GST Trust Administration Challenges: Post Mortem Strategies to Minimize Generation Skipping Transfer Tax

Critical to successful multi-generational gift tax planning and compliance is a solid foundation in the complex GST tax regime of Section 2632 and following statutes. Beyond identifying skip-person transferees and gifts that will trigger GST tax, fiduciaries must have a detailed understanding of the rules to calculate the tax cost of GSTs.

Section 2642 provides the framework for determining the taxable portion of any GST. The inclusion ratio works with the “applicable fraction” to determine the tax rate of a GST. A trust with an inclusion ratio of 0 is exempt from GST tax, while a trust with a ratio of 1 is fully taxable; either of these ratios is considered optimally efficient, depending on drafting and planning goals. However, post-death events often create challenges to existing allocation provisions.

Trustees, or other parties such as trust protectors or directors with authority to effect distributions, may have the power to make non-pro rata or non-per stirpes allocations of GST exemption amounts, even in cases where the decedent has distributed property on a pro rata basis.

Additionally, the fiduciary may be able to sever a GST trust into separate instruments. Depending on the asset makeup, a fiduciary may also tailor investment decisions to minimize the GST tax impact of transfers, such as having the GST exempt trust invest in growth assets that produce minimal trust accounting income to distribute.

Listen as our experienced panel provides a practical guide to the tax-efficient administration of GST trusts.

1. IRC 2642 structure
   1. Inclusion ratio defined
   2. Applicable fraction defined
   3. Treatment of inclusion ratios in the severance of GST-impacted trust into two or more trusts
2. Post-mortem events and transfers requiring recomputation of inclusion ratio and the appropriate fraction
3. Making non-pro rata or non-per stirpes allocations of property disposed of on a pro rata or per stirpital basis by a testator
4. Trust severance rules and opportunities
5. Investment strategies to minimize GST impact on transfers
6. Roles of various fiduciary and administrative persons

The panel will review these and other relevant topics:

• How to spot trusts with an inclusion ratio greater than 0
• Proactively identifying valuation opportunities when calculating inclusion ratios
• The interrelation between inclusion ratio and the applicable fraction under Section 2642 and its regulations
• Special rules for CLATs and other types of trusts in the calculation of inclusion ratio and the imposition of GST tax
• Regulatory guidance for calculating numerator and denominator of applicable fractions

Learning Objectives

After completing this course, you will be able to:

• Discern the factors needed to calculate the numerator and denominator of the GST applicable fraction
• Determine how to compute the inclusion ratio for a GST trust
• Recognize exceptions for CLATs and other specific trusts to the inclusion ratio computation rules
• Identify planning opportunities through pre-transfer inclusion ratio calculations in structuring and funding trusts subject to GST tax

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience at mid-level within the organization preparing complex trust forms and schedules. Specific knowledge of estate and gift tax rules, fiduciary accounting, and GST rules; basic familiarity with exemption calculations, generation skipping tax calculations and portability of spousal lifetime exclusions.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).