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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