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they are subject to the GST tax.

(other than property transferred on

person either has a present right to

Therefore, the first step in computing

behalf of the decedent during life and

receive income or corpus from the trust

the GST tax liability is to determine the

after October 21, 1986).

(such as an income interest for life) or

property interests includible in the gross

is a permissible current recipient of

The term “mental disability” means

estate by completing Schedules A

income or corpus from the trust (that is,

the decedent’s mental incompetence to

through I of Form 706.

may receive income or corpus at the

execute an instrument governing the

discretion of the trustee).

The second step is to determine who

disposition of his or her property,

the skip persons are. To do this, assign

whether or not there has been an

Skip person. A transferee who is a

each transferee to a generation and

adjudication of incompetence and

natural person is a skip person if that

determine whether each transferee is a

whether or not there has been an

transferee is assigned to a generation

“natural person” or a “trust” for GST

appointment of any other person

that is two or more generations below

purposes.

charged with the care of the person or

the generation assignment of the

property of the transferor.

decedent. See Determining the

The third step is to determine which

generation of a transferee below.

skip persons are transferees of

If the decedent had been adjudged

“interests in property.” If the skip person

mentally incompetent, a copy of the

A transferee who is a trust is a skip

is a natural person, anything transferred

judgment or decree must be filed with

person if all the interests in the property

is an interest in property. If the skip

this return.

(as defined above) transferred to the

person is a trust, make this

trust are held by skip persons. Thus,

If the decedent had not been

determination using the rules under

whenever a non-skip person has an

adjudged mentally incompetent, the

Interest in property below. These first

interest in a trust, the trust will not be a

executor must file with the return a

three steps are described in detail

skip person even though a skip person

certification from a qualified physician

under the main heading, Determining

also has an interest in the trust.

stating that in his opinion the decedent

Which Transfers Are Direct Skips

had been mentally incompetent at all

A trust will also be a skip person if

below.

times on and after October 22, 1986,

there are no interests in the property

The fourth step is to determine

and that the decedent had not regained

transferred to the trust held by any

whether to enter the transfer on

the competence to modify or revoke the

person, and future distributions or

Schedule R or on Schedule R-1. See

terms of the trust or will prior to his

terminations from the trust can be made

the rules under the main heading,

death or a statement as to why no such

only to skip persons.

Dividing Direct Skips Between

certification may be obtained from a

Schedules R and R-1 on page 25.

Non-skip person. A non-skip person

physician.

is any transferee who is not a skip

The fifth step is to complete

Direct skip. The GST tax reported on

person.

Schedules R and R-1 using the How To

Form 706 and Schedule R-1 (Form

Complete instructions beginning on

706) is imposed only on direct skips.

Determining the generation of a

page 26, for each schedule.

For purposes of Form 706, a direct skip

transferee. Generally, a generation is

is a transfer that is:

determined along family lines as

Determining Which Transfers

•

Subject to the estate tax,

follows.

•

Are Direct Skips

Of an interest in property, and

1. Where the beneficiary is a lineal

•

To a skip person.

descendant of a grandparent of the

Effective dates. The rules below

All three requirements must be met

decedent (that is, the decedent’s

apply only for the purpose of

before the transfer is subject to the

cousin, niece, nephew, etc.), the

determining if a transfer is a direct skip

GST tax. A transfer is subject to the

number of generations between the

that should be reported on Schedule R

estate tax if you are required to list it on

decedent and the beneficiary is

or R-1 of Form 706.

any of Schedules A through I of Form

determined by subtracting the number

In general. The GST tax is

706. To determine if a transfer is of an

of generations between the

effective for the estates of decedents

interest in property and to a skip

grandparent and the decedent from the

dying after October 22, 1986.

person, you must first determine if the

number of generations between the

Irrevocable trusts. The GST tax

transferee is a natural person or a trust

grandparent and the beneficiary.

will not apply to any transfer under a

as defined below.

2. Where the beneficiary is a lineal

trust that was irrevocable on September

Trust. For purposes of the GST tax, a

descendant of a grandparent of a

25, 1985, but only to the extent that the

spouse (or former spouse) of the

trust includes not only an explicit trust

transfer was not made out of corpus

(as defined in Special rule for trusts

decedent, the number of generations

added to the trust after September 25,

other than explicit trusts beginning on

between the decedent and the

1985. An addition to the corpus after

beneficiary is determined by subtracting

page 25), but also any other

that date will cause a proportionate part

arrangement (other than an estate)

the number of generations between the

of future income and appreciation to be

grandparent and the spouse (or former

which, although not explicitly a trust,

subject to the GST tax. For more

spouse) from the number of

has substantially the same effect as a

information, see Regulations section

trust. For example, a trust includes life

generations between the grandparent

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

and the beneficiary.

estates with remainders, terms for

Mental disability. If, on October

years, and insurance and annuity

3. A person who at any time was

22, 1986, the decedent was under a

contracts.

married to a person described in (1) or

mental disability to change the

(2) above is assigned to the generation

Substantially separate and

disposition of his or her property and

of that person. A person who at any

independent shares of different

did not regain the competence to

time was married to the decedent is

beneficiaries in a trust are treated as

dispose of property before death, the

assigned to the decedent’s generation.

separate trusts.

GST tax will not apply to any property

4. A relationship by adoption or

Interest in property. If a transfer is

included in the gross estate (other than

half-blood is treated as a relationship

made to a natural person, it is always

property transferred on behalf of the

by whole-blood.

considered a transfer of an interest in

decedent during life and after October

5. A person who is not assigned to

property for purposes of the GST tax.

21, 1986). The GST tax will also not

a generation according to (1), (2), (3),

apply to any transfer under a trust to

If a transfer is made to a trust, a

or (4) above is assigned to a generation

the extent that the trust consists of

person will have an interest in the

based on his or her birth date, as

property included in the gross estate

property transferred to the trust if that

follows:

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Instructions for Schedules

Instructions For Form 706 - United States Estate (And Generation-Skipping Transfer) Tax Return - 2008 Page 24

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