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tentative maximum direct skips from the

under the deemed allocation at death

allocations by the decedent are

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

rules of section 2632(e).

irrevocable.

is less than $250,000, the skips should

For transfers made through 1998,

Also include on this line allocations

be shown on Schedule R. For purposes

the GST exemption was $1 million. The

deemed to have been made by the

of the $250,000 limit, “tentative

amount of the exemption for 2008 is

decedent under the rules of section

maximum direct skips” is the amount

$2,000,000. The exemption amounts

2632. Unless the decedent elected out

you would enter on line 5 of Schedule

for 1999 through 2007 are as follows:

of the deemed allocation rules,

R-1 if you were to file that schedule.

allocations are deemed to have been

Year of transfer

GST exemption

made in the following order:

A liquidating trust (such as a

1999

1,010,000

bankruptcy trust) under Regulations

1. To inter vivos direct skips and

2000

1,030,000

2. Beginning with transfers made

section 301.7701-4(d) is not treated as

2001

1,060,000

an explicit trust for the purposes of this

after December 31, 2000, to lifetime

2002

1,100,000

special rule.

transfers to certain trusts, by the

2003

1,120,000

decedent, that constituted indirect skips

If the proceeds of a life insurance

2004 and 2005

1,500,000

that were subject to the gift tax.

policy are includible in the gross estate

2006 and 2007

2,000,000

and are payable to a beneficiary who is

For more information, see section

The amount of each increase can

a skip person, the transfer is a direct

2632.

skip from a trust that is not an explicit

only be allocated to transfers made (or

Line 3. Make an entry on this line if

trust. It should be reported on Schedule

appreciation that occurred) during or

you are filing Form(s) 709 for the

after the year of the increase. The

R-1 if the total of all the tentative

decedent and wish to allocate any

maximum direct skips from the

following example shows the

exemption.

application of this rule:

company is $250,000 or more.

Lines 4, 5, and 6. These lines

Otherwise, it should be reported on

Example. In 2003, G made a direct

represent your allocation of the GST

Schedule R.

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

exemption to direct skips made by

$1,120,000 of GST exemption to the

Similarly, if an annuity is includible

reason of the decedent’s death.

transfer. G made a $450,000 taxable

on Schedule I and its survivor benefits

Complete Parts 2 and 3 and Schedule

direct skip in 2004 and another of

are payable to a beneficiary who is a

R-1 before completing these lines.

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

skip person, then the estate tax value

Line 9. Line 9 is used to allocate the

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

of the annuity should be reported as a

remaining unused GST exemption

inflation adjustment from 2004) to the

direct skip on Schedule R-1 if the total

(from line 8) and to help you compute

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

tentative maximum direct skips from the

the trust’s inclusion ratio. Line 9 is a

can apply $90,000 of exemption to the

entity paying the annuity is $250,000 or

Notice of Allocation for allocating the

2006 transfer, but nothing to the

more.

GST exemption to trusts as to which

transfer made in 2004. At the end of

the decedent is the transferor and from

Executor as trustee. If any of the

2006, G would have $410,000 of

which a generation-skipping transfer

executors of the decedent’s estate are

unused exemption that she can apply

could occur after the decedent’s death.

trustees of the trust, then all direct skips

to future transfers (or appreciation)

with respect to that trust must be shown

starting in 2007.

If line 9 is not completed, the

on Schedule R and not on Schedule

deemed allocation at death rules will

Special QTIP election. In the case of

R-1 even if they would otherwise have

apply to allocate the decedent’s

property for which a marital deduction is

been required to be shown on

remaining unused GST exemption, first

allowed to the decedent’s estate under

Schedule R-1. This rule applies even if

to property that is the subject of a direct

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

the trust has other trustees who are not

skip occurring at the decedent’s death,

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

executors of the decedent’s estate.

and then to trusts as to which the

such property for purposes of the GST

decedent is the transferor. If you wish

tax as if the election to be treated as

How To Complete Schedules

to avoid the application of the deemed

qualified terminable interest property

R and R-1

allocation rules, you should enter on

had not been made.

line 9 every trust (except certain trusts

The 2652(a)(3) election must include

Valuation. Enter on Schedules R and

entered on Schedule R-1, as described

the value of all property in the trust for

R-1 the estate tax value of the property

below) to which you wish to allocate

which a QTIP election was allowed

interests subject to the direct skips. If

any part of the decedent’s GST

under section 2056(b)(7).

you elected alternate valuation (section

exemption. Unless you enter a trust on

2032) and/or special-use valuation

If a section 2652(a)(3) election is

line 9, the unused GST exemption will

(section 2032A), you must use the

made, then the decedent will for GST

be allocated to it under the deemed

alternate and/or special-use values on

tax purposes be treated as the

allocation rules.

Schedules R and R-1.

transferor of all the property in the trust

If a trust is entered on Schedule R-1,

for which a marital deduction was

the amount you entered on line 4 of

How To Complete Schedule

allowed to the decedent’s estate under

Schedule R-1 serves as a Notice of

section 2056(b)(7). In this case, the

Allocation and you need not enter the

executor of the decedent’s estate may

trust on line 9 unless you wish to

Part 1. GST Exemption

allocate part or all of the decedent’s

allocate more than the Schedule R-1,

GST exemption to the property.

Reconciliation

line 4 amount to the trust. However,

You make the election simply by

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

you must enter the trust on line 9 if you

listing qualifying property on line 9 of

line 4 of Schedule R-1 are used to

wish to allocate any of the unused GST

Part 1.

allocate the decedent’s GST

exemption amount to it. Such an

exemption. This allocation is made by

Line 2. These allocations will have

additional allocation would not ordinarily

filing Form 706. Once made, the

been made either on Forms 709 filed

be appropriate in the case of a trust

allocation is irrevocable. You are not

by the decedent or on Notices of

entered on Schedule R-1 when the

required to allocate all of the

Allocation made by the decedent for

trust property passes outright (rather

decedent’s GST exemption. However,

inter vivos transfers that were not direct

than to another trust) at the decedent’s

the portion of the exemption that you do

skips but to which the decedent

death. However, where section 2032A

not allocate will be allocated by the IRS

allocated the GST exemption. These

property is involved, it may be

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Instructions for Schedules

Instructions For Form 706 - United States Estate (And Generation-Skipping Transfer) Tax Return - 2008 Page 26

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