Instructions For Form 706 - 2016 (Page 45 of 54) in pdf

transfer on Schedule R. You should

ordinary trusts are to be shown on

706 and attaching a completed

show the estate tax value of all the

Schedule R-1 only if the total of all

Schedule R and/or R-1. Once made, the

property transferred to the trust even

tentative maximum direct skips from the

allocation is irrevocable. You are not

though the trust has some ultimate

entity is $250,000 or more. If this total is

required to allocate all of the decedent's

beneficiaries who are non-skip persons.

less than $250,000, the skips should be

GST exemption. However, the portion of

shown on Schedule R. For purposes of

the exemption that you do not allocate

Dividing Direct Skips Between

the $250,000 limit, tentative maximum

will be allocated by the IRS under the

Schedules R and R-1

direct skips is the amount you would

deemed allocation of unused GST

enter on line 5 of Schedule R-1 if you

exemption rules of section 2632(e).

Report all generation-skipping

were to file that schedule.

transfers on Schedule R unless

TIP

For transfers made through 1998, the

A liquidating trust (such as a

the rules below specifically

GST exemption was $1 million. The

bankruptcy trust) under Regulations

provide that they are to be reported on

current GST exemption is $5,450,000.

section 301.7701-4(d) is not treated as

Schedule R-1.

The exemption amounts for 1999

an ordinary trust for the purposes of this

through 2015 are as follows:

Under section 2603(a)(2), the GST tax

special rule.

on direct skips from a trust (as defined

If the proceeds of a life insurance

for GST tax purposes) is to be paid by

Year of transfer

GST exemption

policy are includible in the gross estate

the trustee and not by the estate.

1999

$1,010,000

and are payable to a beneficiary who is

Schedule R-1 serves as a notification

2000

$1,030,000

a skip person, the transfer is a direct

from the executor to the trustee that a

2001

$1,060,000

skip from a trust that is not an ordinary

GST tax is due.

2002

$1,100,000

trust. It should be reported on

2003

$1,120,000

For a direct skip to be reportable on

Schedule R-1 if the total of all the

2004 and 2005

$1,500,000

Schedule R-1, the trust must be

tentative maximum direct skips from the

2006, 2007, and 2008

$2,000,000

includible in the decedent's gross

company is $250,000 or more.

2009

$3,500,000

estate.

Otherwise, it should be reported on

2010 and 2011

$5,000,000

Schedule R.

If the decedent was a surviving

2012

$5,120,000

Similarly, if an annuity is includible on

spouse receiving benefits for his or her

2013

$5,250,000

Schedule I and its survivor benefits are

lifetime from a marital deduction power

2014

$5,340,000

payable to a beneficiary who is a skip

of appointment (or QTIP) trust created

2015

$5,430,000

person, then the estate tax value of the

by the decedent's spouse, then

annuity should be reported as a direct

transfers caused by reason of the

skip on Schedule R-1 if the total

decedent's death from that trust to skip

tentative maximum direct skips from the

The amount of each increase can

persons are direct skips required to be

entity paying the annuity is $250,000 or

only be allocated to transfers made (or

reported on Schedule R-1.

more.

appreciation that occurred) during or

If a direct skip is made “from a trust”

after the year of the increase. The

Executor as trustee. If any of the

under these rules, it is reportable on

following example shows the application

executors of the decedent's estate are

Schedule R-1 even if it is also made “to

of this rule:

trustees of the trust, then all direct skips

a trust” rather than to an individual.

Example. In 2003, G made a direct

for that trust must be shown on

Similarly, if property in a trust (as

skip of $1,120,000 and applied her full

Schedule R and not on Schedule R-1,

defined for GST tax purposes) is

$1,120,000 of GST exemption to the

even if they would otherwise have been

included in the decedent's gross estate

transfer. G made a $450,000 taxable

required to be shown on Schedule R-1.

under sections 2035, 2036, 2037, 2038,

direct skip in 2004 and another of

This rule applies even if the trust has

2039, 2041, or 2042 and such property

$90,000 in 2006. For 2004, G can only

other trustees who are not executors of

is, by reason of the decedent's death,

apply $380,000 of exemption ($380,000

the decedent's estate.

transferred to skip persons, the

inflation adjustment from 2004) to the

How To Complete Schedules R

transfers are direct skips required to be

$450,000 transfer in 2004. For 2006, G

and R-1

reported on Schedule R-1.

can apply $90,000 of exemption to the

2006 transfer, but nothing to the transfer

Special rule for trusts other than or-

Valuation. Enter on Schedules R and

made in 2004. At the end of 2006, G

dinary trusts. An ordinary trust is

R-1 the estate tax value of the property

would have $410,000 of unused

defined in Regulations section

interests subject to the direct skips. If

exemption that she can apply to future

301.7701-4(a) as “an arrangement

you elected alternate valuation (section

transfers (or appreciation) starting in

created by a will or by an inter vivos

2032) and/or special-use valuation

2007.

declaration whereby trustees take title to

(section 2032A), you must use the

property for the purpose of protecting or

alternate and/or special-use values on

Special QTIP election. In the case of

conserving it for the beneficiaries under

Schedules R and R-1.

property for which a marital deduction is

the ordinary rules applied in chancery or

allowed to the decedent's estate under

How To Complete Schedule R

probate courts.” Direct skips from

section 2056(b)(7) (QTIP election),

ordinary trusts are required to be

Part 1. GST Exemption

section 2652(a)(3) allows you to treat

reported on Schedule R-1 regardless of

such property for purposes of the GST

Reconciliation

their size unless the executor is also a

tax as if the election to be treated as

Part 1, line 6 of both Parts 2 and 3, and

trustee (see Executor as trustee,

qualified terminable interest property

line 4 of Schedule R-1 are used to

below).

had not been made.

allocate the decedent's GST exemption.

Direct skips from trusts that are trusts

This allocation is made by filing Form

for GST tax purposes but are not

Part Instructions

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Instructions For Form 706 - 2016 Page 45

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