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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