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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