Instructions For Form 709 - 2016 (Page 8 of 19) in pdf

Schedule A, Part 4, line 4). If the gifts

trust (for example, possesses a general

3. Similar rules apply for a new

exceed $148,000, you must report all of

power of appointment).

generation every 25 years.

the gifts even though some may be

Skip person. A donee, who is a natural

If more than one of the rules for

excluded.

person, is a skip person if that donee is

assigning generations applies to a donee,

assigned to a generation that is two or

that donee is generally assigned to the

Gifts Subject to Both Gift

more generations below the generation

youngest of the generations that would

and GST Taxes

assignment of the donor. See Determining

apply.

the Generation of a Donee.

If an estate, trust, partnership,

Definitions

A donee that is a trust is a skip person

corporation, or other entity (other than

if all the interests in the property

Direct skip. The GST tax you must report

governmental entities and certain

on Form 709 is that imposed only on inter

transferred to the trust (as defined above)

charitable organizations and trusts,

are held by skip persons.

vivos direct skips. An inter vivos direct skip

described in sections 511(a)(2) and

is a transfer that is:

511(b)(2), as discussed later) is a donee,

A trust will also be a skip person if there

Subject to the gift tax,

then each person who indirectly receives

are no interests in the property transferred

Of an interest in property, and

the gift through the entity is treated as a

to the trust held by any person, and future

Made to a skip person.

donee and is assigned to a generation as

distributions or terminations from the trust

All three requirements must be met before

explained in the above rules.

can be made only to skip persons.

the gift is subject to the GST tax.

Charitable organizations and trusts,

Nonskip person. A nonskip person is

A gift is “subject to the gift tax” if you

described in sections 511(a)(2) and

any donee who is not a skip person.

are required to list it on Schedule A of

511(b)(2), and governmental entities are

Determining the Generation of

Form 709. However, if you make a

assigned to the donor's generation.

nontaxable gift (which is a direct skip) to a

a Donee

Transfers to such organizations are

trust for the benefit of an individual, this

therefore not subject to the GST tax.

Generally, a generation is determined

transfer is subject to the GST tax unless:

These gifts should always be listed in Part

along family lines as follows.

1 of Schedule A.

1. During the lifetime of the

1. If the donee is a lineal descendant

beneficiary, no corpus or income may be

Charitable Remainder Trusts

of a grandparent of the donor (for

distributed to anyone other than the

example, the donor's cousin, niece,

Gifts in the form of charitable remainder

beneficiary; and

nephew, etc.), the number of generations

annuity trusts, charitable remainder

2. If the beneficiary dies before the

between the donor and the descendant

unitrusts, and pooled income funds are

termination of the trust, the assets of the

(donee) is determined by subtracting the

not transfers to skip persons and therefore

trust will be included in the gross estate of

number of generations between the

are not direct skips. You should always list

the beneficiary.

grandparent and the donor from the

these gifts in Part 1 of Schedule A even if

number of generations between the

all of the life beneficiaries are skip

Note. If the property transferred in the

grandparent and the descendant (donee).

persons.

direct skip would have been includible in

2. If the donee is a lineal descendant

the donor's estate if the donor died

Generation Assignment Where

of a grandparent of a spouse (or former

immediately after the transfer, see

Intervening Parent Is Deceased

spouse) of the donor, the number of

Transfers Subject to an Estate Tax

generations between the donor and the

If you made a gift to your grandchild and at

Inclusion Period (ETIP).

descendant (donee) is determined by

the time you made the gift, the

To determine if a gift “is of an interest in

subtracting the number of generations

grandchild's parent (who is your or your

property” and “is made to a skip person,”

between the grandparent and the spouse

spouse's or your former spouse's child) is

you must first determine if the donee is a

(or former spouse) from the number of

deceased, then for purposes of generation

“natural person” or a “trust,” as defined

generations between the grandparent and

assignment, your grandchild is considered

below.

the descendant (donee).

to be your child rather than your

Trust. For purposes of the GST tax, a

grandchild. Your grandchild's children will

3. A person who at any time was

trust includes not only an ordinary trust,

be treated as your grandchildren rather

married to a person described in (1) or (2)

but also any other arrangement (other

than your great-grandchildren.

above is assigned to the generation of that

than an estate) that although not explicitly

person. A person who at any time was

This rule is also applied to your lineal

a trust, has substantially the same effect

married to the donor is assigned to the

descendants below the level of

as a trust. For example, a trust includes

donor's generation.

grandchild. For example, if your

life estates with remainders, terms for

grandchild is deceased, your

4. A relationship by adoption or

years, and insurance and annuity

great-grandchildren who are lineal

half-blood is treated as a relationship by

contracts. A transfer of property that is

descendants of the deceased grandchild

whole-blood.

conditional on the occurrence of an event

are considered your grandchildren for

is a transfer in trust.

A person who is not assigned to a

purposes of the GST tax.

generation according to (1), (2), (3), or (4)

Interest in property. If a gift is made to a

This special rule may also apply in

above is assigned to a generation based

natural person, it is always considered a

other cases of the death of a parent of the

on his or her birth date as follows.

gift of an interest in property for purposes

transferee. If property is transferred to a

of the GST tax.

descendant of a parent of the transferor

1. A person who was born not more

than 12

years after the donor is in the

and that person's parent (who is a lineal

If a gift is made to a trust, a natural

donor's generation.

descendant of the parent of the transferor)

person will have an interest in the property

is deceased at the time the transfer is

transferred to the trust if that person either

2. A person born more than 12

subject to gift or estate tax, then for

has a present right to receive income or

years, but not more than 37

years, after

purposes of generation assignment, the

corpus from the trust (such as an income

the donor is in the first generation younger

individual is treated as if he or she is a

interest for life) or is a permissible current

than the donor.

member of the generation that is one

recipient of income or corpus from the

generation below the lower of:

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Instructions For Form 709 - 2016 Page 8

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