GST exemption allocation.

• Author: Laffie, Lesli S.
• Position: Generation-skipping transfer

The IRS issued final regulations (TD 9208) clarifying how taxpayers may (1) avoid application of the automatic generation-skipping transfer (GST) tax exemption allocation rules applicable to transfers to a GST trust and (2) terminate such an election. The regulations also address how taxpayers may elect GST treatment for a trust.

Comments considered: The Service said it accepted a number of recommendations made in comments on the proposed regulations (REG-153841-02). The proposed regulations had permitted only two options for electing out of the automatic allocation rules--transferors could elect out as to a current transfer only, or as to a current-year transfer and all future transfers to the same trust.

Commentators asked for more options; in response, the Service said the final rules add the option of electing out for only certain designated future transfers to a trust, or all future transfers made by the transferor to any trust, regardless of whether the trust exists at the time of the election.

The IRS also noted that, under the final regulations, the transferor may elect out on future transfers even if no current-year transfer is made and the transferor is not otherwise required to file a Federal gift tax return.

Further, the final regulations have been clarified to confirm that an election out of the automatic allocation rules for future years is limited to allocations to indirect skips made during the transferor's life and has no effect on the allocation rules that apply after the transferor's death.

The Service also clarified that the automatic allocation to an indirect skip is effective as of the date of the transfer, and becomes irrevocable on the due date for filing Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return...