Section 55 Generation-Skipping Transfer Tax

• Library: Trust and Estate Legislation 2012

With respect to the GST (generation-skipping transfer) tax, the issue is whether, if the trust being decanted is exempt from the GST tax, decanting will void that exemption and thus make it liable. The general rule is that a trust is “grandfathered” out of GST tax if it was irrevocable on or before September 25, 1985. Treas. Reg. § 26.2601-1(b)(1). But the GST exemption of a grandfathered trust can be lost if the trust is modified in certain ways or if additions are made to the trust. A modification merely of administrative provisions typically will not affect the exemption, but a modification that is deemed to be an addition to the trust or to create a new trust does threaten the exemption.

The regulations are complicated and were only finally issued in the year 2000. Until the final regulations were issued,
the IRS made many informal rulings under which most practitioners developed a...