.

section 26.2601-1(b)(4)(ii).

made after September 25, 1985, to an

irrevocable trust, only the portion of the

A revocable trust is any trust that on

Definitions

trust resulting from the addition is

October 22, 1986, was not an

subject to the GST tax. For distributions,

irrevocable trust (as defined earlier) and

Skip persons. For GST tax purposes,

this portion is the product of the

would not have been an irrevocable

skip person means:

allocation fraction and the value of the

trust had it been created before

1. A natural person assigned to a

property distributed (including

September 25, 1985.

generation that is two or more

accumulated income and appreciation

generations below the settlor's

The instructions under Trusts

on that property).

generation, or

containing qualified terminable interest

The allocation fraction is a fraction,

property apply also to revocable trusts

2. A trust that meets the following

the numerator of which is the value of

covered by these transition rules.

conditions:

the addition as of the date it was made

a. All interests in the trust are held

(regardless of whether it was subject to

Amendments to revocable trusts. An

by skip persons, or

gift or estate tax, but reduced by the

amendment to a revocable trust in

amount of federal or state estate or gift

existence on October 21, 1986, will not

b. No person holds an interest in the

tax imposed and paid by the trust). The

be considered to result in the creation of

trust, and at no time after the transfer to

denominator of the fraction is the fair

or an increase in the amount of a

the trust may a distribution be made to a

market value of the entire trust

generation-skipping transfer where:

non-skip person.

immediately after the addition, less any

The amendment is administrative or

trust amount that is similar to expenses,

clarifying in nature; or

Non-skip person. A non-skip person is

indebtedness, or taxes that would be

It is designed to perfect a marital or

any person who is not a skip person.

allowable as a deduction under section

charitable deduction for an existing

Generation assignment. A generation

2053, and further reduced by the same

transfer, and it only incidentally

is determined along family lines as

amount that the numerator was reduced

increases the amount transferred to a

follows:

by to reflect federal or state estate or gift

skip person.

1. Where the beneficiary is a lineal

taxes paid by the trust.

Addition to revocable trusts. If an

descendant of a grandparent of the

When there is more than one

addition (including a constructive

transferor (for example, the donor's

addition, the allocation fraction is

addition) to a revocable trust is made

cousin, niece, nephew, etc.), the

revised after each addition. The

after October 21, 1986, and before the

number of generations between the

numerator of the revised fraction is the

death of the settlor, all subsequent

transferor and the descendant is

sum of:

distributions from the trust will be

determined by subtracting the number

subject to the GST tax, provided the

1. The value of the trust subject to

of generations between the grandparent

other requirements of taxability are met.

the GST tax immediately before the last

and the transferor from the number of

For settlors dying before January 1,

addition and

generations between the grandparent

1987, any addition made to a revocable

and the descendant.

2. The amount of the latest addition.

trust after the death of the settlor will be

2. Where the beneficiary is the lineal

descendant of a grandparent of a

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Instructions For Form 706-Gs(D-1)- Notification Of Distribution From A Generation-Skipping Trust Page 2

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