1. A system for encoding a video stream in a video encoder to generate an encoded bit stream, the system comprising: a coding control component configured to receive a picture from the video stream; a motion estimation component coupled to the coding control component and configured to construct a merge mode motion data vector (merging candidate) list for a prediction unit (PU) and add a zero motion vector merging candidate to the merging candidate list, wherein content of the zero motion vector merging candidate is determined based on a prediction type of a slice containing the PU; and an entropy encoder component coupled to the motion estimation component and configured to encode a merge flag for the PU in the encoded bit stream, wherein the merge flag is set to a first value indicating merge mode if merge mode is used for inter-prediction of the PU and the merge flag is set to a second value indicating no merge mode if merge mode is not used for inter-prediction of the PU and a merge flag is always encoded in the encoded bit stream for each inter-predicted PU that is not encoded using skip mode.