us/form/irs/ty2011

loading…

us/form/irs/ty2011 — Axiom

(i706)Instructions for Form 706 (Rev. August 2011), United States Estate (and Generation-Skipping Transfer) Tax Return#

(i706)(page-1)Page 1#

Department of the Treasury Internal Revenue Service Instructions for Form 706 (Rev. August 2011) For decedents dying after December 31, 2010, and before January 1, 2012 United States Estate (and Generation-Skipping Transfer) Tax Return Section references are to the Internal • The Tax Relief, Unemployment Contents Page Revenue Code unless otherwise noted. Insurance Reauthorization and Job Schedule B—Stocks and Creation Act of 2010 (Act) included Bonds . . . . . . . . . . . . . . . . . . . . .16 several provisions affecting the 2011 Schedule C—Mortgages, Prior Revisions of Form 706 Form 706. They are: Notes, and Cash . . . . . . . . . . . . .18 For Use a. Estates, generation-skipping Schedule D—Insurance on the Decedents Revision transfers (GST), and lifetime gifts all Decedent’s Life . . . . . . . . . . . . . .18 Dying of have a maximum tax rate of 35%. Schedule E—Jointly Owned and Form 706 b. The credit for transfers made by Property . . . . . . . . . . . . . . . . . . .19 After Before Dated gift is reunified with the credit for Schedule F—Other December January July 1999 transfers made at death. Both will 31, 1998 1, 2001 Miscellaneous Property . . . . . . . .20 receive a combined unified credit of December January November Schedule G—Transfers 31, 2000 1, 2002 2001 $1,730,800 (basic exclusion amount During Decedent’s Life . . . . . . . . .21 December January August of $5,000,000) under section 2010. Schedule H—Powers of 31, 2001 1, 2003 2002 c. The applicable exclusion amount Appointment . . . . . . . . . . . . . . . .22 December January August now may consist of a basic exclusion Schedule I—Annuities . . . . . . . . . . .23 31, 2002 1, 2004 2003 amount of $5,000,000 and, in the Schedule J—Funeral December January August case of a surviving spouse, the 31, 2003 1, 2005 2004 Expenses and Expenses unused exclusion amount of a December January August Incurred in Administering predeceased spouse (who died after 31, 2004 1, 2006 2005 Property Subject to Claims . . . . . .25 December 31, 2010). A timely and December January October Schedule K—Debts of the complete Form 706 filed for the 31, 2005 1, 2007 2006 Decedent and Mortgages predeceased spouse’s estate is December January September and Liens . . . . . . . . . . . . . . . . . . .26 required, even if there is no tax due, 31, 2006 1, 2008 2007 Schedule L—Net Losses to allow the surviving spouse to use December January August During Administration and 31, 2007 1, 2009 2008 the last predeceased spouse’s December January September Expenses Incurred in unused exclusion amount. See 31, 2008 1, 2010 2009 Administering Property Not instructions for Part 2—Tax December January July 2011 Subject to Claims . . . . . . . . . . . . .27 Computation, line 9 and Part 31, 2009 1, 2011 4—General Information, line 3 and Schedule M—Bequests, etc., line 4. to Surviving Spouse (Marital Contents Page d. If the estate chooses not to allow Deduction) . . . . . . . . . . . . . . . . . .27 What’s New . . . . . . . . . . . . . . . . . . . .1 the surviving spouse to take into Schedule O—Charitable, Reminders . . . . . . . . . . . . . . . . . . . .2 account, for estate and gift tax Public, and Similar Gifts and General Instructions . . . . . . . . . . . .2 purposes, the decedent’s unused Bequests . . . . . . . . . . . . . . . . . . .30 Purpose of Form . . . . . . . . . . . . . . . .2 exclusion amount, then do one of the Schedule P—Credit for Which Estates Must File . . . . . . . . . .2 following: attach a statement to the Foreign Death Taxes . . . . . . . . . .31 Form 706 indicating that the estate is Executor . . . . . . . . . . . . . . . . . . . . . .2 Schedule Q—Credit for Tax not making the election under When To File . . . . . . . . . . . . . . . . . .2 on Prior Transfers . . . . . . . . . . . .32 section 2010(c)(5) or enter “No Where To File . . . . . . . . . . . . . . . . . .2 Worksheet for Schedule Q . . . . . . . .33 Election Under Section 2010(c)(5)” Paying the Tax . . . . . . . . . . . . . . . . .2 Schedules R and across the top of the first page of Signature and Verification . . . . . . . . .3 R-1—Generation-Skipping Form 706. Amending Form 706 . . . . . . . . . . . . .3 Transfer Tax . . . . . . . . . . . . . . . .34 e. Prior gifts must be calculated at Supplemental Documents . . . . . . . . .3 Schedule U—Qualified the rate in effect at the decedent’s Rounding Off to Whole Dollars . . . . .3 Conservation Easement date of death. See Worksheet TG Penalties . . . . . . . . . . . . . . . . . . . . . .3 Exclusion . . . . . . . . . . . . . . . . . . .38 —Taxable Gifts Reconciliation, Line Obtaining Forms and Continuation Schedule . . . . . . . . . . .40 4 Worksheet, and Line 7 Worksheet Publications . . . . . . . . . . . . . . . . . .3 Privacy Act and Paperwork (Unified Credit Allowable for Prior Specific Instructions . . . . . . . . . . . .4 Reduction Act Notice . . . . . . . . . .41 Periods), below. Part 1—Decedent and Index . . . . . . . . . . . . . . . . . . . . . . .42 • Various dollar amounts and Executor . . . . . . . . . . . . . . . . . . . .4 Checklist . . . . . . . . . . . . . . . . . . . . .43 limitations in the Form 706 are indexed Part 2—Tax Computation . . . . . . . . .4 for inflation. For decedents dying in Part 3—Elections by the 2011, the following amounts are Executor . . . . . . . . . . . . . . . . . . . .7 applicable: Part 4—General Information . . . . . .12 a. The ceiling on special-use What’s New Part 5—Recapitulation . . . . . . . . . .13 valuation is $1,020,000. Schedule A—Real Estate . . . . . . . .14 • Use this revision of Form 706 only for b. The amount used in figuring the Schedule A-1—Section 2032A the estates of decedents who died in 2% portion of estate tax payable in Valuation . . . . . . . . . . . . . . . . . . .15 calendar year 2011. installments is $1,360,000. Cat. No. 16779E Nov 04, 2011

loading…

(i706)Instructions for Form 706 (Rev. August 2011), United States Estate (and Generation-Skipping Transfer) Tax Return#

(i706)(page-1)Page 1#

(i706)(page-2)Page 2#

The IRS will publish amounts for to allow the decedent’s surviving you should file Form 706-NA. If such a future years in annual revenue spouse to use the decedent’s unused decedent became a U.S. citizen wholly procedures. exclusion amount for estate and gift tax independently of his or her connection purposes. See instructions for line 4, with a possession, then the decedent is • Executors must provide Part 4—General Information, below, considered a U.S. citizen for estate tax documentation of their status. and section 2010(c)(4) and (c)(5). purposes, and you should file Form • The IRS has created a page on 706. IRS.gov for information about Form 706 Gross Estate and its instructions, at www.irs.gov/ form706. Information about any future The gross estate includes all property in Executor developments affecting Form 706 (such which the decedent had an interest The term “executor” means the as legislation enacted after we release (including real property outside the executor, personal representative, or it) will be posted on that page. United States). It also includes: administrator of the decedent’s estate. • Certain transfers made during the If none of these is appointed, qualified, decedent’s life without an adequate and and acting in the United States, every Reminders full consideration in money or money’s person in actual or constructive worth, possession of any property of the In 2008, we added a worksheet to help • Annuities, decedent is considered an executor executors figure how much of the • The includible portion of joint estates and must file a return. estate tax may be paid in installments with right of survivorship (see Executors must provide under section 6166. See Determine instructions for Schedule E), documentation proving their status. how much of the estate tax may be • The includible portion of tenancies by Documentation will vary, but may paid in installments under section 6166, the entirety (see instructions for include documents such as a certified below. Schedule E), copy of the will or a court order • Certain life insurance proceeds (even designating the executor(s). A though payable to beneficiaries other General Instructions statement by the executor attesting to than the estate) (see instructions for their status is insufficient. Schedule D), Purpose of Form • Property over which the decedent When To File The executor of a decedent’s estate possessed a general power of uses Form 706 to figure the estate tax You must file Form 706 to report estate appointment, imposed by Chapter 11 of the Internal and/or GST tax within 9 months after • Dower or curtesy (or statutory estate) Revenue Code. This tax is levied on the date of the decedent’s death. If you of the surviving spouse, and the entire taxable estate and not just on are unable to file Form 706 by the due • Community property to the extent of the share received by a particular date, you may receive an extension of the decedent’s interest as defined by beneficiary. Form 706 is also used to time to file. Use Form 4768, Application applicable law. figure the generation-skipping transfer for Extension of Time To File a Return For more specific information, see (GST) tax imposed by Chapter 13 on and/or Pay U.S. Estate (and the instructions for Schedules A direct skips (transfers to skip persons of Generation-Skipping Transfer) Taxes, through I. interests in property included in the to apply for an automatic 6-month decedent’s gross estate). extension of time to file. U.S. Citizens or Residents; Private delivery services. You can Nonresident Noncitizens Which Estates Must File use certain private delivery services File Form 706 for the estates of designated by the IRS to meet the For decedents dying in 2011, Form 706 decedents who were either U.S. “timely mailing as timely filing/paying” must be filed by the executor for the citizens or U.S. residents at the time of rule for tax returns and payments. estate of every U.S. citizen or resident: death. For estate tax purposes, a These private delivery services include a. Whose gross estate, plus adjusted resident is someone who had a only the following: taxable gifts and specific exemption, domicile in the United States at the time • DHL Express (DHL): DHL Same Day is more than $5,000,000; or, of death. A person acquires a domicile Service. b. Whose executor wants to make by living in a place for even a brief • Federal Express (FedEx): FedEx the election to permit the decedent’s period of time, as long as the person Priority Overnight, FedEx Standard surviving spouse to use the had no intention of moving from that Overnight, FedEx 2Day, FedEx decedent’s unused exclusion place. International Priority, FedEx amount, regardless of the size of the International First. File Form 706-NA, U.S. Estate (and decedent’s gross estate. See • United Parcel Service (UPS): UPS Generation-Skipping Transfer) Tax instructions for Part 4, line 4. Next Day Air, UPS Next Day Air Saver, Return, for the estates of nonresident UPS 2nd Day Air, UPS 2nd Day Air alien decedents (decedents who were A.M., UPS Worldwide Express Plus, To determine whether you must file neither U.S. citizens nor U.S. residents and UPS Worldwide Express. a return for the estate, add: at the time of death). The private delivery service can tell 1. The adjusted taxable gifts (as Residents of U.S. you how to get written proof of the defined in section 2503) made by the Possessions mailing date. decedent after December 31, 1976; 2. The total specific exemption All references to citizens of the United allowed under section 2521 (as in effect Where To File States are subject to the provisions of before its repeal by the Tax Reform Act sections 2208 and 2209, relating to File Form 706 at the following address: of 1976) for gifts made by the decedent decedents who were U.S. citizens and Department of the Treasury after September 8, 1976; and residents of a U.S. possession on the Internal Revenue Service Center 3. The decedent’s gross estate date of death. If such a decedent Cincinnati, OH 45999 valued at the date of death. became a U.S. citizen only because of his or her connection with a Paying the Tax If you determine filing a return for the possession, then the decedent is estate is not required, you nonetheless considered a nonresident alien The estate and GST taxes are due should file a return if you intend to elect decedent for estate tax purposes, and within 9 months after the date of the -2- General Instructions

(i706)(page-3)Page 3#

decedent’s death. You may request an Amending Form 706 Penalties extension of time for payment by filing If you find that you must change Late filing and late payment. Section Form 4768. You may also elect under something on a return that has already 6651 provides for penalties for both late section 6166 to pay in installments or been filed, you should: filing and for late payment unless there under section 6163 to postpone the • File another Form 706; is reasonable cause for the delay. The part of the tax attributable to a law also provides for penalties for willful • Enter “Supplemental Information” reversionary or remainder interest. attempts to evade payment of tax. The across the top of page 1 of the form; These elections are made by checking late filing penalty will not be imposed if and lines 3 and 4 (respectively) of Part the taxpayer can show that the failure 3—Elections by the Executor, and • Attach a copy of pages 1, 2, and 3 of to file a timely return is due to attaching the required statements. the original Form 706 that has already reasonable cause. been filed. If the tax paid with the return is Reasonable cause determinations. different from the balance due as If you have already been notified If you receive a notice about penalties figured on the return, explain the that the return has been selected for after you file Form 706, send an difference in an attached statement. If examination, you should provide the explanation and we will determine if you you have made prior payments to the additional information directly to the meet reasonable cause criteria. Do not IRS, attach a statement to Form 706 office conducting the examination. attach an explanation when you file including these facts. Form 706. Explanations attached to the return at the time of filing will not be Paying by check. Make the check Supplemental Documents considered. payable to the “United States Note. You must attach the death Treasury.” Please write the decedent’s Valuation understatement. Section certificate to the return. name, social security number (SSN), 6662 provides a 20% penalty for the and “Form 706” on the check to assist underpayment of estate tax that If the decedent was a citizen or us in posting it to the proper account. exceeds $5,000 when the under- resident of the United States and died payment is attributable to valuation testate, attach a certified copy of the understatements. A valuation Signature and Verification will to the return. If you cannot obtain a understatement occurs when the value certified copy, attach a copy of the will of property reported on Form 706 is If there is more than one and an explanation of why it is not 65% or less of the actual value of the executor, all listed executors are certified. Other supplemental property. responsible for the return. documents may be required as CAUTION ! However, it is sufficient for only one of explained below. Examples include This penalty increases to 40% if the co-executors to sign the return. Forms 712, Life Insurance Statement; there is a gross valuation under- 709, United States Gift (and statement. A gross valuation under- All executors are responsible for the Generation-Skipping Transfer) Tax statement occurs if any property on the return as filed and are liable for Return; and 706-CE, Certificate of return is valued at 40% or less of the penalties provided for erroneous or Payment of Foreign Death Tax; trust value determined to be correct. false returns. and power of appointment instruments; Penalties also apply to late filing, late If two or more persons are liable for and state certification of payment of payment, and underpayment of GST filing the return, they should all join death taxes. If you do not file these taxes. together in filing one complete return. documents with the return, the Return preparer. Estate tax return However, if they are unable to join in processing of the return will be delayed. preparers, who prepare any return or making one complete return, each is claim for refund which reflects an If the decedent was a U.S. citizen required to file a return disclosing all understatement of tax liability due to but not a resident of the United States, the information the person has about willful or reckless conduct, are subject you must attach the following the estate, including the name of every to a penalty of $5,000 or 50% of the documents to the return: person holding an interest in the income derived (or income to be 1. A copy of the inventory of property and a full description of the derived), whichever is greater, for the property and the schedule of liabilities, property. If the appointed, qualified, and preparation of each such return. See claims against the estate, and acting executor is unable to make a section 6694, the regulations expenses of administration filed with complete return, then every person thereunder, and Ann. 2009-15, 2009-11 the foreign court of probate jurisdiction, holding an interest in the property must, I.R.B. 687 (available at www.irs.gov/ certified by a proper official of the court; on notice from the IRS, make a return pub/irs-irbs/irb09-11.pdf) for more regarding that interest. 2. A copy of the return filed under information. the foreign inheritance, estate, legacy, The executor who files the return succession tax, or other death tax act, must, in every case, sign the Obtaining Forms and certified by a proper official of the declaration on page 1 under penalties foreign tax department, if the estate is Publications To File or Use of perjury. subject to such a foreign tax; and Internet. You can access the IRS Generally, anyone who is paid to 3. If the decedent died testate, a website 24 hours a day, 7 days a week prepare the return must sign the return certified copy of the will. at IRS.gov to: in the space provided and fill in the • Download forms, instructions, and “Paid Preparer Use Only” area. See publications; section 7701(a)(36)(B) for exceptions. Rounding Off to Whole • Order IRS products online; In addition to signing and completing Dollars • Research your tax questions online; the required information, the paid • Search publications online by topic or You may show the money items on the preparer must give a copy of the keyword; and return and accompanying schedules as completed return to the executor. • Sign up to receive local and national whole-dollar amounts. To do so, drop tax news by email. Note. A paid preparer may sign any amount less than 50 cents and original or amended returns by rubber increase any amount from 50 cents Other forms that may be required. stamp, mechanical device, or computer through 99 cents to the next higher • Form SS-5, Application for Social software program. dollar. Security Card. -3- General Instructions

(i706)(page-4)Page 4#

IF . . . THEN . . . • Form 706-CE, Certificate of Payment elected alternate valuation on line 1 of of Foreign Death Tax. Part 3—Elections by the Executor. you enter zero on any you need not file the • Form 706-NA, United States Estate • When you complete the return, staple item of the schedule (except for (and Generation-Skipping Transfer) Tax all the required pages together in the Recapitulation, Schedule F) referred to Return, Estate of nonresident not a proper order. on that item. citizen of the United States. • Form 709, United States Gift (and you claim an exclusion complete and attach on item 11, Schedule U. Generation-Skipping Transfer) Tax Part 1—Decedent and Return. you claim any complete and attach the • Form 712, Life Insurance Statement. Executor deductions on items 13 appropriate schedules to • Form 2848, Power of Attorney and through 21 of the support the claimed Declaration of Representative. Line 2 Recapitulation, deductions. • Form 4768, Application for Extension Enter the SSN assigned specifically to of Time To File a Return and/or Pay you claim credits for complete and attach the decedent. You cannot use the SSN U.S. Estate (and Generation-Skipping foreign death taxes or Schedule P or Q. assigned to the decedent’s spouse. If tax on prior transfers, Transfer) Taxes. the decedent did not have an SSN, the • Form 4808, Computation of Credit for executor should obtain one for the there is not enough attach a Continuation Gift Tax. decedent by filing Form SS-5, with a space on a schedule to Schedule (or additional • Form 8821, Tax Information list all the items, sheets of the same size) local Social Security Administration Authorization. to the back of the office. • Form 8822, Change of Address. schedule; (see the Continuation Additional Information. The following Line 6a. Name of Executor Schedule at the end of publications may assist you in learning Form 706); If there is more than one executor, about and preparing Form 706: photocopy the blank enter the name of the executor to be • Publication 559, Survivors, schedule before contacted by the IRS. List the other Executors, and Administrators. completing it, if you will executors’ names, addresses, and need more than one • Publication 910, IRS Guide to Free SSNs (if applicable) on an attached copy. Tax Services. sheet. • Publication 950, Introduction to Estate and Gift Taxes. Also consider the following: Line 6b. Executor’s Address Note. For information about release of • Form 706 has 28 numbered pages. Use Form 8822 to report a change of nonresident U.S. citizen decedents’ The pages are perforated so that you the executor’s address. assets using transfer certificates under can remove them for copying and filing. Regulation 20.6325-1, write to: • Number the items you list on each Line 6c. Executor’s Social schedule, beginning with the number Internal Revenue Service Security Number “1” each time, or using the numbering Cincinnati, OH 45999 Only individual executors should convention as indicated on the Stop 824G complete this line. If there is more than schedule (for example, Schedule M). one executor, all should list their SSNs • Total the items listed on the schedule on an attached sheet. and its attachments, Continuation Specific Instructions Schedules, etc. You must file the first three pages of • Enter the total of all attachments, Part 2—Tax Form 706 and all required schedules. Continuation Schedules, etc., at the File Schedules A through I, as bottom of the printed schedule, but do Computation appropriate, to support the entries in not carry the totals forward from one In general, the estate tax is figured by items 1 through 9 of Part schedule to the next. applying the unified rates shown in 5—Recapitulation. • Enter the total, or totals, for each Table A to the total of transfers both schedule on page 3, Part during life and at death, and then 5—Recapitulation. subtracting the gift taxes, as refigured • Do not complete the “Alternate based on the date of death rates. See valuation date” or “Alternate value” Worksheet TG, Line 4 Worksheet, and columns of any schedule unless you Line 7 Worksheet. Table A — Unified Rate Schedule Column A Column B Column C Column D Taxable amount over Taxable amount not Tax on amount in Rate of tax on excess over Column A over amount in Column A $0 $10,000 $0 18% $10,000 20,000 $1,800 20% 20,000 40,000 3,800 22% 40,000 60,000 8,200 24% 60,000 80,000 13,000 26% 80,000 100,000 18,200 28% 100,000 150,000 23,800 30% 150,000 250,000 38,800 32% 250,000 500,000 70,800 34% 500,000 - - - - 155,800 35% -4- General, Specific, and Part Instructions

(i706)(page-5)Page 5#

Worksheet TG and Line 4 Worksheet Worksheet TG—Taxable Gifts Reconciliation (To be used for lines 4 and 7 of the Tax Computation) Calendar year or calendar quarter Total taxable gifts for period (see Note) Note. For the definition of a taxable gift, see section 2503. Follow Form 709. That is, include only the decedent’s one-half of split gifts, whether the gifts were made by the decedent or the decedent’s spouse. In addition to gifts reported on Form 709, you must include any taxable gifts in excess of the annual exclusion that were not reported on Form 709. b. a. Taxable amount included in col. b for gifts that qualify for “special treatment of split gifts” described below Taxable amount included in col. b for gifts included in the gross estate Gift tax paid by decedent on gifts in col. d Gift tax paid by decedent’s spouse on gifts in col. c Gifts made after June 6, 1932, and before 1977 Total taxable gifts made before 1977 1. f. e. d. c. Gifts made after 1976 Totals for gifts made after 1976 2. Line 4 Worksheet—Adjusted Taxable Gifts Made After 1976 1. Taxable gifts made after 1976. Enter the amount from Worksheet TG, line 2, column b Taxable gifts made after 1976 reportable on Schedule G. Enter the amount from Worksheet TG, line 2, column c 2. Taxable gifts made after 1976 that qualify for “special treatment.” Enter the amount from Worksheet TG, line 2, column d 3. Add lines 2 and 3 4. Adjusted taxable gifts. Subtract line 4 from line 1. Enter here and on Part 2—Tax Computation, line 4 5. 1 2 3 4 5 Note. You must complete Part 2—Tax finally allowed unless you pay the state You should send the following Computation. death taxes and claim the deduction evidence to the IRS: within 4 years after the return is filed, or 1. Certificate of the proper officer of Line 1 later (see section 2058(b)) if: the taxing state, or the District of • A petition is filed with the Tax Court If you elected alternate valuation on line Columbia, showing the: of the United States, 1, Part 3—Elections by the Executor, a. Total amount of tax imposed • You have an extension of time to enter the amount you entered in the (before adding interest and penalties pay, or “Alternate value” column of item 12 of and before allowing discount), • You file a claim for refund or credit of Part 5—Recapitulation. Otherwise, b. Amount of discount allowed, an overpayment which extends the enter the amount from the “Value at c. Amount of penalties and interest deadline for claiming the deduction. date of death” column. imposed or charged, Note. The deduction is not subject to d. Total amount actually paid in Line 3b. State Death Tax dollar limits. cash, and Deduction e. Date of payment. If you make a section 6166 election to pay the federal estate tax in 2. Any additional proof the IRS The estates of decedents dying installments and make a similar election specifically requests. after December 31, 2004, will be to pay the state death tax in You should file the evidence allowed a deduction for state CAUTION ! installments, see section 2058(b) for requested above with the return, if death taxes, instead of a credit. The exceptions and periods of limitation. possible. Otherwise, send it as soon state death tax credit was repealed as If you transfer property other than after you file the return as possible. of January 1, 2005. cash to the state in payment of state You may take a deduction on line 3b inheritance taxes, the amount you may Line 6 for estate, inheritance, legacy, or claim as a deduction is the lesser of the succession taxes paid as the result of To figure the tentative tax on the state inheritance tax liability discharged the decedent’s death to any state or the amount on line 5, use Table A — or the fair market value (FMV) of the District of Columbia. Unified Rate Schedule, above, and put property on the date of the transfer. For the result on this line. You may claim an anticipated more information on the application of amount of deduction and figure the such transfers, see the principles Lines 4 and 7 federal estate tax on the return before discussed in Revenue Ruling 86-117, the state death taxes have been paid. 1986-2 C.B. 157, prior to the repeal of Three worksheets are provided to help However, the deduction cannot be section 2011. you figure the entries for these lines. -5- Part Instructions

(i706)(page-6)Page 6#

Line 7 Worksheet (Unified Credit Allowable for Prior Periods) Keep for Your Records Line 7 Worksheet – Tax on Gifts Made After 1976 (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) Period Taxable Total Cumulative Tax Tax Based Tax on Maximum Unified Available Credit Tax Payable Gifts for Taxable Taxable Based on on 2011 Gifts for Unified Credit Credit in Allowable for Current the Gifts for Gifts 2011 Rates on Current Credit Allowable Current (Lesser of Period Current Prior Including Rates on Cumulative Period Available in Prior Period Col. (g) (Col. (g) – Period Periods1 Current Gifts Gifts (Col. (f) – for Current Periods4 (Col. (h) – and Col. Col. (k)) Period. from Including Col. (e)) Period Col. (i)) (j)) (Col. (b) + Prior Current (based on Col. (c)) Periods Period 2011 (Col. (c))2 (Col. (d)) rates)3 Pre-1977 1. Total gift taxes payable on gifts made after 1976 (add all amounts in column (l)). 1. 2. Gift taxes paid by the decedent on gifts that qualify for “special treatment.” Enter the amount from Worksheet TG, line 2. 2, column e. 3. Subtract line 2 from 1. 3. 4. Gift tax paid by decedent’s spouse on split gift included on Schedule G. Enter amount from Worksheet TG, 4. line 2, column (f). 5. Add lines 3 and 4. Enter here and on Part 2—Tax Computation, line 7. 5. 1. Column (c): Enter amount from column (d) of the previous row. 2. Column (e): Enter amount from column (f) of the previous row. 3. Column (h): Enter amount from the Table of Unified Credits. (For each row in column (h), subtract 20 percent of any amount allowed as a specific exemption for gifts made after September 8, 1976, and before January 1, 1977.) 4. Column (i): Enter the sum of column (i) and column (k) from the previous row. You need not file these worksheets with through 2005, and $12,000 for 2006 percent of the amount allowed as a your return but should keep them for through 2008. For 2009, 2010, and specific exemption for gifts made after your records. Worksheet TG—Taxable 2011, the annual exclusion for gifts of September 8, 1976, and before Gifts Reconciliation allows you to present interest is $13,000 per donee. January 1, 1977 (but no more than reconcile the decedent’s lifetime $6,000). How to complete line 7 worksheet taxable gifts to figure totals that will be Column (i). Enter the sum of column (i) Column (a). Beginning with the earliest used for the Line 4 Worksheet and the and column (k) from the previous row. year in which taxable gifts were made, Line 7 Worksheet. Column (j). Subtract the amount in enter the quarter/year of the prior You must have all of the decedent’s column (i) from the amount in column gift(s). gift tax returns (Form 709) before you (h). Column (b). Enter all taxable gifts. complete Worksheet TG—Taxable Column (k). Enter the lesser of column Enter all pre-1977 gifts on the pre-1977 Gifts Reconciliation. The amounts you (g) and column (j) for the current row. row. will enter on Worksheet TG can usually Column (c). Enter the amount from Column (l). Subtract the amount in be derived from the filed returns that column (d) of the previous row. column (k) from the amount in column were subject to tax. However, if any of Column (d). Enter the sum of column (g) to determine any tax due. Enter the returns were audited by the IRS, (b) and column (c) from the current row. result in column (l). you should use the amounts that were Column (e). Enter the amount from Repeat for each year in which finally determined as a result of the column (f) of the previous row. taxable gifts were made. audits. Column (f). Enter the tax based on the amount in column (d) of the current row In addition, you must make a For examples of how to use the Line from Table A — Unified Rate Schedule reasonable inquiry as to the existence 7 Worksheet, see the examples in the above. of any gifts in excess of the annual 2010 Instructions for Form 709, United Column (g). Subtract the amount in exclusion made by the decedent (or on States Gift (and Generation-Skipping column (e) from the amount in column behalf of the decedent under a power Transfer) Tax Return, schedule B, (f) for the current row. of attorney) for which no Forms 709 column C (Unified Credit Allowable for Column (h). Enter the amount from the were filed. Include the value of such Prior Periods). Add a column to the Table of Unified Credits (as gifts in column b of Worksheet TG. The right of column (k) to determine the tax recalculated using 2010 rates). annual exclusion per donee for 1977 payable for the current period (column Note. The entries in each row of through 1981 was $3,000, $10,000 for column (h) must be reduced by 20 (g) minus column (k)). 1981 through 2001, $11,000 for 2002 -6- Part Instructions

(i706)(page-7)Page 7#

Table of Unified Credits See also instructions for line 3, Part taken (on line 15) for pre-1977 federal (as Recalculated for 2011 Rates) 4—General Information, below, and gift taxes. section 2010(c)(5). Canadian marital credit. In addition Period Unified Credit to using line 15 to report credit for Line 10. Adjustment to 1977 (Quarters 1 and 2) $6,000 federal gift taxes on pre-1977 gifts, you may also use line 15 to claim the Unified Credit (applicable 1977 (Quarters 3 and 4) $30,000 Canadian marital credit, where credit amount) 1978 $34,000 applicable. If the decedent made gifts (including When taking the marital credit under 1979 $38,000 gifts made by the decedent’s spouse the 1995 Canadian Protocol: and treated as made by the decedent 1980 $42,500 • Include the credit in the amount on by reason of gift splitting) after line 15 and 1981 $47,000 September 8, 1976, and before • Identify and enter the amount of the January 1, 1977, for which the 1982 $62,800 credit you are taking on the dotted line decedent claimed a specific exemption, to the left of the entry space for line 15 1983 $79,300 the unified credit (applicable credit on page 1 of Form 706 with a notation, amount) on this estate tax return must 1984 $96,300 “Canadian marital credit.” be reduced. The reduction is figured by entering 20% of the specific exemption Also, attach a statement to the return 1985 $121,800 claimed for these gifts. that refers to the treaty, waives QDOT 1986 $155,800 rights, and shows the computation of Note. The specific exemption was the marital credit. See the 1995 1987 through 1997 $190,800 allowed by section 2521 for gifts made Canadian income tax treaty protocol for before January 1, 1977. 1998 $199,550 details on figuring the credit. If the decedent did not make any 1999 $208,300 gifts between September 8, 1976, and 2000 and 2001 $217,050 January 1, 1977, or if the decedent Part 3—Elections by the made gifts during that period but did not 2002 through 2010 $330,800 Executor claim the specific exemption, enter 2011 $1,730,800 zero. Note. For decedents dying in 2011, the election to allow the decedent’s Line 15. Total Credits surviving spouse to use the decedent’s Note. In figuring the line 7 amount, do unused exclusion amount is made by Generally, line 15 is used to report the not include any tax paid or payable on filing a timely and complete Form 706. total of credit for foreign death taxes gifts made before 1977. The line 7 See instructions for line 4, Part (line 13) and credit for tax on prior amount is a hypothetical figure used to 4—General Information, below and transfers (line 14). calculate the estate tax. section 2010(c)(4) and (c)(5). However, you may also use line 15 Special treatment of split gifts. to report credit taken for federal gift These special rules apply only if: Line 1. Alternate Valuation taxes imposed by Chapter 12 of the • The decedent’s spouse predeceased Code, and the corresponding provisions the decedent; See the example showing the of prior laws, on certain transfers the • The decedent’s spouse made gifts use of Schedule B where the decedent made before January 1, that were “split” with the decedent alternate valuation is adopted. TIP 1977, that are included in the gross under the rules of section 2513; Unless you elect at the time you file estate. The credit cannot be more than • The decedent was the “consenting the return to adopt alternate valuation the amount figured by the following spouse” for those split gifts, as that as authorized by section 2032, you formula: term is used on Form 709; and must value all property included in the Gross estate tax minus (the sum • The split gifts were included in the gross estate on the date of the of the state death taxes and decedent’s spouse’s gross estate under decedent’s death. Alternate valuation unified credit) Value of section 2035. x included cannot be applied to only a part of the Value of gross estate minus (the gift If all four conditions above are met, property. sum of the deductions for do not include these gifts on line 4 of charitable, public, and similar You may elect special-use valuation the Tax Computation and do not gifts and bequests and marital (line 2) in addition to alternate deduction) include the gift taxes payable on these valuation. gifts on line 7 of the Tax Computation. You may not elect alternate When taking the credit for pre-1977 These adjustments are incorporated valuation unless the election will federal gift taxes: into the worksheets. decrease both the value of the gross • Include the credit in the amount on estate and the sum (reduced by line 15 and Line 9. Maximum Unified allowable credits) of the estate and • Identify and enter the amount of the Credit (applicable credit GST taxes payable by reason of the credit you are taking on the dotted line amount) decedent’s death for the property to the left of the entry space for line 15 includible in the decedent’s gross The maximum unified credit (applicable on page 1 of Form 706 with a notation, estate. credit amount) is the tentative tax on “section 2012 credit.” the applicable exclusion amount. For You elect alternate valuation by For more information, see the estates of decedents dying in 2011, the checking “Yes” on line 1 and filing Form regulations under section 2012. This applicable exclusion amount equals: 706. You may make a protective computation may be made using Form alternate valuation election by checking • The basic exclusion amount of 4808. Attach a copy of a completed “Yes” on line 1, writing the word $5,000,000, PLUS Form 4808 or the computation of the “protective,” and filing Form 706 using • The deceased spousal unused credit. Also, attach all available copies regular values. exclusion amount (DSUE amount), in of Forms 709 filed by the decedent to the case of a decedent having a help verify the amounts entered on Once made, the election may not be predeceased spouse dying in 2011. lines 4 and 7, and the amount of credit revoked. The election may be made on -7- Part Instructions

(i706)(page-8)Page 8#

a late-filed Form 706 provided it is not the decedent’s death are not property Line 2. Special-Use Valuation filed later than 1 year after the due date of the gross estate on the date of death of Section 2032A (including extensions actually granted). and are not included in the alternate Relief under sections 301.9100-1 and valuation. However, if dividends are In general. Under section 2032A, you 301.9100-3 may be available to make declared to stockholders of record after may elect to value certain farm and an alternate valuation election or a the date of the decedent’s death so that closely held business real property at protective alternate valuation election, the shares of stock at the later its farm or business use value rather provided a Form 706 is filed no later valuation date do not reasonably than its fair market value (FMV). You than 1 year after the due date of the represent the same property at the date may elect both special-use valuation return (including extensions actually of the decedent’s death, include those and alternate valuation. granted). dividends (except dividends paid from To elect this valuation, you must earnings of the corporation after the If you elect alternate valuation, value check “Yes” on line 2 and complete and date of the decedent’s death) in the the property that is included in the attach Schedule A-1 and its required alternate valuation. gross estate as of the applicable dates additional statements. You must file as follows: Schedule A-1 and its required As part of each Schedule A through • Any property distributed, sold, attachments with Form 706 for this I, you must show: exchanged, or otherwise disposed of or election to be valid. You may make the 1. What property is included in the separated or passed from the gross election on a late-filed return so long as gross estate on the date of the estate by any method within 6 months it is the first return filed. decedent’s death; after the decedent’s death is valued on The total value of the property 2. What property was distributed, the date of distribution, sale, exchange, valued under section 2032A may not be sold, exchanged, or otherwise disposed or other disposition, whichever occurs decreased from FMV by more than of within the 6-month period after the first. Value this property on the date it $1,020,000 for decedents dying in decedent’s death, and the dates of ceases to form a part of the gross 2011. these distributions, etc. estate; for example, on the date the title (These two items should be entered in passes as the result of its sale, Real property may qualify for the the “Description” column of each exchange, or other disposition. section 2032A election if: schedule. Briefly explain the status or • Any property not distributed, sold, 1. The decedent was a U.S. citizen disposition governing the alternate exchanged, or otherwise disposed of or resident at the time of death; valuation date, such as: “Not disposed within the 6-month period is valued on 2. The real property is located in the of within 6 months following death,” the date 6 months after the date of the United States; “Distributed,” “Sold,” “Bond paid on decedent’s death. 3. At the decedent’s death, the real maturity,” etc. In this same column, • Any property, interest, or estate that property was used by the decedent or a describe each item of principal and is “affected by mere lapse of time” is family member for farming or in a trade includible income); valued as of the date of decedent’s or business, or was rented for such use death or on the date of its distribution, 3. The date of death value, entered by either the surviving spouse or a sale, exchange, or other disposition, in the appropriate value column with lineal descendant of the decedent to a whichever occurs first. However, you items of principal and includible income family member on a net cash basis; may change the date of death value to shown separately; and 4. The real property was acquired account for any change in value that is 4. The alternate value, entered in from or passed from the decedent to a not due to a “mere lapse of time” on the the appropriate value column with items qualified heir of the decedent; date of its distribution, sale, exchange, of principal and includible income 5. The real property was owned and or other disposition. shown separately. used in a qualified manner by the (In the case of any interest or estate, decedent or a member of the The property included in the the value of which is affected by lapse decedent’s family during 5 of the 8 alternate valuation and valued as of 6 of time, such as patents, leaseholds, years before the decedent’s death; months after the date of the decedent’s estates for the life of another, or 6. There was material participation death, or as of some intermediate date remainder interests, the value shown by the decedent or a member of the (as described above) is the property under the heading “Alternate value” decedent’s family during 5 of the 8 included in the gross estate on the date must be the adjusted value; for years before the decedent’s death; and of the decedent’s death. Therefore, you example, the value as of the date of 7. The qualified property meets the must first determine what property was following percentage requirements: death with an adjustment reflecting any part of the gross estate at the a. At least 50% of the adjusted difference in its value as of the later decedent’s death. value of the gross estate must consist date not due to lapse of time.) Interest. Interest accrued to the date of the adjusted value of real or personal of the decedent’s death on bonds, property that was being used as a farm Distributions, sales, exchanges, and notes, and other interest-bearing or in a closely held business and that other dispositions of the property within obligations is property of the gross was acquired from, or passed from, the the 6-month period after the decedent’s estate on the date of death and is decedent to a qualified heir of the death must be supported by evidence. included in the alternate valuation. decedent, and If the court issued an order of Rent. Rent accrued to the date of the b. At least 25% of the adjusted distribution during that period, you must decedent’s death on leased real or value of the gross estate must consist submit a certified copy of the order as personal property is property of the of the adjusted value of qualified farm part of the evidence. The IRS may gross estate on the date of death and is or closely held business real property. require you to submit additional included in the alternate valuation. evidence, if necessary. Dividends. Outstanding dividends that For this purpose, adjusted value is If the alternate valuation method is were declared to stockholders of record the value of property determined used, the values of life estates, on or before the date of the decedent’s without regard to its special-use value. remainders, and similar interests are death are considered property of the The value is reduced for unpaid figured using the age of the recipient on gross estate on the date of death, and mortgages on the property or any the date of the decedent’s death and are included in the alternate valuation. indebtedness against the property, if the value of the property on the Ordinary dividends declared to the full value of the decedent’s interest alternate valuation date. stockholders of record after the date of in the property (not reduced by such -8- Part Instructions

(i706)(page-9)Page 9#

mortgage or indebtedness) is included passed from the decedent if one of the unable to materially participate in the in the value of the gross estate. The following applies: operation of the farm or other business. adjusted value of the qualified real and • The property is considered to have The substitute time period for personal property used in different been acquired from or to have passed material participation for these businesses may be combined to meet from the decedent under section decedents is a period totaling at least 5 the 50% and 25% requirements. 1014(b) (relating to basis of property years out of the 8-year period that acquired from a decedent); ended on the earlier of: Qualified Real Property • The property is acquired by any • The date the decedent began person from the estate; or Qualified use. Qualified use means receiving social security benefits or • The property is acquired by any the use of the property as a farm for • The date the decedent became person from a trust, to the extent the farming purposes or the use of property disabled. property is includible in the gross in a trade or business other than Surviving spouse. A surviving estate. farming. Trade or business applies only spouse who received qualified real to the active conduct of a business. It Qualified heir. A person is a qualified property from the predeceased spouse does not apply to passive investment heir of property if he or she is a is considered to have materially activities or the mere passive rental of member of the decedent’s family and participated if he or she was engaged property to a person other than a acquired or received the property from in the active management of the farm member of the decedent’s family. Also, the decedent. If a qualified heir or other business. If the surviving no trade or business is present in the disposes of any interest in qualified real spouse died within 8 years of the first case of activities not engaged in for property to any member of his or her spouse’s death, you may add the profit. family, that person will then be treated period of material participation of the Ownership. To qualify as special-use as the qualified heir for that interest. predeceased spouse to the period of property, the decedent or a member of active management by the surviving The term “member of the family” the decedent’s family must have owned spouse to determine if the surviving includes only: and used the property in a qualified use spouse’s estate qualifies for special-use • An ancestor (parent, grandparent, for 5 of the last 8 years before the valuation. To qualify for this, the etc.) of the individual; decedent’s death. Ownership may be property must have been eligible for • The spouse of the individual; direct or indirect through a corporation, special-use valuation in the • The lineal descendant (child, a partnership, or a trust. predeceased spouse’s estate, though it stepchild, grandchild, etc.) of the If the ownership is indirect, the does not have to have been elected by individual, the individual’s spouse, or a business must qualify as a closely held that estate. parent of the individual; or business under section 6166. The • The spouse, widow, or widower of For additional details regarding ownership, when combined with any lineal descendant described above. material participation, see Regulations periods of direct ownership, must meet A legally adopted child of an individual section 20.2032A-3(e). the requirements of section 6166 on the is treated as a child of that individual by date of the decedent’s death and for a Valuation Methods blood. period of time that equals at least 5 of The primary method of valuing the 8 years preceding death. Material Participation special-use value property that is used If the property was leased by the To elect special-use valuation, either for farming purposes is the annual decedent to a closely held business, it the decedent or a member of his or her gross cash rental method. If qualifies as long as the business entity family must have materially participated comparable gross cash rentals are not to which it was rented was a closely in the operation of the farm or other available, you can substitute held business for the decedent on the business for at least 5 of the 8 years comparable average annual net share date of the decedent’s death and for ending on the date of the decedent’s rentals. If neither of these are available, sufficient time to meet the “5 in 8 years” death. The existence of material or if you so elect, you can use the test explained above. participation is a factual determination, method for valuing real property in a but passively collecting rents, salaries, closely held business. Structures and other real property draws, dividends, or other income from improvements. Qualified real Average annual gross cash rental. the farm or other business does not property includes residential buildings Generally, the special-use value of constitute material participation. Neither and other structures and real property property that is used for farming does merely advancing capital and improvements regularly occupied or purposes is determined as follows: reviewing a crop plan and financial used by the owner or lessee of real 1. Subtract the average annual reports each season or business year. property (or by the employees of the state and local real estate taxes on owner or lessee) to operate the farm or In determining whether the required actual tracts of comparable real business. A farm residence which the participation has occurred, disregard property from the average annual gross decedent had occupied is considered to brief periods (that is, 30 days or less) cash rental for that same comparable have been occupied for the purpose of during which there was no material property and operating the farm even when a family participation, as long as such periods 2. Divide the result in (1) by the member and not the decedent was the were both preceded and followed by average annual effective interest rate person materially participating in the substantial periods (more than 120 charged for all new Federal Land Bank operation of the farm. days) during which there was loans. Qualified real property also includes uninterrupted material participation. roads, buildings, and other structures The computation of each average Retirement or disability. If, on the and improvements functionally related annual amount is based on the 5 most date of death, the time period for to the qualified use. recent calendar years ending before the material participation could not be met date of the decedent’s death. See Elements of value such as mineral because the decedent had retired or Effective interest rate below. rights that are not related to the farm or was disabled, a substitute period may business use are not eligible for apply. The decedent must have retired Gross cash rental. Generally, special-use valuation. on social security or been disabled for a gross cash rental is the total amount of Property acquired from the continuous period ending with death. A cash received in a calendar year for the decedent. Property is considered to person is disabled for this purpose if he use of actual tracts of comparable farm have been acquired from or to have or she was mentally or physically real property in the same locality as the -9- Part Instructions

(i706)(page-10)Page 10#

property being specially valued. You annual gross cash rental can be section 2032A(b)(1)(B) must be may not use: determined. Net share rental is the specially valued under the election. • Appraisals or other statements difference between the gross value of If joint or undivided interests (that is, regarding rental value or areawide produce received by the lessor from the interests as joint tenants or tenants in averages of rentals, or comparable land and the cash common) in the same property are • Rents that are paid wholly or partly operating expenses (other than real received from a decedent by qualified in-kind, and the amount of rent may not estate taxes) of growing the produce heirs, an election for one heir’s joint or be based on production. that, under the lease, are paid by the undivided interest need not include any The rental must have resulted from an lessor. The production of the produce other heir’s interest in the same arm’s-length transaction. Also, the must be the business purpose of the property if the electing heir’s interest amount of rent is not reduced by the farming operation. For this purpose, plus other property to be specially amount of any expenses or liabilities produce includes livestock. valued satisfies the requirements of associated with the farm operation or section 2032A(b)(1)(B). The gross value of the produce is the lease. generally the gross amount received if If successive interests (that is, life Comparable property. the produce was disposed of in an estates and remainder interests) are Comparable property must be situated arm’s-length transaction within the created by a decedent in otherwise in the same locality as the specially period established by the Department qualified property, an election under valued property as determined by of Agriculture for its price support section 2032A is available only for that generally accepted real property program. Otherwise, the value is the property (or part) in which qualified valuation rules. The determination of weighted average price for which the heirs of the decedent receive all of the comparability is based on all the facts produce sold on the closest national or successive interests, and such an and circumstances. It is often regional commodities market. The election must include the interests of all necessary to value land in segments value is figured for the date or dates on of those heirs. where there are different uses or land which the lessor received (or For example, if a surviving spouse characteristics included in the specially constructively received) the produce. receives a life estate in otherwise valued land. qualified property and the spouse’s Valuing a real property interest in The following list contains some of brother receives a remainder interest in closely held business. Use this the factors considered in determining fee, no part of the property may be method to determine the special-use comparability: valued under a section 2032A election. valuation for qualifying real property • Similarity of soil; used in a trade or business other than Where successive interests in • Whether the crops grown would farming. You may also use this method specially valued property are created, deplete the soil in a similar manner; for qualifying farm property if there is no remainder interests are treated as • Types of soil conservation comparable land or if you elect to use being received by qualified heirs only if techniques that have been practiced on it. Under this method, the following the remainder interests are not the two properties; factors are considered: contingent on surviving a nonfamily • Whether the two properties are • The capitalization of income that the member or are not subject to subject to flooding; property can be expected to yield for divestment in favor of a nonfamily • Slope of the land; farming or for closely held business member. • For livestock operations, the carrying purposes over a reasonable period of Protective Election capacity of the land; time with prudent management and • For timbered land, whether the You may make a protective election to traditional cropping patterns for the timber is comparable; specially value qualified real property. area, taking into account soil capacity, • Whether the property as a whole is Under this election, whether or not you terrain configuration, and similar unified or segmented. If segmented, the may ultimately use special-use factors; availability of the means necessary for valuation depends upon values as • The capitalization of the fair rental movement among the different finally determined (or agreed to value of the land for farming or for sections; following examination of the return) closely held business purposes; • Number, types, and conditions of all meeting the requirements of section • The assessed land values in a state buildings and other fixed improvements 2032A. that provides a differential or use value located on the properties and their assessment law for farmland or closely To make a protective election, check location as it affects efficient held business; “Yes” on line 2 and complete Schedule management, use, and value of the • Comparable sales of other farm or A-1 according to the instructions for property; and closely held business land in the same Protective election. • Availability and type of transportation geographical area far enough removed If you make a protective election, facilities in terms of costs and of from a metropolitan or resort area so you should complete the initial Form proximity of the properties to local that nonagricultural use is not a 706 by valuing all property at its FMV. markets. significant factor in the sales price; and Do not use special-use valuation. You must specifically identify on the • Any other factor that fairly values the Usually, this will result in higher estate return the property being used as farm or closely held business value of and GST tax liabilities than will be comparable property. Use the type of the property. ultimately determined if special-use descriptions used to list real property on valuation is allowed. The protective Making the Election Schedule A. election does not extend the time to Include the words “section 2032A Effective interest rate. See Tables pay the taxes shown on the return. If valuation” in the “Description” column of 2 and 3 of Revenue Ruling 2011-17, you wish to extend the time to pay the any Form 706 schedule if section 2011-33 I.R.B. 160, available at www. taxes, you should file Form 4768 in 2032A property is included in the irs.gov/pub/irs-irbs/irb11-33.pdf, for the adequate time before the return due decedent’s gross estate. average annual effective interest rates date. in effect for 2011. An election under section 2032A If it is found that the estate qualifies Net share rental. You may use need not include all the property in an for special-use valuation based on the average annual net share rental from estate that is eligible for special-use values as finally determined (or agreed comparable land only if there is no valuation, but sufficient property to to following examination of the return), comparable land from which average satisfy the threshold requirements of you must file an amended Form 706 -10- Part Instructions

(i706)(page-11)Page 11#

(with a complete section 2032A property of the estate. In addition, all of in a qualifying lending and financing election) within 60 days after the date the persons having an interest in the business is treated as an asset used in of this determination. Complete the designated property must consent to carrying on a trade or business; see amended return using special-use the creation of this lien on the property section 6166(b)(10) for details. Stock in values under the rules of section pledged. another corporation is a passive asset 2032A, and complete Schedule A-1 unless the stock is treated as held by Percentage requirements. To qualify and attach all of the required the decedent because of the election to for installment payments, the value of statements. treat holding company stock as the interest in the closely held business business company stock; see Holding that is included in the gross estate must Additional information company stock, below. be more than 35% of the adjusted For definitions and additional gross estate (the gross estate less If a corporation owns at least 20% in information, see section 2032A and the expenses, indebtedness, taxes, and value of the voting stock of another related regulations. losses—Schedules J, K, and L of Form corporation, or the other corporation 706 (do not include any portion of the had no more than 45 shareholders and Line 3. Section 6166 state death tax deduction)). at least 80% of the value of the assets Installment Payments of each corporation is attributable to Interests in two or more closely held If the gross estate includes an interest assets used in carrying on a trade or businesses are treated as an interest in in a closely held business, you may be business, then these corporations will a single business if at least 20% of the able to elect to pay part of the estate be treated as a single corporation, and total value of each business is included tax in installments under section 6166. the stock will not be treated as a in the gross estate. For this purpose, passive asset. Stock held in the other include any interest held by the The maximum amount that can be corporation is not taken into account in surviving spouse that represents the paid in installments is that part of the determining the 80% requirement. surviving spouse’s interest in a estate tax that is attributable to the business held jointly with the decedent closely held business; see Determine Interest in closely held business. as community property or as joint how much of the estate tax may be For purposes of the installment tenants, tenants by the entirety, or paid in installments under section 6166, payment election, an “interest in a tenants in common. below. In general, that amount is the closely held business” means: amount of tax that bears the same ratio • Ownership of a trade or business Value. The value used for meeting to the total estate tax that the value of carried on as a proprietorship, the percentage requirements is the the closely held business included in • An interest as a partner in a same value used for determining the the gross estate bears to the adjusted partnership carrying on a trade or gross estate. Therefore, if the estate is gross estate. business if 20% or more of the total valued under alternate valuation or capital interest was included in the special-use valuation, you must use Bond or lien. The IRS may require gross estate of the decedent or the those values to meet the percentage that an estate furnish a surety bond partnership had no more than 45 requirements. when granting the installment payment partners, or election. In the alternative, the executor Transfers before death. Generally, • Stock in a corporation carrying on a may consent to elect the special lien gifts made before death are not trade or business if 20% or more in provisions of section 6324A, in lieu of included in the gross estate. However, value of the voting stock of the the bond. The IRS will contact you the estate must meet the 35% corporation is included in the gross regarding the specifics of furnishing the requirement by both including in and estate of the decedent or the bond or electing the special lien. The excluding from the gross estate any corporation had no more than 45 IRS will make this determination on a gifts made by the decedent in the shareholders. case-by-case basis, and you may be 3-year period ending on the date of asked to provide additional information. The partnership or corporation must death. be carrying on a trade or business at If you elect the lien provisions, Passive assets. In determining the the time of the decedent’s death. For section 6324A requires that the lien be value of a closely held business and further information on whether certain placed on property having a value whether the 35% requirement is met, partnerships or corporations owning equal to the total deferred tax plus 4 do not include the value of any passive real property interests constitute a years of interest. The property must be assets held by the business. A passive closely held business, see Revenue expected to survive the deferral period, asset is any asset not used in carrying Ruling 2006-34, 2006-26 I.R.B. 1171, and does not necessarily have to be on a trade or business. Any asset used available at www.irs.gov/pub/irs-irbs/ irb06-26.pdf. Line 3 Worksheet—Adjusted Gross Estate In determining the number of partners or shareholders, a partnership or stock interest is treated as owned by 1 What is the value of the decedent’s interest in closely held one partner or shareholder if it is business(es) included in the gross estate (less value of passive community property or held by a assets, as mentioned in section 6166(b)(9))? . . . . . . . . . . . . . . . . . husband and wife as joint tenants, 2 What is the value of the gross estate (Form 706, page 3, Part 5, tenants in common, or as tenants by line 12)? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . the entirety. 3 Add lines 17, 18, and 19 from Form 706, page 3, Part 5. . . . . . . . . . 4 Subtract line 3 from line 2 to calculate the adjusted gross estate. . . . Property owned directly or indirectly 5 Divide line 1 by line 4 to calculate the value the business interest by or for a corporation, partnership, bears to the value of the adjusted gross estate. For purposes of this estate, or trust is treated as owned calculation, carry the decimal to the sixth place; the IRS will make this proportionately by or for its adjustment for purposes of determining the correct amount. If this shareholders, partners, or beneficiaries. amount is less than 0.350000, the estate does not qualify to make the For trusts, only beneficiaries with election under section 6166. . . . . . . . . . . . . . . . . . . . . . . . . . . . . present interests are considered. 6 Multiply line 5 by the amount on line 16 of Form 706, page 1, Part 2. The interest in a closely held farm This is the maximum amount of estate tax that may be paid in installments under section 6166. (Certain GST taxes may be deferred business includes the interest in the as well; see section 6166(i) for more information.) . . . . . . . . . . . . . residential buildings and related improvements occupied regularly by the -11- Part Instructions

(i706)(page-12)Page 12#

owners, lessees, and employees date, the IRS may terminate the right to Making the election. If you check operating the farm. make installment payments and force this line to make a final election, you an acceleration of payment of the tax must attach the notice of election Holding company stock. The upon notice and demand. described in Regulations section executor may elect to treat as business 20.6166-1(b). If you check this line to company stock the portion of any Generally, if any portion of the make a protective election, you must holding company stock that represents interest in the closely held business attach a notice of protective election as direct ownership (or indirect ownership which qualifies for installment payments described in Regulations section through one or more other holding is distributed, sold, exchanged, or 20.6166-1(d). Regulations section companies) in a business company. A otherwise disposed of, or money and 20.6166-1(b) requires that the notice of holding company is a corporation other property attributable to such an election is made by attaching to a holding stock in another corporation. A interest is withdrawn, and the timely filed estate tax return the business company is a corporation aggregate of those events equals or following information: carrying on a trade or business. exceeds 50% of the value of the • The decedent’s name and taxpayer interest, then the right to make In general, this election applies only identification number as they appear on installment payments will be to stock that is not readily tradable. the estate tax return; terminated, and the unpaid portion of However, the election can be made if • The amount of tax that is to be paid the tax will be due upon notice and the business company stock is readily in installments; demand. See section 6166(g). tradable, as long as all of the stock of • The date selected for payment of the each holding company is not readily Interest computation. A special first installment; tradable. interest rate applies to installment • The number of annual installments, For purposes of the 20% voting payments. For decedents dying in including first installment, in which the stock requirement, stock is treated as 2011, the interest rate is 2% on the tax is to be paid; voting stock to the extent the holding lesser of: • The properties shown on the estate company owns voting stock in the • $476,000 or tax return that are the closely held business company. • The amount of the estate tax that is business interest (identified by attributable to the closely held business schedule and item number); and If the executor makes this election, and that is payable in installments. • The facts that formed the basis for the first installment payment is due the executor’s conclusion that the when the estate tax return is filed. The 2% portion. The 2% portion is an estate qualifies for payment of the 5-year deferral for payment of the tax, amount equal to the amount of the estate tax in installments. as discussed below under Time for tentative estate tax (on $1,000,000 plus payment, does not apply. In addition, You may also elect to pay certain the applicable exclusion amount in the 2% interest rate, discussed below GST taxes in installments. See section effect) minus the applicable credit under Interest computation, will not 6166(i). amount in effect. However, if the apply. Also, if the business company amount of estate tax extended under Line 4. Reversionary or stock is readily tradable, as explained section 6166 is less than the amount above, the tax must be paid in five Remainder Interests figured above, the 2% portion is the installments. lesser amount. For details of this election, see section Determine how much of the estate 6163 and the related regulations. Inflation adjustment. The tax may be paid in installments $1,000,000 amount used to calculate under section 6166. To determine the 2% portion is indexed for inflation whether the election may be made, you Part 4—General for the estates of decedents dying in a must calculate the adjusted gross calendar year after 1998. For an estate Information estate. (See Line 3 Worksheet— of a decedent dying in calendar year Adjusted Gross Estate below.) To 2011, the dollar amount used to determine the value of the adjusted Authorization determine the “2% portion” of the estate gross estate, subtract the deductions Completing the authorization will tax payable in installments under (Schedules J, K, and L) from the value authorize one attorney, accountant, or section 6166 is $1,360,000. of the gross estate. enrolled agent to represent the estate Computation. Interest on the and receive confidential tax information, To determine over how many portion of the tax in excess of the 2% but will not authorize the representative installments the estate tax may be paid, portion is figured at 45% of the annual to enter into closing agreements for the please refer to sections 6166(a), (b)(7), rate of interest on underpayments. This estate. (b)(8), and (b)(10). rate is based on the federal short-term Note. If you wish to represent the Time for payment. Under the rate and is announced quarterly by the estate, you must complete and sign the installment method, the executor may IRS in the Internal Revenue Bulletin. authorization. elect to defer payment of the qualified If you elect installment payments estate tax, but not interest, for up to 5 If you wish to authorize persons and the estate tax due is more than the years from the original payment due other than attorneys, accountants, and maximum amount to which the 2% date. After the first installment of tax is enrolled agents, or if you wish to interest rate applies, each installment paid, you must pay the remaining authorize more than one person to payment is deemed to comprise both installments annually by the date 1 year receive confidential information or tax subject to the 2% interest rate and after the due date of the preceding represent the estate, you must tax subject to 45% of the regular installment. There can be no more than complete and attach Form 2848. You underpayment rate. The amount of 10 installment payments. must also complete and attach Form each installment that is subject to the Interest on the unpaid portion of the 2848 if you wish to authorize someone 2% rate is the same as the percentage tax is not deferred and must be paid to enter into closing agreements for the of total tax payable in installments that annually. Interest must be paid at the estate. Filing a completed Form 2848 is subject to the 2% rate. same time as and as a part of each with this return may expedite installment payment of the tax. processing of the Form 706. The interest paid on installment Acceleration of payments. If the payments is not deductible as If you wish only to authorize estate fails to make payments of tax or an administrative expense of the someone to inspect and/or receive CAUTION ! interest within 6 months of the due estate. confidential tax information (but not to -12- Part Instructions

(i706)(page-13)Page 13#

represent you before the IRS), not making the election under section Line 8. Insurance Not complete and file Form 8821. 2010(c)(5); or, Included in the Gross Estate • Enter “No Election under Section If you answered “Yes” to either 8a or 2010(c)(5)” across the top of the first Line 3 8b, for each policy you must complete page of Form 706. Enter the marital status of the decedent and attach Schedule D, Form 712, and Alternatively, if the filing of a Form 706 at the time of death by checking the an explanation of why the policy or its is not otherwise required for the appropriate box and providing the proceeds are not includible in the gross decedent’s estate, not filing a timely requested information. If the decedent estate. and complete Form 706 will effectively had more than one marriage in his or prohibit the surviving spouse’s use of her lifetime, on the Explanation line Line 10. Partnership the decedent’s unused exemption. provide the name and SSN of each Interests and Stock in Close former spouse, the date(s) the marriage Line 5 ended, and specify whether the Corporations marriage ended by annulment, divorce Name. Enter the name of each If you answered “Yes” on line 10a, you decree, or death of spouse (to the individual, trust, or estate that received must include full details for partnerships extent the information was not already (or will receive) benefits of $5,000 or (including family limited partnerships), provided above). Also, if the prior more from the estate directly as an heir, unincorporated businesses, and limited marriage ended in death and the next-of-kin, devisee, or legatee; or liability companies on Schedule F predeceased spouse died after indirectly (for example, as beneficiary of (Schedule E if the partnership interest December 31, 2010, indicate on the an annuity or insurance policy, is jointly owned). You must also include Explanation line whether the executor shareholder of a corporation, or partner full details for fractional interests in real of the estate of the predeceased of a partnership that is an heir, etc.). estate on Schedule A, and full details spouse elected to allow the decedent to for stock of inactive or close Identifying number. Enter the SSN of use the deceased spouse’s unused corporations on Schedule B. each individual beneficiary listed. If the exclusion amount. If the executor of the number is unknown, or the individual Value these interests using the rules predeceased spouse’s estate made the has no number, please indicate of Regulations section 20.2031-2 election, attach to the return the “unknown” or “none.” For trusts and (stocks) or 20.2031-3 (other business predeceased spouse’s Form 706 and a other estates, enter the EIN. interests). calculation of the deceased spousal Relationship. For each individual unused exclusion amount (DSUE A close corporation is a corporation beneficiary, enter the relationship (if amount). For more information, see whose shares are owned by a limited known) to the decedent by reason of section 2010(c)(4). number of shareholders. Often, one blood, marriage, or adoption. For trust family holds the entire stock issue. As a For estates of decedents dying in or estate beneficiaries, indicate result, little, if any, trading of the stock 2011, the DSUE amount equals the “TRUST” or “ESTATE.” takes place. There is, therefore, no lesser of: established market for the stock, and Amount. Enter the amount actually 1. The basic exclusion amount of those sales that do occur are at distributed (or to be distributed) to each $5,000,000, or irregular intervals and seldom reflect all beneficiary including transfers during 2. The basic exclusion amount of the elements of a representative the decedent’s life from Schedule G $5,000,000, MINUS the amount in line transaction as defined by FMV. required to be included in the gross 5, Part 2—Tax Computation, of the last estate. The value to be entered need predeceased spouse’s Form 706 (but Line 12. Trusts not be exact. A reasonable estimate is not below zero). If you answered “Yes” on either line sufficient. For example, where precise 12a or line 12b, you must attach a copy values cannot readily be determined, as Note. The election to use the DSUE of the trust instrument for each trust. with certain future interests, a amount applies to the most recent reasonable approximation should be You must complete Schedule G if predeceased spouse of the decedent. entered. The total of these distributions you answered “Yes” on line 12a and should approximate the amount of Schedule F if you answered “Yes” on Line 4 gross estate reduced by funeral and line 12b. Complete line 4 whether or not there is administrative expenses, debts and a surviving spouse and whether or not mortgages, bequests to surviving Line 14. Foreign Accounts the surviving spouse received any spouse, charitable bequests, and any Check “Yes” on line 14 if the decedent benefits from the estate. If there was no federal and state estate and GST taxes at the time of death had an interest in surviving spouse on the date of paid (or payable) relating to the benefits or signature or other authority over a decedent’s death, enter “None” in line received by the beneficiaries listed on financial account in a foreign country, 4a and leave lines 4b and 4c blank. lines 4 and 5. such as a bank account, securities The value entered in line 4c need not All distributions of less than $5,000 account, an offshore trust, or other be exact. See the instructions for to specific beneficiaries may be financial account. “Amount” under line 5 below. included with distributions to Note. The executor is considered to unascertainable beneficiaries on the have elected to allow the surviving line provided. Part 5—Recapitulation spouse to use the decedent’s unused Line 6. Section 2044 Property exclusion amount by filing a timely and Gross Estate complete Form 706. If you answered “Yes,” these assets Items 1 through 10. You must make must be shown on Schedule F. Note. If the estate chooses not to an entry in each of items 1 through 9. allow the surviving spouse to take into Section 2044 property is property for account, for estate and gift tax which a previous section 2056(b)(7) If the gross estate does not contain purposes, the decedent’s unused election (QTIP election) has been any assets of the type specified by a exclusion amount, then do one of the made, or for which a similar gift tax given item, enter zero for that item. following: election (section 2523) has been made. Entering zero for any of items 1 through • Attach a statement to the Form 706 For more information, see the 9 is a statement by the executor, made indicating that the decedent’s estate is instructions for Schedule F, below. under penalties of perjury, that the -13- Part Instructions

(i706)(page-14)Page 14#

Schedule A–Example 1 In this example, alternate valuation is not adopted; the date of death is January 1, 2011. Item Description Alternate Alternate Value at Number Valuation Value date of Date death 1 House and lot, 1921 William Street, NW, Washington, DC (lot 6, square 481). Rent of $550,000 $8,100 due at the end of each quarter, February 1, May 1, August 1, and November 1. Value based on appraisal, copy of which is attached . . . . . . . . . . . . . . . . . . . . . . . . . . Rent due on item 1 for quarter ending November 1, 2010, but not collected at date of 8,100 death . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rent accrued on Item 1 for November and December 2010 . . . . . . . . . . . . . . . . . . . . . 5,400 2 House and lot, 304 Jefferson Street, Alexandria, VA (lot 18, square 40). Rent of $1,800 375,000 payable monthly. Value based on appraisal, copy of which is attached . . . . . . . . . . . . . Rent due on Item 2 for December 2010, but not collected at death . . . . . . . . . . . . . . . . 1,800 gross estate does not contain any • Schedule I if you answered “Yes” to Schedule A—Real Estate includible assets covered by that item. question 15 of Part 4. If the total gross estate contains any Do not enter any amounts in the real estate, you must complete Exclusion “Alternate value” column unless you Schedule A and file it with the return. Item 11. Conservation easement elected alternate valuation on line 1 of On Schedule A, list real estate the exclusion. You must complete and Part 3—Elections by the Executor on decedent owned or had contracted to attach Schedule U (along with any page 2 of the Form 706. purchase. Number each parcel in the required attachments) to claim the left-hand column. Which schedules to attach for items exclusion on this line. 1 through 9. You must attach: Describe the real estate in enough Deductions • Schedule F to the return and answer detail so that the IRS can easily locate its questions even if you report no it for inspection and valuation. For each Items 13 through 21. You must assets on it; parcel of real estate, report the area attach the appropriate schedules for the • Schedules A, B, and C if the gross and, if the parcel is improved, describe deductions you claim. estate includes any (1) Real Estate, (2) the improvements. For city or town Item 17. If item 16 is less than or Stocks and Bonds, or (3) Mortgages, property, report the street and number, equal to the value (at the time of the Notes, and Cash, respectively; ward, subdivision, block and lot, etc. decedent’s death) of the property • Schedule D if the gross estate For rural property, report the township, subject to claims, enter the amount includes any life insurance or if you range, landmarks, etc. from item 16 on item 17. answered “Yes” to question 8a of Part If the amount on item 16 is more If any item of real estate is subject to 4—General Information; than the value of the property subject to a mortgage for which the decedent’s • Schedule E if the gross estate claims, enter the greater of: estate is liable, that is, if the contains any jointly owned property or if • The value of the property subject to indebtedness may be charged against you answered “Yes” to question 9 of claims or other property of the estate that is not Part 4; • The amount actually paid at the time subject to that mortgage, or if the • Schedule G if the decedent made the return is filed. decedent was personally liable for that any of the lifetime transfers to be listed mortgage, you must report the full value on that schedule or if you answered In no event should you enter more of the property in the value column. “Yes” to question 11 or 12a of Part 4; on item 17 than the amount on item 16. Enter the amount of the mortgage • Schedule H if you answered “Yes” to See section 2053 and the related under “Description” on this schedule. question 13 of Part 4; and regulations for more information. Schedule A–Example 2 In this example, alternate valuation is adopted; the date of death is January 1, 2011 Item Description Alternate Alternate Value at Number Valuation Value date of Date death 1 House and lot, 1921 William Street, NW, Washington, DC (lot 6, square 481). Rent of 7/1/11 $535,000 $550,000 $8,100 due at the end of each quarter, February 1, May 1, August 1, and November 1. Value based on appraisal, copy of which is attached. Not disposed of within 6 months of date of death . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rent due on item 1 for quarter ending November 1, 2010, but not collected until 2/1/11 8,100 8,100 February 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rent accrued on Item 1 for November and December 2010, collected on February 1, 2/1/11 5,400 5,400 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 House and lot, 304 Jefferson Street, Alexandria, VA (lot 18, square 40). Rent of 5/1/11 369,000 375,000 $1,800 payable monthly. Value based on appraisal, copy of which is attached. Property exchanged for farm on May 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rent due on Item 2 for December 2010, but not collected until February 1, 2011 . . . . 2/1/11 1,800 1,800 -14- Part Instructions

(i706)(page-15)Page 15#

The unpaid amount of the mortgage subsequently filed. You need not interests on the Schedule R, Parts 2 may be deducted on Schedule K. complete columns B through D of lines and 3 worksheets, as appropriate. Do 3 and 4. You need not complete any not use Schedule R-1 as a worksheet. If the decedent’s estate is not liable other line entries on Schedule A-1. Completing the special-use value for the amount of the mortgage, report Completing Schedule A-1 as described worksheets. On Schedule R, Parts 2 only the value of the equity of above constitutes a Notice of Protective and 3, lines 2 through 4 and 6, enter redemption (or value of the property Election as described in Regulations -0-. less the indebtedness) in the value section 20.2032A-8(b). column as part of the gross estate. Do Completing the fair market value not enter any amount less than zero. worksheets. Part 2. Notice of Election Do not deduct the amount of • Schedule R, Parts 2 and 3, lines 2 Line 10. Because the special-use indebtedness on Schedule K. and 3, fixed taxes and other charges. If valuation election creates a potential valuing the interests at their FMV Also list on Schedule A real property tax liability for the recapture tax of (instead of special-use value) causes the decedent contracted to purchase. section 2032A(c), you must list each any of these taxes and charges to Report the full value of the property and person who receives an interest in the increase, enter the increased amount not the equity in the value column. specially valued property on Schedule (only) on these lines and attach an Deduct the unpaid part of the purchase A-1. If there are more than eight explanation of the increase. Otherwise, price on Schedule K. persons who receive interests, use an enter -0-. Report the value of real estate additional sheet that follows the format • Schedule R, Parts 2 and 3, line without reducing it for homestead or of line 10. In the columns “Fair market 6—GST exemption allocation. If you other exemption, or the value of dower, value” and “Special-use value,” you completed Schedule R, Part 1, line 10, curtesy, or a statutory estate created should enter the total respective values enter on line 6 the amount shown for instead of dower or curtesy. of all the specially valued property the skip person on the line 10 interests received by each person. Explain how the reported values special-use allocation schedule you were determined and attach copies of attached to Schedule R. If you did not GST Tax Savings any appraisals. complete Schedule R, Part 1, line 10, To figure the additional GST tax due enter -0- on line 6. upon disposition (or cessation of Schedule A-1—Section Total GST tax savings. For each skip qualified use) of the property, each person, subtract the tax amount on line 2032A Valuation “skip person” (as defined in the 10, Part 2 of the special-use value instructions to Schedule R) who The election to value certain farm and worksheet from the tax amount on line receives an interest in the specially closely held business property at its 10, Part 2 of the fair market value valued property must know the total special-use value is made by checking worksheet. This difference is the skip GST tax savings on all of the interests “Yes” on Form 706, Part 3—Elections person’s total GST tax savings. in specially valued property received. by the Executor, line 2. Schedule A-1 is This GST tax savings is the difference used to report the additional information Part 3. Agreement to Special between the total GST tax that was that must be submitted to support this Valuation Under Section imposed on all of the interests in election. In order to make a valid 2032A specially valued property received by election, you must complete Schedule The agreement to special valuation by the skip person valued at their A-1 and attach all of the required persons with an interest in property is special-use value and the total GST tax statements and appraisals. required under section 2032A(a)(1)(B) that would have been imposed on the For definitions and additional and (d)(2) and must be signed by all same interests received by the skip information concerning special-use parties who have any interest in the person had they been valued at their valuation, see section 2032A and the property being valued based on its FMV. related regulations. qualified use as of the date of the Because the GST tax depends on decedent’s death. Part 1. Type of Election the executor’s allocation of the GST An interest in property is an interest exemption and the grandchild Estate and GST tax elections. If you that, as of the date of the decedent’s exclusion, the skip person who receives elect special-use valuation for the death, can be asserted under the interests is unable to figure this estate tax, you must also elect applicable law so as to affect the GST tax savings. Therefore, for each special-use valuation for the disposition of the specially valued skip person who receives an interest in Generation-Skipping Transfer (GST) property by the estate. Any person who specially valued property, you must tax and vice versa. at the decedent’s death has any such attach worksheets showing the total You must value each specific interest in the property, whether present GST tax savings attributable to all of property interest at the same value for or future, or vested or contingent, must that person’s interests in specially GST tax purposes that you value it at enter into the agreement. Included are valued property. for estate tax purposes. owners of remainder and executory How to figure the GST tax savings. Protective election. To make the interests; the holders of general or Before figuring each skip person’s GST protective election described in the special powers of appointment; tax savings, you must complete separate instructions for Part beneficiaries of a gift over in default of Schedules R and R-1 for the entire 3—Elections by the Executor, line 2, exercise of any such power; joint estate (using the special-use values). you must check this box, enter the tenants and holders of similar undivided For each skip person, you must decedent’s name and social security interests when the decedent held only a complete two Schedules R (Parts 2 and number in the spaces provided at the joint or undivided interest in the 3 only) as worksheets, one showing the top of Schedule A-1, and complete Part property or when only an undivided interests in specially valued property 2. Notice of Election, line 1 and lines 3 interest is specially valued; and trustees received by the skip person at their and 4, column A. For purposes of the of trusts and representatives of other special-use value and one showing the protective election, list on line 3 all of entities holding title to, or holding any same interests at their FMV. the real property that passes to the interests in the property. An heir who qualified heirs even though some of the If the skip person received interests has the power under local law to property will be shown on line 2 when in specially valued property that were challenge a will and thereby affect the additional notice of election is shown on Schedule R-1, show these disposition of the property is not, -15- Part Instructions

(i706)(page-16)Page 16#

however, considered to be a person Does the notice of election include Does the notice of election include, with an interest in property under the FMV of the real property to be for each item of specially valued section 2032A solely by reason of that specially valued and also include its property, the name of every person right. Likewise, creditors of an estate value based on the qualified use taking an interest in that item of are not such persons solely by reason (determined without the adjustments specially valued property and the of their status as creditors. provided in section 2032A(b)(3)(B))? following information about each such person: (a) the person’s If any person required to enter into Does the notice of election include address, (b) the person’s taxpayer the agreement either desires that an the adjusted value (as defined in identification number, (c) the agent act for him or her or cannot section 2032A(b)(3)(B)) of (a) all person’s relationship to the legally bind himself or herself due to real property that both passes from decedent, and (d) the value of the infancy or other incompetency, or due the decedent and is used in a property interest passing to that to death before the election under section 2032A is timely exercised, a qualified use, without regard to person based on both FMV and representative authorized by local law whether it is to be specially valued, qualified use? to bind the person in an agreement of and (b) all real property to be this nature may sign the agreement on specially valued? Does the notice of election include his or her behalf. affidavits describing the activities Does the notice of election include constituting material participation The IRS will contact the agent (a) the items of personal property and the identity of the material designated in the agreement on all shown on the estate tax return that participants? matters relating to continued pass from the decedent to a qualification under section 2032A of the qualified heir and that are used in Does the notice of election include a specially valued real property and on all qualified use and (b) the total value legal description of each item of matters relating to the special lien of such personal property adjusted specially valued property? arising under section 6324B. It is the under section 2032A(b)(3)(B)? duty of the agent as attorney-in-fact for (In the case of an election made for the parties with interests in the specially qualified woodlands, the information valued property to furnish the IRS with Does the notice of election include included in the notice of election must any requested information and to notify the adjusted value of the gross include the reason for entitlement to the the IRS of any disposition or cessation estate? (See section Woodlands election.) of qualified use of any part of the 2032A(b)(3)(A).) property. Does the notice of election include Any election made under section 2032A Checklist for Section 2032A the method used to determine the will not be valid unless a properly Election special-use value? executed agreement (Schedule A-1, Part 3) is filed with the estate tax return. If you are going to make the Does the notice of election include To ensure that the agreement satisfies special-use valuation election copies of written appraisals of the the requirements for a valid election, on Schedule A-1, please use use the following checklist: FMV of the real property? CAUTION ! this checklist to ensure that you are providing everything necessary to make Does the notice of election include a Has the agreement been signed a valid election. statement that the decedent and/or by each qualified heir having an a member of his or her family has To have a valid special-use valuation interest in the property being owned all of the specially valued election under section 2032A, you must specially valued? property for at least 5 years of the 8 file, in addition to the federal estate tax years immediately preceding the return, (a) a notice of election Has every qualified heir expressed date of the decedent’s death? (Schedule A-1, Part 2), and (b) a fully consent to personal liability under executed agreement (Schedule A-1, section 2032A(c) in the event of Part 3). You must include certain Does the notice of election include a an early disposition or early information in the notice of election. To statement as to whether there were cessation of qualified use? ensure that the notice of election any periods during the 8-year period includes all of the information required preceding the decedent’s date of Is the agreement that is actually for a valid election, use the following death during which the decedent or signed by the qualified heirs in a checklist. The checklist is for your use a member of his or her family did only. Do not file it with the return. form that is binding on all of the not (a) own the property to be qualified heirs having an interest specially valued, (b) use it in a Does the notice of election include in the specially valued property? qualified use, or (c) materially the decedent’s name and social participate in the operation of the security number as they appear on Does the agreement designate an farm or other business? (See the estate tax return? agent to act for the parties to the section 2032A(e)(6).) agreement in all dealings with the Does the notice of election include IRS on matters arising under the relevant qualified use of the section 2032A? property to be specially valued? Has the agreement been signed Does the notice of election describe by the designated agent and does the items of real property shown on it give the address of the agent? the estate tax return that are to be specially valued and identify the property by the Form 706 schedule and item number? -16- Part Instructions

(i706)(page-17)Page 17#

Note. Unless specifically exempted by List interest and dividends on each Schedule B—Stocks and stock or bond on a separate line. an estate tax provision of the Code, Bonds bonds that are exempt from federal Indicate as a separate item income tax are not exempt from estate dividends that have not been collected Before completing Schedule B, tax. You should list these bonds on at death and are payable to the see the examples illustrating the Schedule B. decedent or the estate because the alternate valuation dates being TIP decedent was a stockholder of record Public housing bonds includible in adopted and not being adopted, below. on the date of death. However, if the the gross estate must be included at stock is being traded on an exchange their full value. If the total gross estate contains any and is selling ex-dividend on the date of stocks or bonds, you must complete If you paid any estate, inheritance, the decedent’s death, do not include Schedule B and file it with the return. legacy, or succession tax to a foreign the amount of the dividend as a country on any stocks or bonds separate item. Instead, add it to the included in this schedule, group those On Schedule B, list the stocks and ex-dividend quotation in determining stocks and bonds together and label bonds included in the decedent’s gross the FMV of the stock on the date of the them “Subjected to Foreign Death estate. Number each item in the decedent’s death. Dividends declared Taxes.” left-hand column. on shares of stock before the death of Schedule B Examples Example showing use of Schedule B where the alternate valuation is not adopted; date of death, January 1, 2011 Description, including face amount of bonds or number of shares and par value Alternate Value at Item where needed for identification. Give CUSIP number. If trust, partnership, or valuation Alternate date of number closely held entity, give EIN. Unit value date value death CUSIP number or EIN, where applicable 1 $60,000-Arkansas Railroad Co. first mortgage 4%, 20-year bonds, due 2012. Interest payable quarterly on Feb. 1, May 1, Aug. 1, and Nov. 1; N.Y. Exchange . . . . . . . . . . . . . . . XXXXXXXXX 100 - - - - - - - $- - - - - - - $ 60,000 Interest coupons attached to bonds, item 1, due and payable on Nov. 1, 2010, but not cashed at date of death . . - - - - - - - - - - - - - - - - - - - - - 600 Interest accrued on item 1, from Nov. 1, 2010, to Jan. 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - - - - - - - - - - - - - - - - - - - - 400 2 500 shares Public Service Corp., common; N.Y. Exchange XXXXXXXXX 110 - - - - - - - - - - - - - - 55,000 Dividend on item 2 of $2 per share declared Dec. 10, 2010, payable on Jan. 9, 2011, to holders of record on Dec. 30, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - - - - - - - - - - - - - - - - - - - - 1,000 Example showing use of Schedule B where the alternate valuation is adopted; date of death, January 1, 2011 Item Description, including face amount of bonds or number of shares and par value Alternate Value at number where needed for identification. Give CUSIP number. If trust, partnership, or valuation Alternate date of closely held entity, give EIN. Unit value date value death CUSIP number or EIN, where applicable 1 $60,000-Arkansas Railroad Co. first mortgage 4%, 20-year bonds, due 2012. Interest payable quarterly on Feb. 1, May 1, Aug. 1, and Nov. 1; N.Y. Exchange . . . . . . . . . . . . . . . . XXXXXXXXX 100 - - - - - - $- - - - - - $ 60,000 $30,000 of item 1 distributed to legatees on Apr. 1, 2011 . . 99 4/1/11 29,700 - - - - - - $30,000 of item 1 sold by executor on May 1, 2011 . . . . . . 98 5/1/11 29,400 - - - - - - Interest coupons attached to bonds, item 1, due and payable on Nov. 1, 2010, but not cashed at date of death. Cashed by executor on Feb. 2, 2011 . . . . . . . . . . . . . . . . - - - - - - 2/2/11 600 600 Interest accrued on item 1, from Nov. 1, 2010, to Jan. 1, 2011. Cashed by executor on Feb. 2, 2011 . . . . . . . . . . . . - - - - - - 2/2/11 400 400 2 500 shares Public Service Corp., common; N.Y. Exchange XXXXXXXXX 110 - - - - - - - - - - - - 55,000 Not disposed of within 6 months following death . . . . . . . . 90 7/1/11 45,000 - - - - - - Dividend on item 2 of $2 per share declared Dec. 10, 2010, paid on Jan. 9, 2011, to holders of record on Dec. 30, 2010 - - - - - - 1/9/11 1,000 1,000 -17- Part Instructions

(i706)(page-18)Page 18#

the decedent but payable to date. Both trading dates must be letters furnishing these quotations or stockholders of record on a date after reasonably close to the valuation date. evidence of sale. the decedent’s death are not includible 2. Prorate the difference between in the gross estate for federal estate tax the mean prices to the valuation date. Schedule C—Mortgages, purposes and should not be listed here. 3. Add or subtract (whichever Notes, and Cash applies) the prorated part of the Description difference to or from the mean price Complete Schedule C and file it with Stocks. For stocks, indicate: figured for the nearest trading date your return if the total gross estate • Number of shares; before the valuation date. contains any: • Whether common or preferred; • Mortgages, If no actual sales were made • Issue; • Notes, or reasonably close to the valuation date, • Par value where needed for • Cash. make the same computation using the identification; List on Schedule C: mean between the bona fide bid and • Price per share; • Mortgages and notes payable to the asked prices instead of sales prices. If • Exact name of corporation; decedent at the time of death. actual sales prices or bona fide bid and • Principal exchange upon which sold, • Cash the decedent had at the date of asked prices are available within a if listed on an exchange; and death. reasonable period of time before the • Nine-digit CUSIP number (defined Note. Do not list mortgages and notes valuation date but not after the below). payable by the decedent on Schedule valuation date, or vice versa, use the Bonds. For bonds, indicate: C. (If these are deductible, list them on mean between the highest and lowest • Quantity and denomination; Schedule K.) sales prices or bid and asked prices as • Name of obligor; the FMV. • Date of maturity; List the items on Schedule C in the For example, assume that sales of • Interest rate; following order: stock nearest the valuation date (June • Interest due date; 15) occurred 2 trading days before • Principal exchange, if listed on an 1. Mortgages; (June 13) and 3 trading days after exchange; and 2. Promissory notes; (June 18). On those days, the mean • Nine-digit CUSIP number. 3. Contracts by decedent to sell sale prices per share were $10 and land; If the stock or bond is unlisted, show $15, respectively. Therefore, the price 4. Cash in possession; and the company’s principal business office. of $12 is considered the FMV of a 5. Cash in banks, savings and loan If the gross estate includes any share of stock on the valuation date. If, associations, and other types of interest in a trust, partnership, or however, on June 13 and 18, the mean financial organizations. closely held entity, provide the sale prices per share were $15 and employer identification number (EIN) of What to enter in the “Description” $10, respectively, the FMV of a share the entity in the description column on column: of stock on the valuation date is $13. Schedules B, E, F, G, M, and O, where For mortgages, list: If only closing prices for bonds are applicable. You must also provide the • Face value, available, see Regulations section EIN of the estate (if any) in the • Unpaid balance, 20.2031-2(b). description column on the above-noted • Date of mortgage, Apply the rules in the section 2031 schedules, where applicable. • Name of maker, regulations to determine the value of The CUSIP (Committee on Uniform • Property mortgaged, inactive stock and stock in close Security Identification Procedure) • Date of maturity, corporations. Attach to Schedule B number is a nine-digit number that is • Interest rate, and complete financial and other data used assigned to all stocks and bonds traded • Interest date. to determine value, including balance on major exchanges and many unlisted Example to enter in “Description” sheets (particularly the one nearest to securities. Usually, the CUSIP number column: “Bond and mortgage of the valuation date) and statements of is printed on the face of the stock $50,000, unpaid balance: $17,000; the net earnings or operating results certificate. If you do not have a stock dated: January 1, 1992; John Doe to and dividends paid for each of the 5 certificate, the CUSIP may be found on Richard Roe; premises: 22 Clinton years immediately before the valuation the broker’s or custodian’s statement or Street, Newark, NJ; due: January 1, date. by contacting the company’s transfer 2012; interest payable at 10% a Securities reported as of no value, of agent. year—January 1 and July 1.” nominal value, or obsolete should be For promissory notes, list in the listed last. Include the address of the same way as mortgages. Valuation company and the state and date of the For contracts by the decedent to sell incorporation. Attach copies of List the FMV of the stocks or bonds. land, list: correspondence or statements used to The FMV of a stock or bond (whether • Name of purchaser, determine the “no value.” listed or unlisted) is the mean between • Contract date, the highest and lowest selling prices If the security was listed on more • Property description, quoted on the valuation date. If only the than one stock exchange, use either • Sale price, closing selling prices are available, then the records of the exchange where the • Initial payment, the FMV is the mean between the security is principally traded or the • Amounts of installment payment, quoted closing selling price on the composite listing of combined • Unpaid balance of principal, and valuation date and on the trading day exchanges, if available, in a publication • Interest rate. before the valuation date. of general circulation. In valuing listed For cash on hand, list such cash stocks and bonds, you should carefully If there were no sales on the separately from bank deposits. check accurate records to obtain values valuation date, figure the FMV as for the applicable valuation date. follows: For cash in banks, savings and loan 1. Find the mean between the If you get quotations from brokers, or associations, and other types of highest and lowest selling prices on the evidence of the sale of securities from financial organizations, list: nearest trading date before and the the officers of the issuing companies, • Name and address of each financial nearest trading date after the valuation attach to the schedule copies of the organization, -18- Part Instructions

(i706)(page-19)Page 19#

• Amount in each account, • The power to surrender or cancel the joint tenant with right to survivorship or • Serial or account number, policy; as a tenant by the entirety. • Nature of account—checking, • The power to assign the policy or to Do not list on this schedule property savings, time deposit, etc., and revoke an assignment; that the decedent held as a tenant in • Unpaid interest accrued from date of • The power to pledge the policy for a common, but report the value of the last interest payment to the date of loan; interest on Schedule A if real estate, or death. • The power to obtain from the insurer on the appropriate schedule if personal a loan against the surrender value of Note. If you obtain statements from property. Similarly, community property the policy; and the financial organizations, keep them held by the decedent and spouse • A reversionary interest if the value of for IRS inspection. should be reported on the appropriate the reversionary interest was more than Schedules A through I. The decedent’s 5% of the value of the policy interest in a partnership should not be Schedule D—Insurance immediately before the decedent died. entered on this schedule unless the (An interest in an insurance policy is on the Decedent’s Life partnership interest itself is jointly considered a reversionary interest if, for owned. Solely owned partnership If you are required to file Form 706 and example, the proceeds become interests should be reported on there was any insurance on the payable to the insured’s estate or Schedule F, “Other Miscellaneous decedent’s life, whether or not included payable as the insured directs if the Property Not Reportable Under Any in the gross estate, you must complete beneficiary dies before the insured.) Other Schedule.” Schedule D and file it with the return. Life insurance not includible in the Insurance you must include on Part 1. Qualified joint interests held gross estate under section 2042 may Schedule D. Under section 2042, you by decedent and spouse. Under be includible under some other section must include in the gross estate: section 2040(b)(2), a joint interest is a of the Code. For example, a life • Insurance on the decedent’s life qualified joint interest if the decedent insurance policy could be transferred by receivable by or for the benefit of the and the surviving spouse held the the decedent in such a way that it estate; and interest as: would be includible in the gross estate • Insurance on the decedent’s life • Tenants by the entirety, or under section 2036, 2037, or 2038. See receivable by beneficiaries other than • Joint tenants with right of the instructions to Schedule G for a the estate, as described below. survivorship if the decedent and the description of these sections. decedent’s spouse are the only joint The term “insurance” refers to life tenants. insurance of every description, Completing the Schedule including death benefits paid by Interests that meet either of the two You must list every insurance policy on fraternal beneficiary societies operating requirements above should be entered the life of the decedent, whether or not under the lodge system, and death in Part 1. Joint interests that do not it is included in the gross estate. benefits paid under no-fault automobile meet either of the two requirements Under “Description,” list: insurance policies if the no-fault insurer above should be entered in Part 2. • The name of the insurance company, was unconditionally bound to pay the Under “Description,” describe the and benefit in the event of the insured’s property as required in the instructions • The number of the policy. death. for Schedules A, B, C, and F for the For every life insurance policy listed Insurance in favor of the estate. type of property involved. For example, on the schedule, you must request a Include on Schedule D the full amount jointly held stocks and bonds should be statement on Form 712, Life Insurance of the proceeds of insurance on the life described using the rules given in the Statement, from the company that of the decedent receivable by the instructions to Schedule B. issued the policy. Attach the Form 712 executor or otherwise payable to or for Under “Alternate value” and “Value to the back of Schedule D. the benefit of the estate. Insurance in at date of death,” enter the full value of If the policy proceeds are paid in one favor of the estate includes insurance the property. sum, enter the net proceeds received used to pay the estate tax, and any Note. You cannot claim the special (from Form 712, line 24) in the value other taxes, debts, or charges that are treatment under section 2040(b) for (and alternate value) columns of enforceable against the estate. The property held jointly by a decedent and Schedule D. If the policy proceeds are manner in which the policy is drawn is a surviving spouse who is not a U.S. not paid in one sum, enter the value of immaterial as long as there is an citizen. You must report these joint the proceeds as of the date of the obligation, legally binding on the interests on Part 2 of Schedule E, not decedent’s death (from Form 712, line beneficiary, to use the proceeds to pay Part 1. 25). taxes, debts, or charges. You must include the full amount even though the Part 2. All other joint interests. All If part or all of the policy proceeds premiums or other consideration may joint interests that were not entered in are not included in the gross estate, have been paid by a person other than Part 1 must be entered in Part 2. you must explain why they were not the decedent. included. For each item of property, enter the Insurance receivable by appropriate letter A, B, C, etc., from line beneficiaries other than the estate. Schedule E—Jointly 2a to indicate the name and address of Include on Schedule D the proceeds of the surviving co-tenant. Owned Property all insurance on the life of the decedent Under “Description,” describe the not receivable by, or for the benefit of, If you are required to file Form 706, you property as required in the instructions the decedent’s estate if the decedent must complete Schedule E and file it for Schedules A, B, C, and F for the possessed at death any of the following with the return if the decedent owned type of property involved. incidents of ownership, exercisable any joint property at the time of death, In the “Percentage includible” either alone or in conjunction with any whether or not the decedent’s interest column, enter the percentage of the person or entity. is includible in the gross estate. total value of the property that you Incidents of ownership in a policy Enter on this schedule all property of intend to include in the gross estate. include: whatever kind or character, whether • The right of the insured or estate to real estate, personal property, or bank Generally, you must include the full its economic benefits; accounts, in which the decedent held at value of the jointly owned property in • The power to change the beneficiary; the time of death an interest either as a the gross estate. However, the full -19- Part Instructions

(i706)(page-20)Page 20#

Example of effective discount: value should not be included if you can Note (for single premium or paid-up show that a part of the property policies). In certain situations, for a Pro-rata value of limited liability originally belonged to the other tenant example, where the surrender value of company (before any or tenants and was never received or the policy exceeds its replacement cost, discounts) $100.00 acquired by the other tenant or tenants the true economic value of the policy from the decedent for less than will be greater than the amount shown b Minus: 10% discounts for lack adequate and full consideration in on line 59 of Form 712. In these of control (10.00) money or money’s worth, or unless you situations, you should report the full c Marketable minority interest can show that any part of the property economic value of the policy on value (as if freely traded was acquired with consideration Schedule F. See Revenue Ruling minority interest value) $90.00 originally belonging to the surviving joint 78-137, 1978-1 C.B. 280 for details. tenant or tenants. In this case, you may • Section 2044 property (see Decedent d Minus: 15% discount for lack of exclude from the value of the property Who Was a Surviving Spouse below); marketability (13.50) an amount proportionate to the • Claims (including the value of the e Non-marketable minority consideration furnished by the other decedent’s interest in a claim for refund interest value $76.50 tenant or tenants. Relinquishing or of income taxes or the amount of the promising to relinquish dower, curtesy, refund actually received); or statutory estate created instead of • Rights; Calculation of effective discount: dower or curtesy, or other marital rights • Royalties; (a minus e) divided by a = effective in the decedent’s property or estate is • Leaseholds; discount not consideration in money or money’s • Judgments; worth. See the Schedule A instructions • Reversionary or remainder interests; ($100.00 - $76.50) ÷ $100.00 = 23.50% for the value to show for real property • Shares in trust funds (attach a copy that is subject to a mortgage. of the trust instrument); Note. The amount of discounts are • Household goods and personal If the property was acquired by the based on the factors pertaining to a effects, including wearing apparel; decedent and another person or specific interest and those discounts • Farm products and growing crops; persons by gift, bequest, devise, or shown in the example are for • Livestock; inheritance as joint tenants, and their demonstration purposes only. • Farm machinery; and interests are not otherwise specified by • Automobiles. If you answered “Yes” to line 10b for law, include only that part of the value any transfer(s) described in (1) through Interests. If the decedent owned any of the property that is figured by (5) in the Schedule G instructions (and interest in a partnership or dividing the full value of the property by made by the decedent), attach a unincorporated business, attach a the number of joint tenants. statement to Schedule G which lists statement of assets and liabilities for the item number from that schedule If you believe that less than the full the valuation date and for the 5 years and identifies the total accumulated value of the entire property is includible before the valuation date. Also, attach discount taken (that is, XX.XX%) on in the gross estate for tax purposes, statements of the net earnings for the such transfer(s). you must establish the right to include same 5 years. Be sure to include the Line 1. If the decedent owned at the the smaller value by attaching proof of EIN of the entity. You must account for date of death works of art or items with the extent, origin, and nature of the goodwill in the valuation. In general, collectible value (for example, jewelry, decedent’s interest and the interest(s) furnish the same information and follow furs, silverware, books, statuary, vases, of the decedent’s co-tenant or the methods used to value close oriental rugs, coin or stamp collections), co-tenants. corporations. See the instructions for check the “Yes” box on line 1 and Schedule B. In the “Includible alternate value” provide full details. If any item or All partnership interests should be and “Includible value at date of death” collection of similar items is valued at reported on Schedule F unless the columns, you should enter only the more than $3,000, attach an appraisal partnership interest, itself, is jointly values that you believe are includible in by an expert under oath and the owned. Jointly owned partnership the gross estate. required statement regarding the interests should be reported on appraiser’s qualifications (see Schedule E. Regulations section 20.2031-6(b)). Schedule F—Other If real estate is owned by the sole proprietorship, it should be reported on Miscellaneous Property Decedent Who Was a Schedule F and not on Schedule A. Describe the real estate with the same Surviving Spouse You must complete Schedule detail required for Schedule A. If the decedent was a surviving spouse, F and file it with the return. Valuation discounts. If you he or she may have received qualified On Schedule F, list all items that must answered “Yes” to Part 4—General terminable interest property (QTIP) be included in the gross estate that are Information, line 10b for any interest in from the predeceased spouse for which not reported on any other schedule, miscellaneous property not reportable the marital deduction was elected either including: under any other schedule owned by the on the predeceased spouse’s estate • Debts due the decedent (other than decedent at the time of death, attach a tax return or on a gift tax return, Form notes and mortgages included on statement that lists the item number 709. The election was available for gifts Schedule C); from Schedule F and identifies the total made and decedents dying after • Interests in business; accumulated discount taken (that is, December 31, 1981. List such property XX.XX%) on such interest. on Schedule F. • Any interest in an Archer medical savings account (MSA) or health If you answered “Yes” to line 10b for If this election was made and the savings account (HSA), unless such an interest in a limited liability company surviving spouse retained his or her interest passes to the surviving spouse; owned by the decedent at the time of interest in the QTIP property at death, and death, attach a statement that lists the the full value of the QTIP property is • Insurance on the life of another item number from Schedule F and includible in his or her estate, even (obtain and attach Form 712, for each identifies the effective discount taken though the qualifying income interest policy). on such interest. terminated at death. It is valued as of -20- Part Instructions

(i706)(page-21)Page 21#

the date of the surviving spouse’s made on or before July 10, 2007, are before the decedent’s death, then the death, or alternate valuation date, if not included in the gross estate. decedent’s right to use the property or applicable. Do not reduce the value by the retained annuity, unitrust, or other Attach an explanation of how you any annual exclusion that may have interest (whether payable from income figured the includible gift taxes if you do applied to the transfer creating the and/or principal) is the retention of the not include in the gross estate the interest. possession or enjoyment of, or the right entire gift taxes shown on any Form to the income from, the property for 709 filed for gifts made within 3 years of The value of such property included purposes of section 2036. See death. Also attach copies of any in the surviving spouse’s gross estate is Regulations section 20.2036-1(c)(2). pertinent gift tax returns filed by the treated as passing from the surviving decedent’s spouse for gifts made within spouse. It therefore qualifies for the Retained voting rights. Transfers 3 years of death. charitable and marital deductions on with a retained life estate also include 2. Other transfers within 3 years the surviving spouse’s estate tax return transfers of stock in a controlled of death (section 2035(a)). These if it meets the other requirements for corporation after June 22, 1976, if the transfers include only the following: those deductions. decedent retained or acquired voting • Any transfer by the decedent with rights in the stock. If the decedent For additional details, see respect to a life insurance policy within retained direct or indirect voting rights Regulations section 20.2044-1. 3 years of death; or in a controlled corporation, the • Any transfer within 3 years of decedent is considered to have Schedule G—Transfers death of a retained section 2036 life retained enjoyment of the transferred estate, section 2037 reversionary property. A corporation is a controlled During Decedent’s Life interest, or section 2038 power to corporation if the decedent owned Complete Schedule G and file it with revoke, etc., if the property subject to (actually or constructively) or had the the return if the decedent made any of the life estate, interest, or power would right (either alone or with any other the transfers described in (1) through have been included in the gross estate person) to vote at least 20% of the total (5) below, or if you answered “Yes” to had the decedent continued to possess combined voting power of all classes of question 11 or 12a of Part 4—General the life estate, interest, or power until stock. See section 2036(b)(2). If these Information. death. voting rights ceased or were Report the following types of These transfers are reported on relinquished within 3 years of the transfers on this schedule: Schedule G, regardless of whether a decedent’s death, the corporate gift tax return was required to be filed interests are included in the gross IF. . . AND . . . THEN . . . for them when they were made. estate as if the decedent had actually However, the amount includible and the retained the voting rights until death. the decedent at the time of for purposes of information required to be shown for made a transfer the transfer, the sections 2035 The amount includible in the gross from a trust, transfer was and 2038, treat the transfers are determined: estate is the value of the transferred from a portion the transfer as • For insurance on the life of the property at the time of the decedent’s of the trust that made directly decedent using the instructions to was owned by by the death. If the decedent kept or reserved Schedule D (attach Forms 712); the grantor decedent. an interest or right to only a part of the • For insurance on the life of under section transferred property, the amount another using the instructions to 676 (other than includible in the gross estate is a by reason of Schedule F (attach Forms 712); and corresponding part of the entire value section 672(e)) • For sections 2036, 2037, and by reason of a of the property. 2038 transfers, using paragraphs (3), power in the A retained life estate does not have (4), and (5) of these instructions. grantor, to be legally enforceable. What matters 3. Transfers with retained life Any such is that a substantial economic benefit transfer within estate (section 2036). These are the annual gift was retained. For example, if a mother transfers by the decedent in which the tax exclusion is transferred title to her home to her decedent retained an interest in the not includible in daughter but with the informal transferred property. The transfer can the gross understanding that she was to continue be in trust or otherwise, but excludes estate. living there until her death, the value of bona fide sales for adequate and full the home would be includible in the consideration. 1. Certain gift taxes (section mother’s estate even if the agreement Interests or rights. Section 2036 2035(b)). Enter at item A of Schedule G would not have been legally applies to the following retained the total value of the gift taxes that enforceable. interests or rights: were paid by the decedent or the estate 4. Transfers taking effect at death • The right to income from the on gifts made by the decedent or the (section 2037). A transfer that takes transferred property; decedent’s spouse within 3 years of effect at the decedent’s death is one • The right to the possession or death. under which possession or enjoyment enjoyment of the property; and The date of the gift, not the date of can be obtained only by surviving the • The right, either alone or with any payment of the gift tax, determines decedent. A transfer is not treated as person, to designate the persons who whether a gift tax paid is included in the one that takes effect at the decedent’s shall receive the income from, or gross estate under this rule. Therefore, death unless the decedent retained a possess or enjoy, the property. you should carefully examine the Forms reversionary interest (defined below) in Retained annuity, unitrust, and 709 filed by the decedent and the the property that immediately before the other income interests in trusts. If a decedent’s spouse to determine what decedent’s death had a value of more decedent transferred property into a part of the total gift taxes reported on than 5% of the value of the transferred trust and retained or reserved the right them was attributable to gifts made property. If the transfer was made to use such property, or the right to an within 3 years of death. before October 8, 1949, the annuity, unitrust, or other interest in reversionary interest must have arisen For example, if the decedent died on such trust for the property decedent so by the express terms of the instrument July 10, 2010, you should examine gift transferred for decedent’s life, any of transfer. tax returns for 2010, 2009, 2008, and period not ascertainable without 2007. However, the gift taxes on the reference to the decedent’s death, or A reversionary interest is generally 2007 return that are attributable to gifts for a period that does not, in fact, end any right under which the transferred -21- Part Instructions

(i706)(page-22)Page 22#

property will or may be returned to the partnership while retaining certain 2035(a), 2036, 2037, or 2038, then only decedent or the decedent’s estate. It distribution rights, or a liquidation, put, a corresponding part of the value of the also includes the possibility that the call, or conversion right. property should be included in the transferred property may become value of the gross estate. If the Section 2702 deals with the transfer subject to a power of disposition by the transferee makes additions or of an interest in a trust while retaining decedent. It does not matter if the right improvements to the property, the any interest other than a qualified arises by the express terms of the increased value of the property at the interest. In general, a qualified interest instrument of transfer or by operation of valuation date should not be included is a right to receive certain distributions law. For this purpose, reversionary on Schedule G. However, if only a part from the trust at least annually, or a interest does not include the possibility of the value of the property is included, noncontingent remainder interest if all that the income alone from the property enter the value of the whole under the of the other interests in the trust are may return to the decedent or become column headed “Description” and distribution rights specified in section subject to the decedent’s power of explain what part was included. 2702. disposition. Attachments. If a transfer, by trust or Section 2703 provides rules for the 5. Revocable transfers (section otherwise, was made by a written valuation of property transferred to a 2038). The gross estate includes the instrument, attach a copy of the family member but subject to an option, value of transferred property in which instrument to Schedule G. If the copy of agreement, or other right to acquire or the enjoyment of the transferred the instrument is of public record, it use the property at less than FMV. It property was subject at decedent’s should be certified; if not of public also applies to transfers subject to death to any change through the record, the copy should be verified. restrictions on the right to sell or use exercise of a power to alter, amend, the property. revoke, or terminate. A decedent’s Schedule H—Powers of Finally, section 2704 provides that in power to change the beneficiaries and certain cases, the lapse of a voting or to hasten or increase any beneficiary’s Appointment liquidation right in a family-owned enjoyment of the property are examples Complete Schedule H and file it with corporation or partnership will result in of this. the return if you answered “Yes” to a deemed transfer. It does not matter whether the power question 13 of Part 4—General was reserved at the time of the transfer, These rules have potential Information. whether it arose by operation of law, or consequences for the valuation of whether it was later created or On Schedule H, include in the gross property in an estate. If the decedent conferred. The rule applies regardless estate: (or any member of his or her family) of the source from which the power was • The value of property for which the was involved in any such transactions, acquired, and regardless of whether the decedent possessed a general power see sections 2701 through 2704 and power was exercisable by the decedent of appointment (defined below) on the the related regulations for additional alone or with any person (and date of his or her death and details. regardless of whether that person had • The value of property for which the How To Complete Schedule a substantial adverse interest in the decedent possessed a general power transferred property). of appointment that he or she exercised G or released before death by disposing The capacity in which the decedent All transfers (other than outright of it in such a way that if it were a could use a power has no bearing. If transfers not in trust and bona fide transfer of property owned by the the decedent gave property in trust and sales) made by the decedent at any decedent, the property would be was the trustee with the power to time during life must be reported on includible in the decedent’s gross revoke the trust, the property would be Schedule G, regardless of whether you estate as a transfer with a retained life included in his or her gross estate. For believe the transfers are subject to tax. estate, a transfer taking effect at death, transfers or additions to an irrevocable If the decedent made any transfers not or a revocable transfer. trust after October 28, 1979, the described in these instructions, the transferred property is includible if the transfers should not be shown on With the above exceptions, property decedent reserved the power to remove Schedule G. Instead, attach a subject to a power of appointment is the trustee at will and appoint another statement describing these transfers by not includible in the gross estate if the trustee. listing: decedent released the power • The date of the transfer, If the decedent relinquished within 3 completely and the decedent held no • The amount or value of the years of death any of the includible interest in or control over the property. transferred property, and powers described above, figure the If the failure to exercise a general • The type of transfer. gross estate as if the decedent had power of appointment results in a lapse actually retained the powers until death. Complete the schedule for each of the power, the lapse is treated as a transfer that is included in the gross Only the part of the transferred release only to the extent that the value estate under sections 2035(a), 2036, property that is subject to the of the property that could have been 2037, and 2038 as described in the decedent’s power is included in the appointed by the exercise of the lapsed Instructions for Schedule G. gross estate. power is more than the greater of For more detailed information on In the “Item number” column, $5,000 or 5% of the total value, at the which transfers are includible in the number each transfer consecutively time of the lapse, of the assets out of gross estate, see the Estate Tax beginning with “1.” In the “Description” which, or the proceeds of which, the Regulations. column, list the name of the transferee exercise of the lapsed power could and the date of the transfer, and give a have been satisfied. complete description of the property. Special Valuation Rules for Transfers included in the gross estate Powers of Appointment Certain Lifetime Transfers should be valued on the date of the A power of appointment determines Sections 2701 through 2704 provide decedent’s death or, if alternate who will own or enjoy the property rules for valuing certain transfers to valuation is adopted, according to subject to the power and when they will family members. section 2032. own or enjoy it. The power must be Section 2701 deals with the transfer If only part of the property created by someone other than the of an interest in a corporation or transferred meets the terms of section decedent. It does not include a power -22- Part Instructions

(i706)(page-23)Page 23#

created or held on property transferred power, the second power is considered the gross estate even if the surviving by the decedent. as created at the time of the exercise of spouse receives benefits. the first. An annuity or other payment that is A power of appointment includes all not includible in the decedent’s or the powers which are, in substance and Attachments survivor’s gross estate as an annuity effect, powers of appointment If the decedent ever possessed a may still be includible under some other regardless of how they are identified power of appointment, attach a certified applicable provision of the law. For and regardless of local property laws. or verified copy of the instrument example, see Powers of Appointment For example, if a settlor transfers granting the power and a certified or and the Instructions for Schedule property in trust for the life of his wife, verified copy of any instrument by G—Transfers During Decedent’s Life, with a power in the wife to appropriate which the power was exercised or above. See also Regulations section or consume the principal of the trust, released. You must file these copies 20.2039-1(e). the wife has a power of appointment. even if you contend that the power was If the decedent retired before Some powers do not in themselves not a general power of appointment, January 1, 1985, see Annuities Under constitute a power of appointment. For and that the property is not otherwise Approved Plans, below, for rules that example, a power to amend only includible in the gross estate. allow the exclusion of part or all of administrative provisions of a trust that certain annuities. cannot substantially affect the beneficial Schedule I—Annuities enjoyment of the trust property or Part Includible You must complete Schedule l and file income is not a power of appointment. it with the return if you answered “Yes” If the decedent contributed only part of A power to manage, invest, or control to question 15 of Part 4—General the purchase price of the contract or assets, or to allocate receipts and Information. agreement, include in the gross estate disbursements, when exercised only in only that part of the value of the annuity Enter on Schedule I every annuity a fiduciary capacity, is not a power of receivable by the surviving beneficiary that meets all of the conditions under appointment. that the decedent’s contribution to the General, below, and every annuity General power of appointment. A purchase price of the annuity or described in paragraphs (a) through (h) general power of appointment is a agreement bears to the total purchase of Annuities Under Approved Plans, power that is exercisable in favor of the price. even if the annuities are wholly or decedent, the decedent’s estate, the partially excluded from the gross estate. For example, if the value of the decedent’s creditors, or the creditors of survivor’s annuity was $20,000 and the For a discussion regarding the QTIP the decedent’s estate, except: decedent had contributed three-fourths treatment of certain joint and survivor 1. A power to consume, invade, or of the purchase price of the contract, annuities, see the Schedule M, line 3 appropriate property for the benefit of the amount includible is $15,000 (3/4 × instructions. the decedent that is limited by an $20,000). ascertainable standard relating to General Except as provided under Annuities health, education, support, or These rules apply to all types of Under Approved Plans, contributions maintenance of the decedent. annuities, including pension plans, made by the decedent’s employer to 2. A power exercisable by the individual retirement arrangements, the purchase price of the contract or decedent only in conjunction with: purchased commercial annuities, and agreement are considered made by the a. the creator of the power or private annuities. decedent if they were made by the b. a person who has a substantial In general, you must include in the employer because of the decedent’s interest in the property subject to the gross estate all or part of the value of employment. For more information, see power, which is adverse to the exercise any annuity that meets the following section 2039. of the power in favor of the decedent. requirements: Definitions A part of a power is considered a • It is receivable by a beneficiary general power of appointment if the following the death of the decedent and Annuity. An annuity consists of one or power: by reason of surviving the decedent; more payments extending over any • The annuity is under a contract or period of time. The payments may be 1. May only be exercised by the agreement entered into after March 3, equal or unequal, conditional or decedent in conjunction with another 1931; unconditional, periodic or sporadic. person and • The annuity was payable to the 2. Is also exercisable in favor of the Examples. The following are decedent (or the decedent possessed other person (in addition to being examples of contracts (but not the right to receive the annuity) either exercisable in favor of the decedent, necessarily the only forms of contracts) alone or in conjunction with another, for the decedent’s creditors, the decedent’s for annuities that must be included in the decedent’s life or for any period not estate, or the creditors of the the gross estate: ascertainable without reference to the decedent’s estate). 1. A contract under which the decedent’s death or for any period that decedent immediately before death was The part to include in the gross did not in fact end before the receiving or was entitled to receive, for estate as a general power of decedent’s death; and the duration of life, an annuity with appointment is figured by dividing the • The contract or agreement is not a payments to continue after death to a value of the property by the number of policy of insurance on the life of the designated beneficiary, if surviving the persons (including the decedent) in decedent. decedent. favor of whom the power is exercisable. Note. A private annuity is an annuity 2. A contract under which the issued from a party not engaged in the Date power was created. Generally, decedent immediately before death was business of writing annuity contracts, a power of appointment created by will receiving or was entitled to receive, typically a junior generation family is considered created on the date of the together with another person, an member or a family trust. testator’s death. annuity payable to the decedent and A power of appointment created by An annuity contract that provides the other person for their joint lives, an inter vivos instrument is considered periodic payments to a person for life with payments to continue to the created on the date the instrument and ceases at the person’s death is not survivor following the death of either. takes effect. If the holder of a power includible in the gross estate. Social 3. A contract or agreement entered exercises it by creating a second security benefits are not includible in into by the decedent and employer -23- Part Instructions

(i706)(page-24)Page 24#

under which the decedent immediately • Had separated from service before If the decedent made a contribution before death and following retirement January 1, 1985, and did not change under a plan described in (a) through was receiving, or was entitled to the form of benefit before death. (e) above toward the cost, include in receive, an annuity payable to the the gross estate on this schedule that The amount excluded cannot exceed decedent for life. After the decedent’s proportion of the value of the annuity $100,000 unless either of the following death, if survived by a designated which the amount of the decedent’s conditions is met: beneficiary, the annuity was payable to contribution under the plan bears to the • On December 31, 1982, the the beneficiary with payments either total amount of all contributions under decedent was both a participant in the fixed by contract or subject to an option the plan. The remaining value of the plan and in pay status (for example, or election exercised or exercisable by annuity is excludable from the gross had received at least one benefit the decedent. However, see Annuities estate subject to the $100,000 limitation payment on or before December 31, Under Approved Plans, below. (if applicable). For the rules to 1982) and the decedent irrevocably determine whether the decedent made 4. A contract or agreement entered elected the form of the benefit before contributions to the plan, see into by the decedent and the January 1, 1983, or Regulations section 20.2039-1(c). decedent’s employer under which at the • The decedent separated from service decedent’s death, before retirement, or IRAs and retirement bonds. The before January 1, 1983, and did not before the expiration of a stated period following plans are approved plans for change the form of benefit before of time, an annuity was payable to a the exclusion rules: death. designated beneficiary, if surviving the f. An individual retirement account Approved Plans decedent. However, see Annuities described in section 408(a), Under Approved Plans below. Approved plans may be separated into g. An individual retirement annuity 5. A contract or agreement under two categories: described in section 408(b), or which the decedent immediately before • Pension, profit-sharing, stock bonus, death was receiving, or was entitled to and other similar plans and h. A retirement bond described in receive, an annuity for a stated period • Individual retirement arrangements section 409(a) (before its repeal by P.L. of time, with the annuity to continue to a (IRAs), and retirement bonds. 98-369). designated beneficiary, surviving the Exclusion rules for IRAs and Different exclusion rules apply to the decedent, upon the decedent’s death retirement bonds. These plans are two categories of plans. and before the expiration of that period approved plans only if they provide for Pension, etc., plans. The following of time. a series of substantially equal periodic plans are approved plans for the 6. An annuity contract or other payments made to a beneficiary for life, exclusion rules: arrangement providing for a series of or over a period of at least 36 months a. An employees’ trust (or a contract substantially equal periodic payments after the date of the decedent’s death. purchased by an employees’ trust) to be made to a beneficiary for life or Subject to the $100,000 limitation, if forming part of a pension, stock bonus, over a period of at least 36 months applicable, if an annuity under a “plan” or profit-sharing plan that met all the after the date of the decedent’s death described in (f) through (h) above is requirements of section 401(a), either under an individual retirement account, receivable by a beneficiary other than at the time of the decedent’s separation annuity, or bond as described in section the executor, the entire value of the from employment (whether by death or 2039(e) (before its repeal by P.L. annuity is excludable from the gross otherwise) or at the time of the 98-369). estate even if the decedent made a termination of the plan (if earlier); contribution under the plan. Payable to the decedent. An annuity b. A retirement annuity contract However, if any payment to or for an or other payment was payable to the purchased by the employer (but not by account or annuity described in decedent if, at the time of death, the an employees’ trust) under a plan that, paragraph (f), (g), or (h) above was not decedent was in fact receiving an at the time of the decedent’s separation allowable as an income tax deduction annuity or other payment, with or from employment (by death or under section 219 (and was not a without an enforceable right to have the otherwise), or at the time of the rollover contribution as described in payments continued. termination of the plan (if earlier), was a section 2039(e) before its repeal by plan described in section 403(a); Right to receive an annuity. The P.L. 98-369), include in the gross c. A retirement annuity contract decedent had the right to receive an estate on this schedule that proportion purchased for an employee by an annuity or other payment if, of the value of the annuity which the employer that is an organization immediately before death, the decedent amount not allowable as a deduction referred to in section 170(b)(1)(A)(ii) or had an enforceable right to receive under section 219 and not a rollover (vi), or that is a religious organization payments at some time in the future, contribution bears to the total amount (other than a trust), and that is exempt whether or not at the time of death the paid to or for such account or annuity. from tax under section 501(a); decedent had a present right to receive For more information, see Regulations payments. d. Chapter 73 of Title 10 of the section 20.2039-5. United States Code; or Rules applicable to all approved Annuities Under Approved plans. The following rules apply to all e. A bond purchase plan described Plans approved plans described in in section 405 (before its repeal by P.L. paragraphs (a) through (h) above. 98-369, effective for obligations issued The following rules relate to whether after December 31, 1983). part or all of an otherwise includible If any part of an annuity under a annuity may be excluded. These rules Exclusion rules for pension, etc., “plan” described in (a) through (h) have been repealed and apply only if plans. If an annuity under an above is receivable by the executor, it the decedent either: “approved plan” described in (a) is generally includible in the gross • On December 31, 1984, was both a through (e) above is receivable by a estate to the extent that it is receivable participant in the plan and in pay status beneficiary other than the executor and by the executor in that capacity. In (for example, had received at least one the decedent made no contributions general, the annuity is receivable by the benefit payment on or before December under the plan toward the cost, no part executor if it is to be paid to the 31, 1984) and had irrevocably elected of the value of the annuity, subject to executor or if there is an agreement the form of the benefit before July 18, the $100,000 limitation (if applicable), is (expressed or implied) that it will be 1984, or includible in the gross estate. applied by the beneficiary for the -24- Part Instructions

(i706)(page-25)Page 25#

benefit of the estate (such as in schedule. List them on Schedule L How To Complete Schedule I discharge of the estate’s liability for instead. In describing an annuity, give the name death taxes or debts of the decedent, The deduction is limited to the and address of the grantor of the etc.) or that its distribution will be amount paid for these expenses that is annuity. Specify if the annuity is under governed to any extent by the terms of allowable under local law but may not an approved plan. the decedent’s will or the laws of exceed: descent and distribution. IF . . . THEN . . . 1. The value of property subject to If data available to you does not claims included in the gross estate, plus indicate whether the plan satisfies the the annuity is under an state the ratio of the 2. The amount paid out of property approved plan, decedent’s contribution requirements of section 401(a), 403(a), included in the gross estate but not to the total purchase 408(a), 408(b), or 409(a), you may subject to claims. This amount must price of the annuity. obtain that information from the IRS actually be paid by the due date of the office where the employer’s principal estate tax return. the decedent was state the ratio of the place of business is located. employed at the time of decedent’s contribution The applicable local law under which death and an annuity as to the total purchase Line A. Lump Sum the estate is being administered described in Definitions, price of the annuity. Distribution Election Annuity, Example 4, determines which property is and is not above, became payable subject to claims. If under local law a Note. The following rules have been to any beneficiary particular property interest included in repealed and apply only if the because the beneficiary the gross estate would bear the burden survived the decedent, decedent: for the payment of the expenses, then • On December 31, 1984, was both a the property is considered property an annuity under an state the ratio of the participant in the plan and in pay status subject to claims. individual retirement amount paid for the (for example, had received at least one account or annuity individual retirement Unlike certain claims against the benefit payment on or before December became payable to any account or annuity that estate for debts of the decedent (see 31, 1984) and had irrevocably elected beneficiary because that was not allowable as an the instructions for Schedule K), you the form of the benefit before July 18, beneficiary survived the income tax deduction cannot deduct expenses incurred in decedent and is payable under section 219 (other 1984, or to the beneficiary for life than a rollover administering property subject to claims • Had separated from service before or for at least 36 months contribution) to the total on both the estate tax return and the January 1, 1985, and did not change following the decedent’s amount paid for the estate’s income tax return. If you the form of benefit before death. death, account or annuity. choose to deduct them on the estate Generally, the entire amount of any tax return, you cannot deduct them on lump sum distribution is included in the the annuity is payable the description should a Form 1041, U.S. Income Tax Return decedent’s gross estate. However, out of a trust or other be sufficiently complete for Estate and Trusts, filed for the fund, to fully identify it. under this special rule, all or part of a estate. Funeral expenses are only lump sum distribution from a qualified deductible on the estate tax return. (approved) plan will be excluded if the the annuity is payable include the duration of Funeral expenses. Itemize funeral lump sum distribution is included in the for a term of years, the term and the date expenses on line A. Deduct from the on which it began. recipient’s income for income tax expenses any amounts that were purposes. reimbursed, such as death benefits the annuity is payable include the date of birth If the decedent was born before payable by the Social Security for the life of a person of that person. 1936, the recipient may be eligible to Administration and the Veterans other than the decedent, elect special “10-year averaging” rules Administration. (under repealed section 402(e)) and the annuity is wholly or enter the amount Executors’ commissions. When you capital gain treatment (under repealed partially excluded from excluded under file the return, you may deduct section 402(a)(2)) in figuring the income the gross estate, “Description” and commissions that have actually been tax on the distribution. For more explain how you figured paid to you or that you expect will be information, see Pub. 575, Pension and the exclusion. paid. You may not deduct commissions Annuity Income. If this option is if none will be collected. If the amount available, the estate tax exclusion of the commissions has not been fixed cannot be claimed unless the recipient by decree of the proper court, the elects to forego the “10-year averaging” Schedule J—Funeral deduction will be allowed on the final and capital gain treatment in figuring Expenses and Expenses examination of the return, provided that: the income tax on the distribution. The • The Estate and Gift Tax Territory recipient elects to forego this treatment Incurred in Manager is reasonably satisfied that the by treating the distribution as taxable commissions claimed will be paid; on his or her income tax return as Administering Property • The amount entered as a deduction described in Regulations section Subject to Claims is within the amount allowable by the 20.2039-4(d). The election is laws of the jurisdiction where the estate irrevocable. General. You must complete and file is being administered; and Schedule J if you claim a deduction on The amount excluded from the gross • It is in accordance with the usually item 13 of Part 5—Recapitulation. estate is the portion attributable to the accepted practice in that jurisdiction for employer contributions. The portion, if estates of similar size and character. On Schedule J, itemize funeral any, attributable to the expenses and expenses incurred in employee-decedent’s contributions is If you have not been paid the administering property subject to always includible. Also, you may not commissions claimed at the time of the claims. List the names and addresses figure the gross estate in accordance final examination of the return, you of persons to whom the expenses are with this election unless you check must support the amount you deducted payable and describe the nature of the “Yes” on line A and attach the name, with an affidavit or statement signed expense. Do not list expenses address, and identifying number of the under the penalties of perjury that the incurred in administering property recipients of the lump sum distributions. amount has been agreed upon and will See Regulations section 20.2039-4. not subject to claims on this be paid. -25- Part Instructions

(i706)(page-26)Page 26#

You may not deduct a bequest or costs, and costs of storing or claims to be deductible, all of the devise made to you instead of maintaining assets of the estate. following conditions must be met: commissions. If, however, the decedent • The decedent and the decedent’s The expenses of selling assets are fixed by will the compensation payable spouse must have entered into a deductible only if the sale is necessary to you for services to be rendered in the written agreement relative to their to pay the decedent’s debts, the administration of the estate, you may marital and property rights. expenses of administration, or taxes, or deduct this amount to the extent it is • The decedent and the spouse must to preserve the estate or carry out not more than the compensation have been divorced before the distribution. allowable by the local law or practice. decedent’s death and the divorce must have occurred within the 3-year period Do not deduct on this schedule Schedule K—Debts of beginning on the date 1 year before the amounts paid as trustees’ commissions agreement was entered into. It is not whether received by you acting in the the Decedent and required that the agreement be capacity of a trustee or by a separate approved by the divorce decree. Mortgages and Liens trustee. If such amounts were paid in • The property or interest transferred You must complete and attach administering property not subject to under the agreement must be Schedule K if you claimed deductions claims, deduct them on Schedule L. transferred to the decedent’s spouse in on either item 14 or item 15 of Part Note. Executors’ commissions are settlement of the spouse’s marital 5—Recapitulation. taxable income to the executors. rights. Therefore, be sure to include them as Income vs. estate tax deduction. You may not deduct a claim made income on your individual income tax Taxes, interest, and business expenses against the estate by a remainderman return. accrued at the date of the decedent’s relating to section 2044 property. death are deductible both on Schedule Section 2044 property is described in Attorney fees. Enter the amount of K and as deductions in respect of the the instructions to line 6. attorney fees that have actually been decedent on the income tax return of paid or that you reasonably expect to Include in this schedule notes the estate. be paid. If, on the final examination of unsecured by mortgage or other lien If you choose to deduct medical the return, the fees claimed have not and give full details, including: expenses of the decedent only on the been awarded by the proper court and • Name of payee, estate tax return, they are fully paid, the deduction will be allowed • Face and unpaid balance, deductible as claims against the estate. provided the Estate and Gift Tax • Date and term of note, If, however, they are claimed on the Territory Manager is reasonably • Interest rate, and decedent’s final income tax return satisfied that the amount claimed will be • Date to which interest was paid under section 213(c), they may not also paid and that it does not exceed a before death. be claimed on the estate tax return. In reasonable payment for the services Include the exact nature of the claim this case, you also may not deduct on performed, taking into account the size as well as the name of the creditor. If the estate tax return any amounts that and character of the estate and the the claim is for services performed over were not deductible on the income tax local law and practice. If the fees a period of time, state the period return because of the percentage claimed have not been paid at the time covered by the claim. limitations. of final examination of the return, the Example. Edison Electric amount deducted must be supported by Debts of the Decedent Illuminating Co., for electric service an affidavit, or statement signed under during December 2010, $150. the penalties of perjury, by the executor List under “Debts of the Decedent” only or the attorney stating that the amount valid debts the decedent owed at the If the amount of the claim is the has been agreed upon and will be paid. time of death. List any indebtedness unpaid balance due on a contract for secured by a mortgage or other lien on the purchase of any property included Do not deduct attorney fees property of the gross estate under the in the gross estate, indicate the incidental to litigation incurred by the heading “Mortgages and Liens.” If the schedule and item number where you beneficiaries. These expenses are amount of the debt is disputed or the reported the property. If the claim charged against the beneficiaries subject of litigation, deduct only the represents a joint and separate liability, personally and are not administration amount the estate concedes to be a give full facts and explain the financial expenses authorized by the Code. valid claim. Enter the amount in contest responsibility of the co-obligor. Interest expense. Interest expenses in the column provided. Property and income taxes. The incurred after the decedent’s death are deduction for property taxes is limited to Generally, if the claim against the generally allowed as a deduction if they the taxes accrued before the date of estate is based on a promise or are reasonable, necessary to the the decedent’s death. Federal taxes on agreement, the deduction is limited to administration of the estate, and income received during the decedent’s the extent that the liability was allowable under local law. lifetime are deductible, but taxes on contracted bona fide and for an Interest incurred as the result of a income received after death are not adequate and full consideration in federal estate tax deficiency is a deductible. money or money’s worth. However, any deductible administrative expense. enforceable claim based on a promise Keep all vouchers or original records Penalties are not deductible even if or agreement of the decedent to make for inspection by the IRS. they are allowable under local law. a contribution or gift (such as a pledge Allowable death taxes. If you elect to Note. If you elect to pay the tax in or a subscription) to or for the use of a take a deduction for foreign death taxes installments under section 6166, you charitable, public, religious, etc., under section 2053(d) rather than a may not deduct the interest payable on organization is deductible to the extent credit under section 2014, the the installments. that the deduction would be allowed as deduction is subject to the limitations a bequest under the statute that Miscellaneous expenses. described in section 2053(d) and its applies. Miscellaneous administration expenses regulations. If you have difficulty necessarily incurred in preserving and Certain claims of a former spouse figuring the deduction, you may request distributing the estate are deductible. against the estate based on the a computation of it. Send your request These expenses include appraiser’s relinquishment of marital rights are within a reasonable amount of time and accountant’s fees, certain court deductible on Schedule K. For these before the due date of the return to: -26- Part Instructions

(i706)(page-27)Page 27#

Department of the Treasury limitations for assessment (referred to Net Losses During Commissioner of Internal Revenue above) expires. Keep all vouchers and Administration Washington, DC 20224. receipts for inspection by the IRS. You may deduct only those losses from thefts, fires, storms, shipwrecks, or Schedule M—Bequests, other casualties that occurred during Attach to your request a copy of the the settlement of the estate. You may etc., to Surviving Spouse will and relevant documents, a deduct only the amount not reimbursed statement showing the distribution of (Marital Deduction) by insurance or otherwise. the estate under the decedent’s will, and a computation of the state or Describe in detail the loss sustained General foreign death tax showing any amount and the cause. If you received payable by a charitable organization. You must complete Schedule M and file insurance or other compensation for the it with the return if you claim a loss, state the amount collected. deduction on Part 5—Recapitulation, Mortgages and Liens Identify the property for which you are item 20. claiming the loss by indicating the List under “Mortgages and Liens” only particular schedule and item number obligations secured by mortgages or The marital deduction is authorized where the property is included in the other liens on property that you by section 2056 for certain property gross estate. included in the gross estate at its full interests that pass from the decedent to value or at a value that was the surviving spouse. You may claim If you elect alternate valuation, do undiminished by the amount of the the deduction only for property interests not deduct the amount by which you mortgage or lien. If the debt is that are included in the decedent’s reduced the value of an item to include enforceable against other property of gross estate (Schedules A through I). it in the gross estate. the estate not subject to the mortgage Note. The marital deduction is Do not deduct losses claimed as a or lien, or if the decedent was generally not allowed if the surviving deduction on a federal income tax personally liable for the debt, you must spouse is not a U.S. citizen. The marital return or depreciation in the value of include the full value of the property deduction is allowed for property securities or other property. subject to the mortgage or lien in the passing to such a surviving spouse in a gross estate under the appropriate Expenses Incurred in qualified domestic trust (QDOT) or if schedule and may deduct the mortgage such property is transferred or Administering Property Not or lien on the property on this schedule. irrevocably assigned to such a trust Subject to Claims before the estate tax return is filed. The However, if the decedent’s estate is You may deduct expenses incurred in executor must elect QDOT status on not liable, include in the gross estate administering property that is included the return. See the instructions that only the value of the equity of in the gross estate but that is not follow for details on the election. redemption (or the value of the property subject to claims. You may only deduct less the amount of the debt), and do these expenses if they were paid Property Interests That You not deduct any portion of the before the section 6501 period of indebtedness on this schedule. May List on Schedule M limitations for assessment expired. Generally, you may list on Schedule M Notes and other obligations secured The expenses deductible on this all property interests that pass from the by the deposit of collateral, such as schedule are usually expenses incurred decedent to the surviving spouse and stocks, bonds, etc., also should be in the administration of a trust are included in the gross estate. listed under “Mortgages and Liens.” established by the decedent before However, you should not list any death. They may also be incurred in the nondeductible terminable interests Description collection of other assets or the transfer (described below) on Schedule M or clearance of title to other property Include under the “Description” column unless you are making a QTIP election. included in the decedent’s gross estate the particular schedule and item The property for which you make this for estate tax purposes, but not number where the property subject to election must be included on Schedule included in the decedent’s probate the mortgage or lien is reported in the M. See Qualified terminable interest estate. gross estate. property, below. The expenses deductible on this Include the name and address of the For the rules on common disaster schedule are limited to those that are mortgagee, payee, or obligee, and the and survival for a limited period, see the result of settling the decedent’s date and term of the mortgage, note, or section 2056(b)(3). interest in the property or of vesting other agreement by which the debt was good title to the property in the You may list on Schedule M only established. Also include the face beneficiaries. Expenses incurred on those interests that the surviving amount, the unpaid balance, the rate of behalf of the transferees (except those spouse takes: interest, and date to which the interest described above) are not deductible. 1. As the decedent’s legatee, was paid before the decedent’s death. Examples of deductible and devisee, heir, or donee; nondeductible expenses are provided in 2. As the decedent’s surviving Schedule L—Net Losses Regulations section 20.2053-8(d). tenant by the entirety or joint tenant; List the names and addresses of the 3. As an appointee under the During Administration persons to whom each expense was decedent’s exercise of a power or as a and Expenses Incurred payable and the nature of the expense. taker in default at the decedent’s Identify the property for which the nonexercise of a power; in Administering expense was incurred by indicating the 4. As a beneficiary of insurance on schedule and item number where the the decedent’s life; Property Not Subject to property is included in the gross estate. 5. As the surviving spouse taking Claims If you do not know the exact amount of under dower or curtesy (or similar You must complete Schedule L and the expense, you may deduct an statutory interest); and file it with the return if you claim estimate, provided that the amount may 6. As a transferee of a transfer deductions on either item 18 or item 19 be verified with reasonable certainty made by the decedent at any time. of Part 5—Recapitulation. and will be paid before the period of -27- Part Instructions

(i706)(page-28)Page 28#

Example—Listing Property Interests on Schedule M Item Description of property interests passing to surviving spouse. Amount number For securities, give CUSIP number. If trust, partnership, or closely held entity, give EIN. All other property: B1 One-half the value of a house and lot, 256 South West Street, held by decedent and surviving spouse as joint tenants with right of survivorship under deed dated July 15, 1975 (Schedule E, Part I, item 1) . . . . . . $182,500 B2 Proceeds of Metropolitan Life Insurance Company policy No. 104729, payable in one sum to surviving spouse (Schedule D, item 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 B3 Cash bequest under Paragraph Six of will . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 This rule applies even though the If any property interest passing from Property Interests That You interest that passes from the decedent the decedent to the surviving spouse May Not List on Schedule M to a person other than the surviving may be paid or otherwise satisfied out You should not list on Schedule M: spouse is not included in the gross of any of a group of assets, the value of estate, and regardless of when the the property interest is, for the entry on 1. The value of any property that interest passes. The rule also applies Schedule M, reduced by the value of does not pass from the decedent to the regardless of whether the surviving any asset or assets that, if passing from surviving spouse; spouse’s interest and the other the decedent to the surviving spouse, 2. Property interests that are not person’s interest pass from the would be nondeductible terminable included in the decedent’s gross estate; decedent at the same time. interests. Examples of property 3. The full value of a property interests that may be paid or otherwise interest for which a deduction was Property interests that are satisfied out of any of a group of assets claimed on Schedules J through L. The considered to pass to a person other are a bequest of the residue of the value of the property interest should be than the surviving spouse are any decedent’s estate, or of a share of the reduced by the deductions claimed with property interest that: (a) passes under residue, and a cash legacy payable out respect to it; a decedent’s will or intestacy; (b) was of the general estate. 4. The full value of a property transferred by a decedent during life; or interest that passes to the surviving Example. A decedent bequeathed (c) is held by or passed on to any spouse subject to a mortgage or other $100,000 to the surviving spouse. The person as a decedent’s joint tenant, as encumbrance or an obligation of the general estate includes a term for years appointee under a decedent’s exercise surviving spouse. Include on Schedule (valued at $10,000 in determining the of a power, as taker in default at a M only the net value of the interest after value of the gross estate) in an office decedent’s release or nonexercise of a reducing it by the amount of the building, which interest was retained by power, or as a beneficiary of insurance mortgage or other debt; the decedent under a deed of the on the decedent’s life. 5. Nondeductible terminable building by gift to a son. Accordingly, For example, a decedent devised interests (described below); or the value of the specific bequest real property to his wife for life, with 6. Any property interest disclaimed entered on Schedule M is $90,000. remainder to his children. The life by the surviving spouse. Life estate with power of interest that passed to the wife does appointment in the surviving not qualify for the marital deduction Terminable Interests spouse. A property interest, whether because it will terminate at her death or not in trust, will be treated as passing Certain interests in property passing and the children will thereafter possess to the surviving spouse, and will not be from a decedent to a surviving spouse or enjoy the property. treated as a nondeductible terminable are referred to as terminable interests. However, if the decedent purchased interest if: (a) the surviving spouse is These are interests that will terminate a joint and survivor annuity for himself entitled for life to all of the income from or fail after the passage of time, or on and his wife who survived him, the the entire interest; (b) the income is the occurrence or nonoccurrence of a value of the survivor’s annuity, to the payable annually or at more frequent designated event. Examples are: life extent that it is included in the gross intervals; (c) the surviving spouse has estates, annuities, estates for terms of estate, qualifies for the marital the power, exercisable in favor of the years, and patents. deduction because even though the surviving spouse or the estate of the The ownership of a bond, note, or interest will terminate on the wife’s surviving spouse, to appoint the entire other contractual obligation, which death, no one else will possess or interest; (d) the power is exercisable by when discharged would not have the enjoy any part of the property. the surviving spouse alone and effect of an annuity for life or for a term, (whether exercisable by will or during The marital deduction is not allowed is not considered a terminable interest. life) is exercisable by the surviving for an interest that the decedent Nondeductible terminable interests. spouse in all events; and (e) no part of directed the executor or a trustee to A terminable interest is nondeductible. the entire interest is subject to a power convert, after death, into a terminable Unless you are making a QTIP election, in any other person to appoint any part interest for the surviving spouse. The a terminable interest should not be to any person other than the surviving marital deduction is not allowed for entered on Schedule M if: spouse (or the surviving spouse’s legal such an interest even if there was no representative or relative if the surviving 1. Another interest in the same interest in the property passing to spouse is disabled. See Revenue property passed from the decedent to another person and even if the Ruling 85-35, 1985-1 C.B. 328). If some other person for less than terminable interest would otherwise these five conditions are satisfied only adequate and full consideration in have been deductible under the for a specific portion of the entire money or money’s worth; and exceptions described below for life interest, see the section 2056(b) 2. By reason of its passing, the estates, life insurance, and annuity regulations to determine the amount of other person or that person’s heirs may payments with powers of appointment. the marital deduction. enjoy part of the property after the For more information, see Regulations termination of the surviving spouse’s sections 20.2056(b)-1(f) and Life insurance, endowment, or interest. 20.2056(b)-1(g), Example (7). annuity payments, with power of -28- Part Instructions

(i706)(page-29)Page 29#

appointment in surviving spouse. A If you file a Form 706 in which you qualified terminable interest property do not make this election, you may not under section 2056(b)(7), and property interest consisting of the entire file an amended return to make the proceeds under a life insurance, a. The trust or other property is listed election unless you file the amended endowment, or annuity contract is on Schedule M and return on or before the due date for treated as passing from the decedent to b. The value of the trust (or other filing the original Form 706. the surviving spouse, and will not be property) is entered in whole or in part treated as a nondeductible terminable The effect of the election is that the as a deduction on Schedule M, interest if: (a) the surviving spouse is property (interest) will be treated as entitled to receive the proceeds in passing to the surviving spouse and will then unless the executor specifically installments, or is entitled to interest on not be treated as a nondeductible identifies the trust (all or a fractional them, with all amounts payable during terminable interest. All of the other portion or percentage) or other property the life of the spouse, payable only to marital deduction requirements must to be excluded from the election, the the surviving spouse; (b) the installment still be satisfied before you may make executor shall be deemed to have or interest payments are payable this election. For example, you may not made an election to have such trust (or annually, or more frequently, beginning make this election for property or other property) treated as qualified not later than 13 months after the property interests that are not included terminable interest property under decedent’s death; (c) the surviving in the decedent’s gross estate. section 2056(b)(7). spouse has the power, exercisable in Qualified terminable interest If less than the entire value of the favor of the surviving spouse or of the property. Qualified terminable interest trust (or other property) that the estate of the surviving spouse, to property is property (a) that passes executor has included in the gross appoint all amounts payable under the from the decedent, and (b) in which the estate is entered as a deduction on contract; (d) the power is exercisable by surviving spouse has a qualifying Schedule M, the executor shall be the surviving spouse alone and income interest for life. considered to have made an election (whether exercisable by will or during only as to a fraction of the trust (or life) is exercisable by the surviving The surviving spouse has a other property). The numerator of this spouse in all events; and (e) no part of qualifying income interest for life if the fraction is equal to the amount of the the amount payable under the contract surviving spouse is entitled to all of the trust (or other property) deducted on is subject to a power in any other income from the property payable Schedule M. The denominator is equal person to appoint any part to any annually or at more frequent intervals, to the total value of the trust (or other person other than the surviving spouse. or has a usufruct interest for life in the property). If these five conditions are satisfied property, and during the surviving only for a specific portion of the spouse’s lifetime no person has a Qualified Domestic Trust proceeds, see the section 2056(b) power to appoint any part of the regulations to determine the amount of Election (QDOT) property to any person other than the the marital deduction. surviving spouse. An annuity is treated The marital deduction is allowed for as an income interest regardless of transfers to a surviving spouse who is Charitable remainder trusts. An whether the property from which the not a U.S. citizen only if the property interest in a charitable remainder trust annuity is payable can be separately passes to the surviving spouse in a will not be treated as a nondeductible identified. qualified domestic trust (QDOT) or if terminable interest if: such property is transferred or Amendments to Regulations 1. The interest in the trust passes irrevocably assigned to a QDOT before sections 20.2044-1, 20.2056(b)-7, and from the decedent to the surviving the decedent’s estate tax return is filed. 20.2056(b)-10 clarify that an interest in spouse, and property is eligible for QTIP treatment if A QDOT is any trust: 2. The surviving spouse is the only the income interest is contingent upon 1. That requires at least one trustee beneficiary of the trust other than the executor’s election even if that to be either an individual who is a charitable organizations described in portion of the property for which no citizen of the United States or a section 170(c). election is made will pass to or for the domestic corporation; benefit of beneficiaries other than the 2. That requires that no distribution A charitable remainder trust is either surviving spouse. of corpus from the trust can be made a charitable remainder annuity trust or a unless such a trustee has the right to The QTIP election may be made for charitable remainder unitrust. (See withhold from the distribution the tax all or any part of qualified terminable section 664 for descriptions of these imposed on the QDOT; interest property. A partial election must trusts.) 3. That meets the requirements of relate to a fractional or percentile share any applicable regulations; and of the property so that the elective part Election To Deduct Qualified 4. For which the executor has made will reflect its proportionate share of the an election on the estate tax return of increase or decline in the whole of the Terminable Interests (QTIP) the decedent. property when applying section 2044 or You may elect to claim a marital 2519. Thus, if the interest of the deduction for qualified terminable Note. For trusts created by an surviving spouse in a trust (or other interest property or property interests. instrument executed before November property in which the spouse has a You make the QTIP election simply by 5, 1990, paragraphs 1 and 2 above will qualified life estate) is qualified listing the qualified terminable interest be treated as met if the trust instrument terminable interest property, you may property on Schedule M and inserting requires that all trustees be individuals make an election for a part of the trust its value. You are presumed to have who are citizens of the United States or (or other property) only if the election made the QTIP election if you list the domestic corporations. relates to a defined fraction or property and insert its value on percentage of the entire trust (or other Schedule M. If you make this election, You make the QDOT election simply property). The fraction or percentage the surviving spouse’s gross estate will by listing the qualified domestic trust or may be defined by means of a formula. include the value of the qualified the entire value of the trust property on terminable interest property. See the Election to Deduct Qualified Schedule M and deducting its value. instructions for Part 4—General Terminable Interest Property Under You are presumed to have made the Information, line 6, for more details. Section 2056(b)(7). If a trust (or other QDOT election if you list the trust or The election is irrevocable. property) meets the requirements of trust property and insert its value on -29- Part Instructions

(i706)(page-30)Page 30#

Schedule M. Once made, the election annuity, you are not required to make Lines 5a, 5b, and 5c. The total of the is irrevocable. the election for all of them. values listed on Schedule M must be reduced by the amount of the federal If you make the election out of QTIP If an election is made to deduct estate tax, the federal GST tax, and the treatment by checking “Yes” on line 3, qualified domestic trust property under amount of state or other death and you cannot deduct the amount of the section 2056A(d), provide the following GST taxes paid out of the property annuity on Schedule M. If you do not information for each qualified domestic interest involved. If you enter an elect out, you must list the joint and trust on an attachment to this schedule: amount for state or other death or GST survivor annuities on Schedule M. 1. The name and address of every taxes on line 5b or 5c, identify the taxes trustee; and attach your computation of them. Listing Property Interests on 2. A description of each transfer Attachments. If you list property Schedule M passing from the decedent that is the interests passing by the decedent’s will List each property interest included in source of the property to be placed in on Schedule M, attach a certified copy the gross estate that passes from the trust; and of the order admitting the will to decedent to the surviving spouse and 3. The employer identification probate. If, when you file the return, the for which a marital deduction is number (EIN) for the trust. court of probate jurisdiction has entered claimed. This includes otherwise any decree interpreting the will or any nondeductible terminable interest The election must be made for an of its provisions affecting any of the property for which you are making a entire QDOT trust. In listing a trust for interests listed on Schedule M, or has QTIP election. Number each item in which you are making a QDOT election, entered any order of distribution, attach sequence and describe each item in unless you specifically identify the a copy of the decree or order. In detail. Describe the instrument trust as not subject to the election, addition, the IRS may request other (including any clause or paragraph the election will be considered made evidence to support the marital number) or provision of law under for the entire trust. deduction claimed. which each item passed to the surviving The determination of whether a trust spouse. If possible, show where each qualifies as a QDOT will be made as of Schedule O—Charitable, item appears (number and schedule) the date the decedent’s Form 706 is on Schedules A through I. filed. If, however, judicial proceedings Public, and Similar Gifts In listing otherwise nondeductible are brought before the Form 706’s due and Bequests property for which you are making a date (including extensions) to have the QTIP election, unless you specifically trust revised to meet the QDOT identify a fractional portion of the trust General requirements, then the determination or other property as not subject to the will not be made until the court-ordered You must complete Schedule O and file election, the election will be considered changes to the trust are made. it with the return if you claim a made for all of the trust or other deduction on item 21 of Part Election to Deduct Qualified property. 5—Recapitulation. Domestic Trust Property Under Enter the value of each interest You can claim the charitable Section 2056A. If a trust meets the before taking into account the federal deduction allowed under section 2055 requirement of a qualified domestic estate tax or any other death tax. The for the value of property in the trust under section 2056A(a), the return valuation dates used in determining the decedent’s gross estate that was is filed no later than 1 year after the value of the gross estate apply also on transferred by the decedent during life time prescribed by law (including Schedule M. or by will to or for the use of any of the extensions), and the entire value of the If Schedule M includes a bequest of following: trust or trust property is listed and the residue or a part of the residue of • The United States, a state, a political entered as a deduction on Schedule M, the decedent’s estate, attach a copy of subdivision of a state, or the District of then unless the executor specifically the computation showing how the value Columbia, for exclusively public identifies the trust to be excluded from of the residue was determined. Include purposes; the election, the executor shall be a statement showing: • Any corporation or association deemed to have made an election to • The value of all property that is organized and operated exclusively for have the entire trust treated as qualified included in the decedent’s gross estate religious, charitable, scientific, literary, domestic trust property. (Schedules A through I) but is not a or educational purposes, including the part of the decedent’s probate estate, encouragement of art, or to foster Line 1 such as lifetime transfers, jointly owned national or international amateur sports If property passes to the surviving property that passed to the survivor on competition (but only if none of its spouse as the result of a qualified decedent’s death, and the insurance activities involve providing athletic disclaimer, check “Yes” and attach a payable to specific beneficiaries; facilities or equipment, unless the copy of the written disclaimer required • The values of all specific and general organization is a qualified amateur by section 2518(b). legacies or devises, with reference to sports organization) and the prevention the applicable clause or paragraph of of cruelty to children and animals, as Line 3 the decedent’s will or codicil. (If long as no part of the net earnings Section 2056(b)(7) creates an legacies are made to each member of a benefits any private individual and no automatic QTIP election for certain joint class, for example, $1,000 to each of substantial activity is undertaken to and survivor annuities that are decedent’s employees, only the number carry on propaganda, or otherwise includible in the estate under section in each class and the total value of attempt to influence legislation or 2039. To qualify, only the surviving property received by them need be participate in any political campaign on spouse can have the right to receive furnished); behalf of any candidate for public office; payments before the death of the • The date of birth of all persons, the • A trustee or a fraternal society, order surviving spouse. length of whose lives may affect the or association operating under the The executor can elect out of QTIP value of the residuary interest passing lodge system, if the transferred property treatment, however, by checking the to the surviving spouse; and is to be used exclusively for religious, “Yes” box on line 3. Once made, the • Any other important information such charitable, scientific, literary, or election is irrevocable. If there is as that relating to any claim to any part educational purposes, or for the more than one such joint and survivor of the estate not arising under the will. prevention of cruelty to children or -30- Part Instructions

(i706)(page-31)Page 31#

animals, and no substantial activity is If you are deducting the value of the Schedule P—Credit for undertaken to carry on propaganda or residue or a part of the residue passing Foreign Death Taxes otherwise attempt to influence to charity under the decedent’s will, legislation, or participate in any political attach a copy of the computation campaign on behalf of any candidate showing how you determined the value, General for public office; including any reduction for the taxes If you claim a credit on line 13 of Part • Any veterans organization described above. 2—Tax Computation, you must incorporated by an Act of Congress or complete Schedule P and file it with the Also include: any of its departments, local chapters, return. You must attach Form(s) or posts, for which none of the net • A statement that shows the values of 706-CE to support any credit you claim. earnings benefits any private individual; all specific and general legacies or If the foreign government refuses to or devises for both charitable and certify Form 706-CE, you must file it • A foreign government or its political noncharitable uses. For each legacy or directly with the IRS as instructed on subdivision when the use of such devise, indicate the paragraph or the Form 706-CE. See Form 706-CE property is limited exclusively to section of the decedent’s will or codicil for instructions on how to complete the charitable purposes. that applies. If legacies are made to form and for a description of the items each member of a class (for example, For this purpose, certain Indian tribal that must be attached to the form when $1,000 to each of the decedent’s governments are treated as states and the foreign government refuses to employees), show only the number of transfers to them qualify as deductible certify it. each class and the total value of charitable contributions. See Revenue The credit for foreign death taxes is property they received; Procedure 2008-55, on page 768 of allowable only if the decedent was a 2008-39 I.R.B., www.irs.gov/pub/ • The date of birth of all life tenants or citizen or resident of the United States. irs-irbs/irb08-39.pdf, as modified and annuitants, the length of whose lives However, see section 2053(d) and the supplemented by subsequent revenue may affect the value of the interest related regulations for exceptions and procedures, for a list of qualifying passing to charity under the decedent’s limitations if the executor has elected, Indian tribal governments. will; in certain cases, to deduct these taxes You may also claim a charitable • A statement showing the value of all from the value of the gross estate. For contribution deduction for a qualifying property that is included in the a resident, not a citizen, who was a conservation easement granted after decedent’s gross estate but does not citizen or subject of a foreign country the decedent’s death under the pass under the will, such as transfers, for which the President has issued a provisions of section 2031(c)(9). jointly owned property that passed to proclamation under section 2014(h), the the survivor on decedent’s death, and The charitable deduction is allowed credit is allowable only if the country of insurance payable to specific for amounts that are transferred to which the decedent was a national beneficiaries; and charitable organizations as a result of allows a similar credit to decedents who • Any other important information such either a qualified disclaimer (see Line 2. were U.S. citizens residing in that as that relating to any claim, not arising Qualified Disclaimer below) or the country. under the will, to any part of the estate complete termination of a power to The credit is authorized either by (that is, a spouse claiming dower or consume, invade, or appropriate statute or by treaty. If a credit is curtesy, or similar rights). property for the benefit of an individual. authorized by a treaty, whichever of the It does not matter whether termination following is the most beneficial to the occurs because of the death of the Line 2. Qualified Disclaimer estate is allowed: individual or in any other way. The The charitable deduction is allowed for • The credit figured under the treaty; termination must occur within the period amounts that are transferred to • The credit figured under the statute; of time (including extensions) for filing charitable organizations as a result of a or the decedent’s estate tax return and qualified disclaimer. To be a qualified • The credit figured under the treaty, before the power has been exercised. disclaimer, a refusal to accept an plus the credit figured under the statute The deduction is limited to the interest in property must meet the for death taxes paid to each political amount actually available for charitable conditions of section 2518. These are subdivision or possession of the treaty uses. Therefore, if under the terms of a explained in Regulations sections country that are not directly or indirectly will or the provisions of local law, or for 25.2518-1 through 25.2518-3. If creditable under the treaty. any other reason, the federal estate property passes to a charitable Under the statute, the credit is tax, the federal GST tax, or any other beneficiary as the result of a qualified authorized for all death taxes (national estate, GST, succession, legacy, or disclaimer, check the “Yes” box on line and local) imposed in the foreign inheritance tax is payable in whole or in 2 and attach a copy of the written country. Whether local taxes are the part out of any bequest, legacy, or disclaimer required by section 2518(b). basis for a credit under a treaty devise that would otherwise be allowed depends upon the provisions of the as a charitable deduction, the amount Attachments particular treaty. you may deduct is the amount of the If the charitable transfer was made by bequest, legacy, or devise reduced by If a credit for death taxes paid in will, attach a certified copy of the order the total amount of the taxes. more than one foreign country is admitting the will to probate, in addition allowable, a separate computation of If you elected to make installment to the copy of the will. If the charitable the credit must be made for each payments of the estate tax, and the transfer was made by any other written foreign country. The copies of Schedule interest is payable out of property instrument, attach a copy. If the P on which the additional computations transferred to charity, you must reduce instrument is of record, the copy should are made should be attached to the the charitable deduction by an estimate be certified; if not, the copy should be copy of Schedule P provided in the of the maximum amount of interest that verified. return. will be paid on the deferred tax. For split-interest trusts (or pooled The total credit allowable for any Value income funds), enter in the “Amount” property, whether subjected to tax by The valuation dates used in column the amount treated as passing one or more than one foreign country, determining the value of the gross to the charity. Do not enter the entire is limited to the amount of the federal estate apply also on Schedule O. amount that passes to the trust (fund). estate tax attributable to the property. -31- Part Instructions

(i706)(page-32)Page 32#

The anticipated amount of the credit Item 3. Enter the value of the property both countries or deemed situated may be figured on the return, but the situated in the foreign country that is within both countries. See the credit cannot finally be allowed until the subjected to the foreign taxes and appropriate treaty for details. foreign tax has been paid and a Form included in the gross estate, less those 706-CE evidencing payment is filed. portions of the deductions taken on Schedule Q—Credit for Section 2014(g) provides that for Schedules M and O that are Tax on Prior Transfers credits for foreign death taxes, each attributable to the property. U.S. possession is deemed a foreign Item 4. Subtract any credit claimed on General country. line 15 for federal gift taxes on You must complete Schedule Q and file Convert death taxes paid to the pre-1977 gifts (section 2012) from line it with the return if you claim a credit on foreign country into U.S. dollars by 12 of Part 2—Tax Computation, and Part 2—Tax Computation, line 14. using the rate of exchange in effect at enter the balance at item 4 of the time each payment of foreign tax is Schedule P. The term “transferee” means the made. decedent for whose estate this return is Credit Under Treaties filed. If the transferee received property If a credit is claimed for any foreign If you are reporting any items on this from a transferor who died within 10 death tax that is later recovered, see return based on the provisions of a years before, or 2 years after, the Regulations section 20.2016-1 for the death tax treaty, you may have to transferee, a credit is allowable on this notice required within 30 days. attach a statement to this return return for all or part of the federal estate Limitation Period disclosing the return position that is tax paid by the transferor’s estate for treaty based. See Regulations section the transfer. There is no requirement The credit for foreign death taxes is 301.6114-1 for details. that the property be identified in the limited to those taxes that were actually estate of the transferee or that it exist paid and for which a credit was claimed In general. If the provisions of a treaty on the date of the transferee’s death. It within the later of the 4 years after the apply to the estate of a U.S. citizen or is sufficient for the allowance of the filing of the estate tax return, or before resident, a credit is authorized for credit that the transfer of the property the date of expiration of any extension payment of the foreign death tax or was subjected to federal estate tax in of time for payment of the federal taxes specified in the treaty. Treaties the estate of the transferor and that the estate tax, or 60 days after a final with death tax conventions are in effect specified period of time has not decision of the Tax Court on a timely with the following countries: Australia, elapsed. A credit may be allowed for filed petition for a redetermination of a Austria, Canada, Denmark, Finland, property received as the result of the deficiency. France, Germany, Greece, Ireland, exercise or nonexercise of a power of Italy, Japan, Netherlands, Norway, Credit Under the Statute appointment when the property is South Africa, Switzerland, and the included in the gross estate of the For the credit allowed by the statute, United Kingdom. donee of the power. the question of whether particular A credit claimed under a treaty is in property is situated in the foreign If the transferee was the transferor’s general figured on Schedule P in the country imposing the tax is determined surviving spouse, no credit is allowed same manner as the credit is figured by the same principles that would apply for property received from the transferor under the statute with the following in determining whether similar property to the extent that a marital deduction principal exceptions: of a nonresident not a U.S. citizen is was allowed to the transferor’s estate • The situs rules contained in the treaty situated within the United States for for the property. There is no credit for apply in determining whether property purposes of the federal estate tax. See tax on prior transfers for federal gift was situated in the foreign country; the instructions for Form 706-NA. taxes paid in connection with the • The credit may be allowed only for transfer of the property to the payment of the death tax or taxes Computation of Credit Under transferee. specified in the treaty (but see the the Statute If you are claiming a credit for tax on instructions above for credit under the prior transfers on Form 706-NA, you statute for death taxes paid to each Item 1. Enter the amount of the estate, should first complete and attach Part political subdivision or possession of inheritance, legacy, and succession 5—Recapitulation from Form 706 the treaty country that are not directly taxes paid to the foreign country and its before figuring the credit on Schedule or indirectly creditable under the treaty); possessions or political subdivisions, Q from Form 706. • If specifically provided, the credit is attributable to property that is: proportionately shared for the tax • Situated in that country, Section 2056(d)(3) contains specific applicable to property situated outside • Subjected to these taxes, and rules for allowing a credit for certain both countries, or that was deemed in • Included in the gross estate. transfers to a spouse who was not a some instances situated within both The amount entered at item 1 should U.S. citizen where the property passed countries; and not include any tax paid to the foreign outright to the spouse, or to a qualified • The amount entered at item 4 of country for property not situated in that domestic trust. Schedule P is the amount shown on country and should not include any tax line 12 of Part 2—Tax Computation, paid to the foreign country for property Property less the total of the credits claimed for not included in the gross estate. If only The term “property” includes any federal gift taxes on pre-1977 gifts a part of the property subjected to interest (legal or equitable) of which the (section 2012) and for tax on prior foreign taxes is both situated in the transferee received the beneficial transfers (line 14 of Part 2—Tax foreign country and included in the ownership. The transferee is Computation). (If a credit is claimed for gross estate, it will be necessary to considered the beneficial owner of tax on prior transfers, it will be determine the portion of the taxes property over which the transferee necessary to complete Schedule Q attributable to that part of the property. received a general power of before completing Schedule P.) For Also, attach the computation of the appointment. Property does not include examples of computation of credits amount entered at item 1. interests to which the transferee under the treaties, see the applicable Item 2. Enter the value of the gross received only a bare legal title, such as regulations. estate, less the total of the deductions that of a trustee. Neither does it include on items 20 and 21 of Part Computation of credit in cases an interest in property over which the 5—Recapitulation. where property is situated outside transferee received a power of -32- Part Instructions

(i706)(page-33)Page 33#

Worksheet for Schedule Q—Credit for Tax on Prior Transfers Transferor’s tax on prior transfers Total for all transfers Transferor (From Schedule Q) Item (line 8 only) C B A 1. Gross value of prior transfer to this transferee 2. Death taxes payable from prior transfer 3. Encumbrances allocable to prior transfer 4. Obligations allocable to prior transfer Marital deduction applicable to line 1 above, as shown on transferor’s Form 706 5. 6. TOTAL. Add lines 2, 3, 4, and 5 Net value of transfers. Subtract line 6 from line 1 7. Net value of transfers. Add columns A, B, and C of line 7 8. 9. Transferor’s taxable estate 10. Federal estate tax paid State death taxes paid 11. Foreign death taxes paid 12. Other death taxes paid 13. 14. Value of transferor’s estate. Subtract line 14 from line 9 15. Net federal estate tax paid on transferor’s estate 16. Credit for gift tax paid on transferor’s estate with respect to pre-1977 gifts (section 2012) 17. Credit allowed transferor’s estate for tax on prior transfers from prior transferor(s) who died within 10 years before death of decedent 18. Tax on transferor’s estate. Add lines 16, 17, and 18 19. Transferor’s tax on prior transfers ((line 7 line 15) line 19 of respective estates) 20. Transferee’s tax on prior transfers Amount Item 21. Transferee’s actual tax before allowance of credit for prior transfers (see instructions) 22. Total gross estate of transferee from line 1 of the Tax Computation, page 1, Form 706 23. Net value of all transfers from line 8 of this worksheet 24. Transferee’s reduced gross estate. Subtract line 23 from line 22 Total debts and deductions (not including marital and charitable deductions) (line 3b of Part 2—Tax Computation, page 1 and items 17, 18, and 19 of the Recapitulation, page 3, Form 706) 25. 26. Marital deduction from item 20, Recapitulation, page 3, Form 706 (see instructions) 27. Charitable bequests from item 21, Recapitulation, page 3, Form 706 28. Charitable deduction proportion ( [ line 23 (line 22 – line 25) ] line 27 ) 29. Reduced charitable deduction. Subtract line 28 from line 27 30. Transferee’s deduction as adjusted. Add lines 25, 26, and 29 31. (a) Transferee’s reduced taxable estate. Subtract line 30 from line 24 (b) Adjusted taxable gifts (c) Total reduced taxable estate. Add lines 31(a) and 31(b) 32. Tentative tax on reduced taxable estate 33. (a) Post-1976 gift taxes paid (b) Unified credit (applicable credit amount) (c) Section 2012 gift tax credit (d) Section 2014 foreign death tax credit (e) Total credits. Add lines 33(a) through 33(d) Net tax on reduced taxable estate. Subtract line 33(e) from line 32 34. Transferee’s tax on prior transfers. Subtract line 34 from line 21 35. Part I Part II TOTAL taxes paid. Add lines 10, 11, 12, and 13 21 22 23 24 25 26 27 28 29 30 31(a) 32 33(a) 34 35 31(b) 31(c) 33(b) 33(c) 33(d) 33(e) appointment that is not a general power allowed for annuities, life estates, terms ownership of the property, to the extent of appointment. In addition to interests for years, remainder interests (whether that the transferee became the in which the transferee received the contingent or vested), and any other beneficial owner of the interest. complete ownership, the credit may be interest that is less than the complete -33- Part Instructions

(i706)(page-34)Page 34#

Section 2032A additional tax. If the Maximum Amount of the Schedules R and transferor’s estate elected special-use Credit R-1—Generation-Skipping valuation and the additional estate tax The maximum amount of the credit is of section 2032A(c) was imposed at Transfer Tax the smaller of: any time up to 2 years after the death 1. The amount of the estate tax of of the decedent for whom you are filing Introduction and Overview the transferor’s estate attributable to the this return, check the box on Schedule Schedule R is used to figure the transferred property or Q. On lines 1 and 9 of the worksheet, generation-skipping transfer (GST) tax 2. The amount by which: include the property subject to the that is payable by the estate. Schedule a. An estate tax on the transferee’s additional estate tax at its FMV rather R-1 is used to figure the GST tax that is estate determined without the credit for than its special-use value. On line 10 of payable by certain trusts that are tax on prior transfers exceeds the worksheet, include the additional includible in the gross estate. b. An estate tax on the transferee’s estate tax paid as a federal estate tax estate determined by excluding from paid. The GST tax that is to be reported the gross estate the net value of the on Form 706 is imposed only on “direct transfer. skips occurring at death.” Unlike the How To Complete the estate tax, which is imposed on the If credit for a particular foreign death value of the entire taxable estate Schedule Q Worksheet tax may be taken under either the regardless of who receives it, the GST statute or a death duty convention, and Most of the information to complete tax is imposed only on the value of on this return the credit actually is taken Part I of the worksheet should be interests in property, wherever located, under the convention, then no credit for obtained from the transferor’s Form that actually pass to certain transferees, that foreign death tax may be taken into 706. who are referred to as “skip persons.” consideration in figuring estate tax (a) or estate tax (b), above. For purposes of Form 706, the Line 5. Enter on line 5 the applicable property interests transferred must be marital deduction claimed for the includible in the gross estate before Percent Allowable transferor’s estate (from the transferor’s they are subject to the GST tax. Form 706). Where transferee predeceased the Therefore, the first step in figuring the transferor. If not more than 2 years GST tax liability is to determine the Lines 10 through 18. Enter on these elapsed between the dates of death, property interests includible in the gross the credit allowed is 100% of the lines the appropriate taxes paid by the estate by completing Schedules A maximum amount. If more than 2 years transferor’s estate. through I of Form 706. elapsed between the dates of death, no The second step is to determine who credit is allowed. If the transferor’s estate elected to the skip persons are. To do this, assign pay the federal estate tax in Where transferor predeceased the each transferee to a generation and installments, enter on line 10 only the transferee. The percent of the determine whether each transferee is a total of the installments that have maximum amount that is allowed as a “natural person” or a “trust” for GST actually been paid at the time you file credit depends on the number of years purposes. this Form 706. See Revenue Ruling that elapsed between dates of death. It The third step is to determine which 83-15, 1983-1 C.B. 224, for more is determined using the following table: skip persons are transferees of details. Do not include as estate tax “interests in property.” If the skip person Period of any tax attributable to section 4980A, is a natural person, anything transferred Time Not Percent before its repeal by the Taxpayer Relief is an interest in property. If the skip Exceeding Exceeding Allowable Act of 1997. person is a trust, make this - - - - - 2 years 100 determination using the rules under 2 years 4 years 80 Line 21. Add lines 11 (allowable Interest in property below. These first 4 years 6 years 60 unified credit) and 13 (foreign death three steps are described in detail 6 years 8 years 40 taxes credit) of Part 2—Tax under the main heading, Determining 8 years 10 years 20 Computation to the amount of any Which Transfers Are Direct Skips 10 years - - - - - none credit taken (on line 15) for federal gift below. taxes on pre-1977 gifts (section 2012). The fourth step is to determine Subtract this total from Part 2—Tax whether to enter the transfer on How To Figure the Credit Computation, line 8. Enter the result on Schedule R or on Schedule R-1. See A worksheet for Schedule Q is provided line 21 of the worksheet. the rules under the main heading, to allow you to figure the limits before Dividing Direct Skips Between completing Schedule Q. Transfer the Line 26. If you figured the marital Schedules R and R-1. appropriate amounts from the deduction using the unlimited marital The fifth step is to complete worksheet to Schedule Q as indicated deduction in effect for decedents dying Schedules R and R-1 using the How To on the schedule. You do not need to file after 1981, for purposes of determining Complete instructions for each the worksheet with your Form 706, but the marital deduction for the reduced schedule. you should keep it for your records. gross estate, see Revenue Ruling 90-2, 1990-1 C.B. 169. To determine the Determining Which Transfers Cases involving transfers from two “reduced adjusted gross estate,” or more transferors. Part I of the Are Direct Skips subtract the amount on line 25 of the worksheet and Schedule Q enable you Effective dates. The rules below Schedule Q Worksheet from the to figure the credit for as many as three apply only for the purpose of amount on line 24 of the worksheet. If transferors. The number of transferors determining if a transfer is a direct skip community property is included in the is irrelevant to Part II of the worksheet. that should be reported on Schedule R amount on line 24 of the worksheet, If you are figuring the credit for more or R-1 of Form 706. figure the reduced adjusted gross than three transferors, use more than estate using the rules of Regulations one worksheet and Schedule Q, Part I, In general. The GST tax is section 20.2056(c)-2 and Revenue and combine the totals for the effective for the estates of decedents Ruling 76-311, 1976-2 C.B. 261. appropriate lines. dying after October 22, 1986. -34- Part Instructions

(i706)(page-35)Page 35#

Irrevocable trusts. The GST tax transferee is a natural person or a trust 2. Where the beneficiary is a lineal will not apply to any transfer under a as defined below. descendant of a grandparent of a trust that was irrevocable on September spouse (or former spouse) of the Trust. For purposes of the GST tax, a 25, 1985, but only to the extent that the decedent, the number of generations trust includes not only an ordinary trust transfer was not made out of corpus between the decedent and the (as defined in Special rule for trusts added to the trust after September 25, beneficiary is determined by subtracting other than ordinary trusts), but also any 1985. An addition to the corpus after the number of generations between the other arrangement (other than an that date will cause a proportionate part grandparent and the spouse (or former estate) which, although not explicitly a of future income and appreciation to be spouse) from the number of trust, has substantially the same effect subject to the GST tax. For more generations between the grandparent as a trust. For example, a trust includes information, see Regulations section and the beneficiary. life estates with remainders, terms for 26.2601-1(b)(1)(ii). 3. A person who at any time was years, and insurance and annuity married to a person described in (1) or contracts. Mental disability. If, on October (2) above is assigned to the generation 22, 1986, the decedent was under a Substantially separate and of that person. A person who at any mental disability to change the independent shares of different time was married to the decedent is disposition of his or her property and beneficiaries in a trust are treated as assigned to the decedent’s generation. did not regain the competence to separate trusts. 4. A relationship by adoption or dispose of property before death, the half-blood is treated as a relationship Interest in property. If a transfer is GST tax will not apply to any property by whole-blood. made to a natural person, it is always included in the gross estate (other than 5. A person who is not assigned to considered a transfer of an interest in property transferred on behalf of the a generation according to (1), (2), (3), property for purposes of the GST tax. decedent during life and after October or (4) above is assigned to a generation 21, 1986). The GST tax will also not If a transfer is made to a trust, a based on his or her birth date, as apply to any transfer under a trust to person will have an interest in the follows: the extent that the trust consists of property transferred to the trust if that a. A person who was born not more property included in the gross estate person either has a present right to than 121/2 years after the decedent is in (other than property transferred on receive income or corpus from the trust the decedent’s generation. behalf of the decedent during life and (such as an income interest for life) or b. A person born more than 121/2 after October 21, 1986). is a permissible current recipient of years, but not more than 371/2 years, income or corpus from the trust (that is, after the decedent is in the first Under a mental disability means the may receive income or corpus at the generation younger than the decedent. decedent lacked the cognitive ability or discretion of the trustee). c. A similar rule applies for a new competence to execute an instrument Skip person. A transferee who is a generation every 25 years. governing the disposition of his or her natural person is a skip person if that property, regardless of whether there If more than one of the rules for transferee is assigned to a generation was an adjudication of incompetence or assigning generations applies to a that is two or more generations below an appointment of any other person transferee, that transferee is generally the generation assignment of the charged with the care of the person or assigned to the youngest of the decedent. See Determining the property of the transferor. generations that would apply. generation of a transferee below. If the decedent had been adjudged If an estate, trust, partnership, A transferee who is a trust is a skip mentally incompetent, a copy of the corporation, or other entity (other than person if all the interests in the property judgment or decree must be filed with certain charitable organizations and (as defined above) transferred to the this return. trusts described in sections 511(a)(2) trust are held by skip persons. Thus, and 511(b)(2)) is a transferee, then If the decedent had not been whenever a non-skip person has an each person who indirectly receives the adjudged mentally incompetent, the interest in a trust, the trust will not be a property interests through the entity is executor must file with the return a skip person even though a skip person treated as a transferee and is assigned certification from a qualified physician also has an interest in the trust. to a generation as explained in the stating that in his opinion the decedent A trust will also be a skip person if above rules. However, this look-through had been mentally incompetent at all there are no interests in the property rule does not apply for the purpose of times on and after October 22, 1986, transferred to the trust held by any determining whether a transfer to a and that the decedent had not regained person, and future distributions or trust is a direct skip. the competence to modify or revoke the terminations from the trust can be made terms of the trust or will prior to his Generation assignment where only to skip persons. death or a statement as to why no such intervening parent is deceased. A Non-skip person. A non-skip person certification may be obtained from a special rule may apply in the case of is any transferee who is not a skip physician. the death of a parent of the transferee. person. For terminations, distributions, and Direct skip. The GST tax reported on transfers after December 31, 1997, the Determining the generation of a Form 706 and Schedule R-1 is imposed existing rule that applied to transferee. Generally, a generation is only on direct skips. For purposes of grandchildren of the decedent has been determined along family lines as Form 706, a direct skip is a transfer that extended to apply to other lineal follows: is: descendants. • Subject to the estate tax, 1. Where the beneficiary is a lineal • Of an interest in property, and descendant of a grandparent of the If property is transferred to an • To a skip person (defined below). decedent (that is, the decedent’s individual who is a descendant of a All three requirements must be met cousin, niece, nephew, etc.), the parent of the transferor, and that before the transfer is subject to the number of generations between the individual’s parent (who is a lineal GST tax. A transfer is subject to the decedent and the beneficiary is descendant of the parent of the estate tax if you are required to list it on determined by subtracting the number transferor) is deceased at the time the any of Schedules A through I of Form of generations between the transfer is subject to gift or estate tax, 706. To determine if a transfer is of an grandparent and the decedent from the then for purposes of generation interest in property and to a skip number of generations between the assignment, the individual is treated as person, you must first determine if the grandparent and the beneficiary. if he or she is a member of the -35- Part Instructions

(i706)(page-36)Page 36#

generation that is one generation below 3. The will establishes a trust that is included in the decedent’s gross estate the lower of: required to accumulate income for 10 under section 2035, 2036, 2037, 2038, • The transferor’s generation or years and then pay its income to the 2039, 2041, or 2042 and such property • The generation assignment of the decedent’s grandchildren for the rest of is, by reason of the decedent’s death, youngest living ancestor of the their lives and, upon their deaths, transferred to skip persons, the individual, who is also a descendant of distribute the corpus to the decedent’s transfers are direct skips required to be the parent of the transferor. great-grandchildren. Because the trust reported on Schedule R-1. has no current beneficiaries, there are The same rules apply to the Special rule for trusts other than no present interests in the property generation assignment of any ordinary trusts. An ordinary trust is a transferred to the trust. All of the descendant of the individual. trust as defined in Regulations section persons to whom the trust can make This rule does not apply to a transfer 301.7701-4(a) as “an arrangement future distributions (including to an individual who is not a lineal created by a will or by an inter vivos distributions upon the termination of descendant of the transferor if the declaration whereby trustees take title interests in property held in trust) are transferor has any living lineal to property for the purpose of protecting skip persons (for example, the descendants. or conserving it for the beneficiaries decedent’s grandchildren and under the ordinary rules applied in If any transfer of property to a trust great-grandchildren). Therefore, the chancery or probate courts.” Direct would have been a direct skip except trust itself is a skip person and you skips from ordinary trusts are required for this generation assignment rule, should show the transfer on to be reported on Schedule R-1 then the rule also applies to transfers Schedule R. regardless of their size unless the from the trust attributable to such 4. The will establishes a trust that is executor is also a trustee (see Executor property. to pay all of its income to the as trustee, below). decedent’s grandchildren for 10 years. Ninety-day rule. For purposes of At the end of 10 years, the corpus is to determining if an individual’s parent is Direct skips from trusts that are be distributed to the decedent’s deceased at the time of a testamentary trusts for GST tax purposes but are not children. All of the present interests in transfer, an individual’s parent who dies ordinary trusts are to be shown on this trust are held by skip persons. no later than 90 days after a transfer Schedule R-1 only if the total of all Therefore, the trust is a skip person occurring by reason of the death of the tentative maximum direct skips from the and you should show this transfer on transferor is treated as having entity is $250,000 or more. If this total Schedule R. You should show the predeceased the transferor. The 90-day is less than $250,000, the skips should estate tax value of all the property rule applies to transfers occurring on or be shown on Schedule R. For purposes transferred to the trust even though the after July 18, 2005. See Regulations of the $250,000 limit, “tentative trust has some ultimate beneficiaries section 26.2651-1, for more maximum direct skips” is the amount who are non-skip persons. information. you would enter on line 5 of Schedule R-1 if you were to file that schedule. Charitable organizations. Dividing Direct Skips Charitable organizations and trusts A liquidating trust (such as a described in sections 511(a)(2) and Between Schedules R and bankruptcy trust) under Regulations 511(b)(2) are assigned to the R-1 section 301.7701-4(d) is not treated as decedent’s generation. Transfers to an ordinary trust for the purposes of such organizations are therefore not Report all generation-skipping this special rule. subject to the GST tax. transfers on Schedule R unless Charitable remainder trusts. the rules below specifically If the proceeds of a life insurance TIP Transfers to or in the form of charitable provide that they are to be reported on policy are includible in the gross estate remainder annuity trusts, charitable Schedule R-1. and are payable to a beneficiary who is remainder unitrusts, and pooled income a skip person, the transfer is a direct Under section 2603(a)(2), the GST funds are not considered made to skip skip from a trust that is not an ordinary tax on direct skips from a trust (as persons and, therefore, are not direct trust. It should be reported on Schedule defined for GST tax purposes) is to be skips even if all of the life beneficiaries R-1 if the total of all the tentative paid by the trustee and not by the are skip persons. maximum direct skips from the estate. Schedule R-1 serves as a Estate tax value. Estate tax value is company is $250,000 or more. notification from the executor to the the value shown on Schedules A Otherwise, it should be reported on trustee that a GST tax is due. through I of this Form 706. Schedule R. For a direct skip to be reportable on Examples. The rules above can be Similarly, if an annuity is includible Schedule R-1, the trust must be illustrated by the following examples: on Schedule I and its survivor benefits includible in the decedent’s gross 1. Under the will, the decedent’s are payable to a beneficiary who is a estate. house is transferred to the decedent’s skip person, then the estate tax value If the decedent was the surviving daughter for her life with the remainder of the annuity should be reported as a spouse life beneficiary of a marital passing to her children. This transfer is direct skip on Schedule R-1 if the total deduction power of appointment (or made to a “trust” even though there is tentative maximum direct skips from the QTIP) trust created by the decedent’s no explicit trust instrument. The interest entity paying the annuity is $250,000 or spouse, then transfers caused by in the property transferred (the present more. reason of the decedent’s death from right to use the house) is transferred to that trust to skip persons are direct a non-skip person (the decedent’s Executor as trustee. If any of the skips required to be reported on daughter). Therefore, the trust is not a executors of the decedent’s estate are Schedule R-1. skip person because there is an trustees of the trust, then all direct skips interest in the transferred property that for that trust must be shown on If a direct skip is made “from a trust” is held by a non-skip person. The Schedule R and not on Schedule R-1 under these rules, it is reportable on transfer is not a direct skip. even if they would otherwise have been Schedule R-1 even if it is also made “to 2. The will bequeaths $100,000 to required to be shown on Schedule R-1. a trust” rather than to an individual. the decedent’s grandchild. This transfer This rule applies even if the trust has is a direct skip that is not made in trust Similarly, if property in a trust (as other trustees who are not executors of and should be shown on Schedule R. defined for GST tax purposes) is the decedent’s estate. -36- Part Instructions

(i706)(page-37)Page 37#

allowed to the decedent’s estate under remaining unused GST exemption, first How To Complete Schedules section 2056(b)(7) (QTIP election), to property that is the subject of a direct R and R-1 section 2652(a)(3) allows you to treat skip occurring at the decedent’s death, such property for purposes of the GST and then to trusts as to which the Valuation. Enter on Schedules R and tax as if the election to be treated as decedent is the transferor. If you wish R-1 the estate tax value of the property qualified terminable interest property to avoid the application of the deemed interests subject to the direct skips. If had not been made. allocation rules, you should enter on you elected alternate valuation (section line 9 every trust (except certain trusts 2032) and/or special-use valuation The 2652(a)(3) election must include entered on Schedule R-1, as described (section 2032A), you must use the the value of all property in the trust for below) to which you wish to allocate alternate and/or special-use values on which a QTIP election was allowed any part of the decedent’s GST Schedules R and R-1. under section 2056(b)(7). exemption. Unless you enter a trust on If a section 2652(a)(3) election is How To Complete Schedule line 9, the unused GST exemption will made, then the decedent will, for GST be allocated to it under the deemed R tax purposes, be treated as the allocation rules. transferor of all the property in the trust Part 1. GST Exemption If a trust is entered on Schedule R-1, for which a marital deduction was the amount you entered on line 4 of Reconciliation allowed to the decedent’s estate under Schedule R-1 serves as a Notice of section 2056(b)(7). In this case, the Part 1, line 6 of both Parts 2 and 3, and Allocation and you need not enter the executor of the decedent’s estate may line 4 of Schedule R-1 are used to trust on line 9 unless you wish to allocate part or all of the decedent’s allocate the decedent’s GST allocate more than the Schedule R-1, GST exemption to the property. exemption. This allocation is made by line 4 amount to the trust. However, filing Form 706 and attaching a You make the election simply by you must enter the trust on line 9 if you completed Schedule R and/or R-1. listing qualifying property on line 9 of wish to allocate any of the unused GST Once made, the allocation is Part 1. exemption amount to it. Such an irrevocable. You are not required to Line 2. These allocations will have additional allocation would not ordinarily allocate all of the decedent’s GST been made either on Forms 709 filed be appropriate in the case of a trust exemption. However, the portion of the by the decedent or on Notices of entered on Schedule R-1 when the exemption that you do not allocate will Allocation made by the decedent for trust property passes outright (rather be allocated by the IRS under the inter vivos transfers that were not direct than to another trust) at the decedent’s deemed allocation at death rules of skips but to which the decedent death. However, where section 2032A section 2632(e). allocated the GST exemption. These property is involved, it may be For transfers made through 1998, allocations by the decedent are appropriate to allocate additional the GST exemption was $1 million. The irrevocable. exemption amounts to the property. current GST exemption is $5,000,000. See the instructions for line 10 below. Also include on this line allocations The exemption amounts for 1999 deemed to have been made by the To avoid application of the through 2010 are as follows: decedent under the rules of section deemed allocation rules, Form 2632. Unless the decedent elected out 706 and Schedule R should be Year of transfer GST exemption CAUTION ! of the deemed allocation rules, filed to allocate the exemption to trusts 1999 1,010,000 allocations are deemed to have been that may later have taxable 2000 1,030,000 made in the following order: terminations or distributions under 2001 1,060,000 1. To inter vivos direct skips and section 2612 even if the form is not 2002 1,100,000 2. Beginning with transfers made required to be filed to report estate or 2003 1,120,000 after December 31, 2000, to lifetime GST tax. 2004 and 2005 1,500,000 transfers to certain trusts, by the 2006, 2007, and 2008 2,000,000 Line 9, column C. Enter the GST decedent, that constituted indirect skips 2009 3,500,000 exemption included on lines 2 through that were subject to the gift tax. 2010 5,000,000 6 of Part 1 of Schedule R, and discussed above, that was allocated to For more information, see section The amount of each increase can the trust. 2632. only be allocated to transfers made (or Line 9, column D. Allocate the Line 3. Make an entry on this line if appreciation that occurred) during or amount on line 8 of Part 1 of Schedule you are filing Form(s) 709 for the after the year of the increase. The R in line 9, column D. This amount may decedent and wish to allocate any following example shows the be allocated to transfers into trusts that exemption. application of this rule: are not otherwise reported on Form Lines 4, 5, and 6. These lines Example. In 2003, G made a direct 706. For example, the line 8 amount represent your allocation of the GST skip of $1,120,000 and applied her full may be allocated to an inter vivos trust exemption to direct skips made by $1,120,000 of GST exemption to the established by the decedent during his reason of the decedent’s death. transfer. G made a $450,000 taxable or her lifetime and not included in the Complete Parts 2 and 3 and Schedule direct skip in 2004 and another of gross estate. This allocation is made by R-1 before completing these lines. $90,000 in 2006. For 2004, G can only identifying the trust on line 9 and apply $380,000 of exemption ($380,000 Line 9. Line 9 is used to allocate the making an allocation to it using column inflation adjustment from 2004) to the remaining unused GST exemption D. If the trust is not included in the $450,000 transfer in 2004. For 2006, G (from line 8) and to help you figure the gross estate, value the trust as of the can apply $90,000 of exemption to the trust’s inclusion ratio. Line 9 is a Notice date of death. You should inform the 2006 transfer, but nothing to the of Allocation for allocating the GST trustee of each trust listed on line 9 of transfer made in 2004. At the end of exemption to trusts as to which the the total GST exemption you allocated 2006, G would have $410,000 of decedent is the transferor and from to the trust. The trustee will need this unused exemption that she can apply which a generation-skipping transfer information to figure the GST tax on to future transfers (or appreciation) could occur after the decedent’s death. future distributions and terminations. starting in 2007. If line 9 is not completed, the Line 9, column E. Trust’s Special QTIP election. In the case of deemed allocation at death rules will inclusion ratio. The trustee must property for which a marital deduction is apply to allocate the decedent’s know the trust’s inclusion ratio to figure -37- Part Instructions

(i706)(page-38)Page 38#

the trust’s GST tax for future circumstances, post-death events may Filing Schedule R-1. Attach to Form distributions and terminations. You are cause the decedent to be treated as a 706 one copy of each Schedule R-1 not required to inform the trustee of the transferor for purposes of Chapter 13. that you prepare. Send two copies of inclusion ratio and may not have each Schedule R-1 to the fiduciary. Line 10 may be used to set aside an enough information to figure it. exemption amount for such an event. Therefore, you are not required to Schedule U—Qualified You must attach a schedule listing each make an entry in column E. However, such event and the amount of Conservation Easement column E and the worksheet below are exemption allocated to that event. provided to assist you in figuring the Exclusion Parts 2 and 3 inclusion ratio for the trustee if you wish to do so. Use Part 2 to figure the GST tax on If at the time of the contribution transfers in which the property interests You should inform the trustee of the of the conservation easement, transferred are to bear the GST tax on amount of the GST exemption you the value of the easement, the CAUTION ! the transfers. Use Part 3 to report the allocated to the trust. Line 9, columns C value of the land subject to the GST tax on transfers in which the and D may be used to figure this easement, or the value of any retained property interests transferred do not amount for each trust. development right was different than bear the GST tax on the transfers. the estate tax value, you must complete Note. This worksheet will figure an a separate computation in addition to Section 2603(b) requires that unless accurate inclusion ratio only if the completing Schedule U. the governing instrument provides decedent was the only settlor of the otherwise, the GST tax is to be charged Use a copy of Schedule U as a trust. You should use a separate to the property constituting the transfer. worksheet for this separate worksheet for each trust (or separate Therefore, you will usually enter all of computation. Complete lines 4 through share of a trust that is treated as a the direct skips on Part 2. 14 of the worksheet Schedule U. separate trust). You may enter a transfer on Part 3 However, the value you use on lines 4, only if the will or trust instrument 5, 7, and 10 of the worksheet is the WORKSHEET (inclusion ratio): directs, by specific reference, that the value for these items as of the date of 1 Total estate and gift tax value of GST tax is not to be paid from the the contribution of the easement, not all of the property interests that transferred property interests. the estate tax value. If the date of passed to the trust . . . . . . . . . . contribution and the estate tax values Part 2, Line 3. Enter zero on this line 2 Estate taxes, state death taxes, are the same, you do not need to do a unless the will or trust instrument and other charges actually separate computation. specifies that the GST taxes will be recovered from the trust . . . . . . paid by property other than that After completing the worksheet, 3 GST taxes imposed on direct constituting the transfer (as described skips to skip persons other than enter the amount from line 14 of the this trust and borne by the above). Enter on line 3 the total of the worksheet on line 14 of Schedule U. property transferred to this trust GST taxes shown on Part 3 and Finish completing Schedule U by 4 GST taxes actually recovered Schedule(s) R-1 that are payable out of entering amounts on lines 4, 7, and 15 from this trust (from Schedule R, the property interests shown on Part 2, through 20, following the instructions Part 2, line 8 or Schedule R-1, line 1. below for those lines. At the top of line 6) . . . . . . . . . . . . . . . . . . . Schedule U, enter ‘‘worksheet Part 2, Line 6. Do not enter more than 5 Add lines 2 through 4 . . . . . . . . attached.’’ Attach the worksheet to the the amount on line 5. Additional 6 Subtract line 5 from line 1 . . . . . return. allocations may be made using Part 1. 7 Add columns C and D of line 9 . . 8 Divide line 7 by line 6 . . . . . . . . Under section 2031(c), you may Part 3, Line 3. See the instructions to 9 Trust’s inclusion ratio. Subtract elect to exclude a portion of the value Part 2, line 3 above. Enter only the total line 8 from 1.000 . . . . . . . . . . . of land that is subject to a qualified of the GST taxes shown on conservation easement. You make the Schedule(s) R-1 that are payable out of election by filing Schedule U with all of the property interests shown on Part 3, Line 10. Special-use allocation. For the required information and excluding line 1. skip persons who receive an interest in the applicable value of the land that is section 2032A special-use property, Part 3, Line 6. See the instructions to subject to the easement on Part you may allocate more GST exemption Part 2, line 6 above. 5—Recapitulation, page 3, at item 11. than the direct skip amount to reduce To elect the exclusion, you must the additional GST tax that would be How To Complete Schedule include on Schedule A, B, E, F, G, or H, due when the interest is later disposed R-1 as appropriate, the decedent’s interest of or qualified use ceases. See in the land that is subject to the Filing due date. Enter the due date of Schedule A-1, above, for more details exclusion. You must make the election Form 706. You must send the copies of about this additional GST tax. on a timely filed Form 706, including Schedule R-1 to the fiduciary before Enter on line 10 the total additional extensions. this date. GST exemption available to allocate to Line 4. Do not enter more than the The exclusion is the lesser of: all skip persons who received any amount on line 3. If you wish to allocate • The applicable percentage of the interest in section 2032A property. an additional GST exemption, you must value of land (after certain reductions) Attach a special-use allocation use Schedule R, Part 1. Making an subject to a qualified conservation schedule listing each such skip person entry on line 4 constitutes a Notice of easement or and the amount of the GST exemption Allocation of the decedent’s GST • $500,000. allocated to that person. exemption to the trust. Once made, the election is If you do not allocate the GST Line 6. If the property interests irrevocable. exemption, it will be automatically entered on line 1 will not bear the GST allocated under the deemed allocation tax, multiply line 6 by 35% (0.35). General Requirements at death rules. To the extent any amount is not so allocated, it will be Signature. The executor(s) must sign Qualified Land automatically allocated to the earliest Schedule R-1 in the same manner as disposition or cessation that is subject Form 706. See Signature and Land may qualify for the exclusion if all to the GST tax. Under certain Verification. of the following requirements are met: -38- Part Instructions

(i706)(page-39)Page 39#

• The decedent or a member of the purposes, or to foster national or Line 5 decedent’s family must have owned the international amateur sports The amount on line 5 should be the land for the 3-year period ending on the competition, or for the prevention of date of death value of any qualifying date of the decedent’s death. cruelty to children or animals, without conservation easements granted prior • No later than the date the election is net earnings benefitting any individual to the decedent’s death, whether made, a qualified conservation shareholder and without activity with granted by the decedent or someone easement on the land has been made the purpose of influencing legislation or other than the decedent, for which the by the decedent, a member of the political campaigning, which exclusion is being elected. decedent’s family, the executor of the a. Receives more than one-third of Note. If the value of the easement decedent’s estate, or the trustee of a its support from gifts, contributions, reported on line 5 was different at the trust that holds the land. membership fees, or receipts from time the easement was contributed • The land is located in the United sales, admissions fees, or performance than at the date of death, see the States or one of its possessions. of services, or Caution at the beginning of the b. Is controlled by such an Member of Family Schedule U Instructions. organization. Members of the decedent’s family Line 7 • Any entity that qualifies under section include the decedent’s spouse; You must reduce the land value by the 170(b)(1)(A)(v) or (vi). ancestors; lineal descendants of the value of any development rights decedent, of the decedent’s spouse, Conservation purpose. An easement retained by the donor in the and of the parents of the decedent; and has a conservation purpose if it is for: conveyance of the easement. A the spouse of any lineal descendant. A • The preservation of land areas for development right is any right to use legally adopted child of an individual is outdoor recreation by, or for the the land for any commercial purpose considered a child of the individual by education of, the public; that is not subordinate to and directly blood. • The protection of a relatively natural supportive of the use of the land as a habitat of fish, wildlife, or plants, or a Indirect Ownership of Land farm for farming purposes. similar ecosystem; or The qualified conservation easement Note. If the value of the retained • The preservation of open space exclusion applies if the land is owned development rights reported on line 7 (including farmland and forest land) indirectly through a partnership, was different at the time the easement where such preservation is for the corporation, or trust, if the decedent was contributed than at the date of scenic enjoyment of the general public, owned (directly or indirectly) at least death, see the Caution at the beginning or under a clearly delineated federal, 30% of the entity. For the rules on of the Schedule U Instructions. state, or local conservation policy and determining ownership of an entity, see You do not have to make this will yield a significant public benefit. Ownership rules below. reduction if everyone with an interest in Ownership rules. An interest in the land (regardless of whether in Specific Instructions property owned, directly or indirectly, by possession) agrees to permanently or for a corporation, partnership, or trust extinguish the retained development Line 1 is considered proportionately owned by right. The agreement must be filed with If the land is reported as one or more or for the entity’s shareholders, this return and must include the item numbers on a Form 706 schedule, partners, or beneficiaries. A person is following information and terms: simply list the schedule and item the beneficiary of a trust only if he or 1. A statement that the agreement numbers. If the land subject to the she has a present interest in the trust. is made under section 2031(c)(5); easement is only part of an item, For additional information, see the 2. A list of all persons in being however, list the schedule and item ownership rules in section 2057(e)(3). holding an interest in the land that is number and describe the part subject to subject to the qualified conservation Qualified Conservation the easement. See the Instructions for easement. Include each person’s Schedule A—Real Estate for Easement name, address, tax identifying number, information on how to describe the A qualified conservation easement is relationship to the decedent, and a land. one that would qualify as a qualified description of their interest; conservation contribution under section 3. The items of real property shown Line 3 170(h). It must be a contribution: on the estate tax return that are subject Using the general rules for describing • Of a qualified real property interest, to the qualified conservation easement real estate, provide enough information • To a qualified organization, and (identified by schedule and item so the IRS can value the easement. • Exclusively for conservation number); Give the date the easement was purposes. 4. A description of the retained granted and by whom it was granted. Qualified real property interest. A development right that is to be qualified real property interest is any of extinguished; Line 4 the following: 5. A clear statement of consent that Enter on this line the gross value at • The entire interest of the donor, other is binding on all parties under which the land was reported on the than a qualified mineral interest; applicable local law: applicable asset schedule on this Form • A remainder interest; or a. To take whatever action is 706. Do not reduce the value by the • A restriction granted in perpetuity on necessary to permanently extinguish amount of any mortgage outstanding. the use that may be made of the real the retained development rights listed in Report the estate tax value even if the property. The restriction must include a the agreement and easement was granted by the decedent prohibition on more than a de minimis b. To be personally liable for (or someone other than the decedent) use for commercial recreational activity. additional taxes under section prior to the decedent’s death. 2031(c)(5)(C) if this agreement is not Qualified organization. A qualified implemented by the earlier of: organization includes: Note. If the value of the land reported • Corporations and any community on line 4 was different at the time the • The date that is 2 years after the chest, fund, or foundation, organized easement was contributed than that date of the decedent’s death or and operated exclusively for religious, reported on Form 706, see the Caution • The date of sale of the land subject charitable, scientific, testing for public at the beginning of the Schedule U to the qualified conservation safety, literary, or educational Instructions. easement; -39- Part Instructions

(i706)(page-40)Page 40#

6. A statement that in the event this consideration received for the • Any indebtedness incurred after the agreement is not timely implemented, easement. If the date of death value of acquisition if the indebtedness would that they will report the additional tax on the easement is different from the value not have been incurred but for the whatever return is required by the IRS at the time the consideration was acquisition and the incurrence of the and will file the return and pay the received, you must reduce the value of indebtedness was reasonably additional tax by the last day of the 6th the easement by the same proportion foreseeable at the time of the month following the applicable date that the consideration received bears to acquisition; and described above. the value of the easement at the time it • The extension, renewal, or was granted. For example, assume the refinancing of acquisition indebtedness. All parties to the agreement must value of the easement at the time it was sign the agreement. granted was $100,000 and $10,000 For an example of an agreement Continuation Schedule was received in consideration for the containing some of the same terms, easement. If the easement was worth When you need to list more assets or see Part 3 of Schedule A-1 (Form 706). $150,000 at the date of death, you deductions than you have room for on must reduce the value of the easement one of the main schedules, use the Line 10 by $15,000 ($10,000/$100,000 × Continuation Schedule at the end of Enter the total value of the qualified $150,000) and report the value of the Form 706. It provides a uniform format conservation easements on which the easement on line 10 as $135,000. for listing additional assets from exclusion is based. This could include Schedules A through I and additional easements granted by the decedent (or Line 15 deductions from Schedules J, K, L, M, someone other than the decedent) prior and O. If a charitable contribution deduction for to the decedent’s death, easements granted by the decedent that take effect this land has been taken on Schedule Please remember to: at death, easements granted by the O, enter the amount of the deduction • Use a separate Continuation executor after the decedent’s death, or here. If the easement was granted after Schedule for each main schedule you some combination of these. the decedent’s death, a contribution are continuing. Do not combine assets deduction may be taken on Schedule Use the value of the easement or deductions from different schedules O, if it otherwise qualifies, as long as no as of the date of death, even if on one Continuation Schedule. income tax deduction was or will be the easement was granted prior CAUTION ! claimed for the contribution by any • Make copies of the blank schedule to the date of death. But, if the value of person or entity. before completing it if you expect to the easement was different at the time need more than one. the easement was contributed than at Line 16 • Use as many Continuation the date of death, see the Caution at Schedules as needed to list all the the beginning of the Schedule U You must reduce the value of the land assets or deductions. Instructions. by the amount of any acquisition • Enter the letter of the schedule you indebtedness on the land at the date of Explain how this value was are continuing in the space at the top of the decedent’s death. Acquisition determined and attach copies of any the Continuation Schedule. indebtedness includes the unpaid appraisals. Normally, the appropriate amount of: way to value a conservation easement • Use the Unit value column only if is to determine the FMV of the land continuing Schedule B, E, or G. For all • Any indebtedness incurred by the both before and after the granting of the other schedules, use this space to donor in acquiring the property; easement, with the difference being the continue the description. • Any indebtedness incurred before the value of the easement. • Carry the total from the Continuation acquisition if the indebtedness would Schedules forward to the appropriate not have been incurred but for the You must reduce the reported value line on the main schedule. acquisition; of the easement by the amount of any If continuing Report Where on Continuation Schedule Schedule E, Pt. 2 Percentage includible Alternate valuation date Schedule K Amount unpaid to date Alternate valuation date Schedule K Amount in contest Alternate value Schedules J, L, M Description of deduction continuation Alternate valuation date and Alternate value Schedule O Character of institution Alternate valuation date and Alternate value Schedule O Amount of each deduction Amount deductible -40- Instructions for Schedules

(i706)(page-41)Page 41#

Privacy Act and Paperwork Reduction Act Notice. We ask for the information on this form to carry out the Internal Revenue laws of the United States. You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to figure and collect the right amount of tax. Subtitle B and section 6109, and the regulations require you to provide this information. You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential as required by section 6103. However, section 6103 allows or requires the Internal Revenue Service to disclose information from this form in certain circumstances. For example, we may disclose information to the Department of Justice for civil or criminal litigation, and to cities, states, the District of Columbia, and U.S. commonwealths or possessions for use in administering their tax laws. We may also disclose this information to other countries under a tax treaty, to federal and state agencies to enforce federal nontax criminal laws, or to federal law enforcement and intelligence agencies to combat terrorism. Failure to provide this information, or providing false information, may subject you to penalties. The time needed to complete and file this form and related schedules will vary depending on individual circumstances. The estimated average times are: Learning about the law Preparing the form Copying, assembling, and Form Recordkeeping or the form sending the form to the IRS 706 1 hr., 25 min. 1 hr., 50 min. 3 hr., 42 min. 48 min. Schedule A - - - - 15 min. 12 min. 20 min. Schedule A-1 33 min. 31 min. 1 hr., 15 min. 1 hr., 3 min. Schedule B 19 min. 9 min. 16 min. 20 min. Schedule C 19 min. 1 min. 13 min. 20 min. Schedule D 6 min. 6 min. 13 min. 20 min. Schedule E 39 min. 6 min. 36 min. 20 min. Schedule F 26 min. 8 min. 18 min. 20 min. Schedule G 26 min. 21 min. 12 min. 13 min. Schedule H 26 min. 6 min. 12 min. 13 min. Schedule I 13 min. 30 min. 15 min. 20 min. Schedule J 26 min. 6 min. 16 min. 20 min. Schedule K 13 min. 9 min. 18 min. 20 min. Schedule L 13 min. 4 min. 15 min. 20 min. Schedule M 13 min. 34 min. 25 min. 20 min. Schedule O 19 min. 12 min. 21 min. 20 min. Schedule P 6 min. 15 min. 18 min. 13 min. Schedule Q - - - - 12 min. 15 min. 13 min. Worksheet for Schedule Q 6 min. 6 min. 58 min. 20 min. Schedule R 19 min. 45 min. 1 hr., 10 min. 48 min. Schedule R-1 6 min. 46 min. 35 min. 20 min. Schedule U 19 min. 26 min. 29 min. 20 min. Continuation Schedule 19 min. 1 min. 13 min. 20 min. If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we would be happy to hear from you. You can write to the Internal Revenue Service, Tax Products Coordinating Committee, SE:W:CAR:MP:T:M:S, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224. Do not send the tax form to this address. Instead, see Where To File. -41- Instructions for Schedules

(i706)(page-42)Page 42#

Index A G Publications, obtaining . . . . . . . . . 3 Schedules R and R-1, direct skips . . . . . . . . . . . . . . . . . . . . . . 36 Address, executor . . . . . . . . . . . . . 4 General Information . . . . . . . . . . 12 Purpose of Form . . . . . . . . . . . . . . 2 Section 2032A . . . . . . . . . . . . . . . . 8 Alternate valuation . . . . . . . . . . . . . 7 General Instructions . . . . . . . . . . . 2 Section 2035(a) transfers . . . . . 21 Amending Form 706 . . . . . . . . . . . 3 Generation-skipping transfer Q tax . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 2036 transfers . . . . . . . . 21 Annuities . . . . . . . . . . . . . . . . . . . . . 23 Qualified conservation easement Gifts and bequests . . . . . . . . . . . 30 Section 2037 transfers . . . . . . . . 21 Applicable credit amount . . . . . . . 7 exclusion . . . . . . . . . . . . . . . . . . 38 Gross estate . . . . . . . . . . . . . . . 2, 13 Section 2038 transfers . . . . . . . . 21 Authorization . . . . . . . . . . . . . . . . . 12 Qualified heir . . . . . . . . . . . . . . . . . . 9 Signature and verification . . . . . . 3 Qualified real property . . . . . . . . . 9 Social security number . . . . . . . . . 4 I B special-use valuation of Section Inclusion ratio for trust . . . . . . . . 37 Bequests . . . . . . . . . . . . . . . . . . . . 30 R 2032A . . . . . . . . . . . . . . . . . . . . . . 8 Installment payments . . . . . . . . . 11 Bonds . . . . . . . . . . . . . . . . . . . . . . . 17 Real property interest, Specific Instructions . . . . . . . . . . . 4 Instructions for Schedule A—Real qualified . . . . . . . . . . . . . . . . . . . 39 Stocks . . . . . . . . . . . . . . . . . . . . . . . 17 Estate . . . . . . . . . . . . . . . . . . . . . 14 Real property, qualified . . . . . . . . 9 C Insurance . . . . . . . . . . . . . . . . . . . . 13 Recapitulation . . . . . . . . . . . . . . . . 13 Canadian marital credit . . . . . . . . 7 Interests, reversionary or T Residents of U. S. Close corporations . . . . . . . . . . . 13 remainder . . . . . . . . . . . . . . . . . . 12 Table A, Unified Rate Possessions . . . . . . . . . . . . . . . . 2 Conservation purpose . . . . . . . . 39 Schedule . . . . . . . . . . . . . . . . . . . 4 Rounding off to whole Continuation Schedule (See Tax Computation . . . . . . . . . . . . . . 4 dollars . . . . . . . . . . . . . . . . . . . . . . 3 L Continuation Schedule on Form Taxes, foreign death . . . . . . . . . . 31 Liens . . . . . . . . . . . . . . . . . . . . . . . . 27 706) Total Credits . . . . . . . . . . . . . . . . . . 7 Losses, expenses . . . . . . . . . . . . 27 Credit for foreign death S Transfers, direct skips . . . . . . . . 34 taxes . . . . . . . . . . . . . . . . . . . . . . 31 Lump sum distribution Schedule B Stocks and Transfers, valuation rules . . . . . 22 election . . . . . . . . . . . . . . . . . . . . 25 Credit for tax on prior Bonds . . . . . . . . . . . . . . . . . . . . . 17 Trusts . . . . . . . . . . . . . . . . . . . . . . . 13 transfers . . . . . . . . . . . . . . . . . . . 32 Schedule G Transfers during decedent’s life . . . . . . . . . . . . . 21 M Schedule G, how to U D Material participation . . . . . . . . . . . 9 complete . . . . . . . . . . . . . . . . . . . 22 U. S. Citizens or Residents . . . . . 2 Death certificate . . . . . . . . . . . . . . . 3 Member of family . . . . . . . . . . . 9, 39 Schedule H Powers of Unified Credit (applicable credit Debts of the decedent . . . . . . . . 26 Mortgages and liens . . . . . . . . . . 27 appointment . . . . . . . . . . . . . . . 22 amount) . . . . . . . . . . . . . . . . . . . . 7 Debts, mortgages and Schedule I Annuities . . . . . . . . . . 23 Unified credit adjustment . . . . . . . 7 liens . . . . . . . . . . . . . . . . . . . . . . . 26 N Schedule I, how to Deductions . . . . . . . . . . . . . . . . . . . 14 Nonresident Noncitizens . . . . . . . 2 complete . . . . . . . . . . . . . . . . . . . 25 Direct skips . . . . . . . . . . . . . . . . . . 34 V Schedule K Debts . . . . . . . . . . . . 26 Disclaimer, qualified . . . . . . . . . . 31 Valuation methods . . . . . . . . . . . . . 9 Schedule L Losses, expenses P Documents, supplemental . . . . . . 3 Valuation rules, transfers . . . . . . 22 during administration . . . . . . . 27 Part 1, Decedent and Schedule O Gifts and Executor . . . . . . . . . . . . . . . . . . . . 4 E bequests . . . . . . . . . . . . . . . . . . . 30 W Part 2. Tax Computation . . . . . . . 4 Election . . . . . . . . . . . . . . . . . . 10, 12 Schedule P Foreign death What’s New . . . . . . . . . . . . . . . . . . . 1 Part 3. Elections by the Election, lump sum taxes . . . . . . . . . . . . . . . . . . . . . . 31 When To File . . . . . . . . . . . . . . . . . . 2 Executor . . . . . . . . . . . . . . . . . . . . 7 distribution . . . . . . . . . . . . . . . . . 25 Schedule Q Prior transfers, credit Which Estates Must File . . . . . . . 2 Part 4. General Exclusion . . . . . . . . . . . . . . . . . . . . 14 for . . . . . . . . . . . . . . . . . . . . . . . . . 32 Information . . . . . . . . . . . . . . . . 12 Worksheet for Schedule Q . . . . 34 Executor . . . . . . . . . . . . . . . . . . . . 2, 4 Schedule R and R-1 Part 5. Recapitulation . . . . . . . . . 13 Worksheet TG-Taxable Gifts Generation-skipping transfer Expenses, losses . . . . . . . . . . . . . 27 Reconciliation . . . . . . . . . . . . . . . 5 Paying the Tax . . . . . . . . . . . . . . . . 2 tax . . . . . . . . . . . . . . . . . . . . . . . . 34 Worksheet, inclusion ratio for Payments, installment . . . . . . . . 11 Schedule R, how to trust . . . . . . . . . . . . . . . . . . . . . . . 37 Penalties . . . . . . . . . . . . . . . . . . . . . . 3 F complete . . . . . . . . . . . . . . . . . . . 37 Powers of appointment . . . . . . . 22 Foreign accounts . . . . . . . . . . . . . 13 Schedule R-1, how to I Privacy Act and Paperwork Forms and publications, complete . . . . . . . . . . . . . . . 37, 38 Reduction Act Notice . . . . . . . 41 obtaining . . . . . . . . . . . . . . . . . . . . 3 Schedule U Qualified conservation Private delivery services . . . . . . . 2 easement exclusion . . . . . . . . 38 Property, section 2044 . . . . . . . . 13 -42-

(i706)Instructions for Form 706 (Rev. August 2011), United States Estate (and Generation-Skipping Transfer) Tax Return#

(i706)(page-1)Page 1#

(i706)Instructions for Form 706 (Rev. August 2011), United States Estate (and Generation-Skipping Transfer) Tax Return#

(i706)(page-1)Page 1#

(i706)(page-2)Page 2#

(i706)(page-3)Page 3#

(i706)(page-4)Page 4#

(i706)(page-5)Page 5#

(i706)(page-6)Page 6#

(i706)(page-7)Page 7#

(i706)(page-8)Page 8#

(i706)(page-9)Page 9#

(i706)(page-10)Page 10#

(i706)(page-11)Page 11#

(i706)(page-12)Page 12#

(i706)(page-13)Page 13#

(i706)(page-14)Page 14#

(i706)(page-15)Page 15#

(i706)(page-16)Page 16#

(i706)(page-17)Page 17#

(i706)(page-18)Page 18#

(i706)(page-19)Page 19#

(i706)(page-20)Page 20#

(i706)(page-21)Page 21#

(i706)(page-22)Page 22#

(i706)(page-23)Page 23#

(i706)(page-24)Page 24#

(i706)(page-25)Page 25#

(i706)(page-26)Page 26#

(i706)(page-27)Page 27#

(i706)(page-28)Page 28#

(i706)(page-29)Page 29#

(i706)(page-30)Page 30#

(i706)(page-31)Page 31#

(i706)(page-32)Page 32#

(i706)(page-33)Page 33#

(i706)(page-34)Page 34#

(i706)(page-35)Page 35#

(i706)(page-36)Page 36#

(i706)(page-37)Page 37#

(i706)(page-38)Page 38#

(i706)(page-39)Page 39#

(i706)(page-40)Page 40#

(i706)(page-41)Page 41#

(i706)(page-42)Page 42#

(i706)(page-43)Page 43#