Mastering IRC 2632 GST Exemption Allocation Rules: Identifying GST Trusts and Indirect Skips

Critical to mastering multi-generational gift tax planning and compliance is a thorough understanding of the provisions and rules found in IRC 2632 and its regulatory guidance. Section 2632 sets the rules for generation skipping tax exemptions and is one of the most complex aspects of the wealth transfer tax regime, and advisers can avoid costly tax and penalties through accurate and careful application of the 2632 provisions.

Section 2632(b)(2) states the general rule that a transferor’s unused GST exemption is automatically allocated to any direct skip to the extent necessary to bring the inclusion ratio of the transferred property to zero. The Code allows taxpayers who made direct skips to opt out of the automatic allocation rule by making an election under Section 2632(b)(3). This election is reported on Form 709 Schedule A, Part 2—Direct Skips.

IRC 2632(c)(3) defines “indirect skips” as transfers to a trust that may have a generation skipping transfer in the future. Section 2632(c)(3)(b) lists the characteristics of a GST trust, and provides the default rules for allocating GST exemptions to GST trusts on indirect skip transfers. As in direct skips, Section 2632(c)(5) provides for an election out of the default treatment. Tax professionals must grasp the 2632(c) provisions identifying trusts that may have GST consequences to avoid unexpected GST tax in the future.

Listen as our experienced panel provides a comprehensive guide to the Section 2632 rules on allocating GST exemptions to minimize the tax impact of GST tax.

1. Section 2632(b) direct skip general rule on exemption allocation
2. Election provisions and mechanics for direct skips in Section 2632(b)(3)
3. Section 2632(c)(3)(B) definitions of GST trusts
4. Election to opt into and out of general exemption allocation rules for indirect skip transfers
5. Retroactive allocation provisions

The panel will discuss these and other important issues:

• Identifying provisions in trust documents that may require transfers to be reported as an indirect skip transaction under Section 26632(c)
• When would a taxpayer want to elect out of deemed allocation under 2632(b)?
• Reporting elections on Form 709 Schedule A
• Exemption allocation rules for transfers to trusts found in Section 2632(c)
• Retroactive allocations under Section 2632(d)

Learning Objectives

After completing this course, you will be able to:

• Identify provisions in trust documents that may require transfers to be reported as an indirect skip transaction under Section 2632(c)
• Determine when a taxpayer would want elect out of deemed allocation under Section 2632(b)
• Discern elections on Form 709 Schedule A
• Recognize exemption allocation rules for transfers to trusts found in Section 2632(c)
• Ascertain retroactive allocations under Section 2632(d)

• 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, involved in estate planning and structuring trusts to meet client wishes and to mitigate tax impact, preparing complex tax forms and schedules, supervising other planners or attorneys. Specific knowledge of Form 709 Gift Tax completion; familiarity with Section 2611 Generation Skipping Transfer regulations

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).