Instructions For Form 706 - 2016 Page 43
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54Schedules R and R-1 –
transfer is a direct skip that should be
Form 706, a direct skip is a transfer that
reported on Schedule R or R-1 of Form
is:
Generation-Skipping
706.
Subject to the estate tax,
Transfer Tax
Of an interest in property, and
In general. The GST tax is effective
To a skip person.
Introduction and Overview
for the estates of decedents dying after
All three requirements must be met
October 22, 1986.
Schedule R is used to figure the
before the transfer is subject to the GST
generation-skipping transfer (GST) tax
tax. A transfer is subject to the estate
Irrevocable trusts. The GST tax
that is payable by the estate.
tax if you are required to list it on any of
will not apply to any transfer under a
Schedule R-1 is used to figure the GST
Schedules A through I of Form 706. To
trust that was irrevocable on September
tax that is payable by certain trusts that
determine if a transfer is of an interest in
25, 1985, but only to the extent that the
are includible in the gross estate.
property and to a skip person, you must
transfer was not made out of corpus
first determine if the transferee is a
The GST tax reported on Form 706 is
added to the trust after September 25,
natural person or a trust as defined
imposed only on direct skips occurring
1985. An addition to the corpus after
later.
at death. Unlike the estate tax, which is
that date will cause a proportionate part
imposed on the value of the entire
of future income and appreciation to be
Trust. For purposes of the GST tax, a
taxable estate regardless of who
subject to the GST tax. For more
trust includes not only an ordinary trust
receives it, the GST tax is imposed only
information, see Regulations section
(as defined in Special rule for trusts
on the value of interests in property,
26.2601-1(b)(1).
other than ordinary trusts, later), but
wherever located, that actually pass to
also any other arrangement (other than
Mental disability. If, on October 22,
certain transferees, who are referred to
an estate) which, although not explicitly
1986, the decedent was under a mental
as skip persons (defined later).
a trust, has substantially the same effect
disability to change the disposition of his
For purposes of Form 706, the
as a trust. For example, a trust includes
or her property and did not regain the
property interests transferred must be
life estates with remainders, terms for
competence to dispose of property
includible in the gross estate before they
years, and insurance and annuity
before death, the GST tax will not apply
are subject to the GST tax. Therefore,
contracts.
to any property included in the gross
the first step in figuring the GST tax
estate (other than property transferred
Substantially separate and
liability is to determine the property
on behalf of the decedent during life and
independent shares of different
interests includible in the gross estate
after October 21, 1986). The GST tax
beneficiaries in a trust are treated as
by completing Schedules A through I of
will also not apply to any transfer under
separate trusts.
Form 706.
a trust to the extent that the trust
Interest in property. If a transfer is
The second step is to determine who
consists of property included in the
made to a natural person, it is always
the skip persons are. To do this, assign
gross estate (other than property
considered a transfer of an interest in
each transferee to a generation and
transferred on behalf of the decedent
property for purposes of the GST tax.
determine whether each transferee is a
during life and after October 21, 1986).
If a transfer is made to a trust, a
natural person or a trust for GST
Under a mental disability means the
person will have an interest in the
purposes. See section 2613 and
decedent lacked the competence to
property transferred to the trust if that
Regulations section 26.2612–1(d) for
execute an instrument governing the
person either has a present right to
details.
disposition of his or her property,
receive income or corpus from the trust
The third step is to determine which
regardless of whether there was an
(such as an income interest for life) or is
skip persons are transferees of interests
adjudication of incompetence or an
a permissible current recipient of
in property. If the skip person is a
appointment of any other person
income or corpus from the trust (that is,
natural person, anything transferred is
charged with the care of the person or
may receive income or corpus at the
an interest in property. If the skip person
property of the transferor.
discretion of the trustee).
is a trust, make this determination using
If the decedent had been adjudged
the rules under Interest in property,
Skip person. A transferee who is a
mentally incompetent, a copy of the
later. These first three steps are
natural person is a skip person if that
judgment or decree must be filed with
described in detail under the main
transferee is assigned to a generation
this return.
heading, Determining Which Transfers
that is two or more generations below
If the decedent had not been
Are Direct Skips, later.
the generation assignment of the
adjudged mentally incompetent, the
decedent. See Determining the
The fourth step is to determine
executor must file with the return a
generation of a transferee, later.
whether to enter the transfer on
certification from a qualified physician
Schedule R or on Schedule R-1. See
A transferee who is a trust is a skip
stating that in his opinion the decedent
the rules under the main heading,
person if all the interests in the property
had been mentally incompetent at all
Dividing Direct Skips Between
(as defined above) transferred to the
times on and after October 22, 1986,
Schedules R and R-1.
trust are held by skip persons. Thus,
and that the decedent had not regained
whenever a non-skip person has an
The fifth step is to complete
the competence to modify or revoke the
interest in a trust, the trust will not be a
Schedules R and R-1 using the How To
terms of the trust or will prior to his
skip person even though a skip person
Complete instructions for each
death or a statement as to why no such
also has an interest in the trust.
schedule.
certification may be obtained from a
physician.
A trust will also be a skip person if
Determining Which Transfers
there are no interests in the property
Direct skip. The GST tax reported on
Are Direct Skips
transferred to the trust held by any
Form 706 and Schedule R-1 is imposed
person, and future distributions or
Effective dates. The rules below apply
only on direct skips. For purposes of
only for the purpose of determining if a
Part Instructions
-43-
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