Lisa S. Presser, left, and Brian M. Balduzzi, right, of Faegre Drinker Biddle & Reath. Courtesy photosGovernment, May I Fix My GST Mistake? Regulations Offer Guidance on Generation-Skipping Tax Exemption Allocation Relief
Under new final regulations, effective for relief filed on or after May 6, 2024, clients can request a private letter ruling (PLR) to correct past mistakes in GST exemption allocations and elections. While some provisions of the final regulations are more burdensome than under the Section 9100 relief or even the proposed regulations, overall, the final regulations offer a more streamlined and thorough process for clients and their advisers to plan strategically for requesting relief from the IRS for these mistakes.
January 17, 2025 at 12:43 AM
9 minute read
Generation-skipping transfer (GST) tax is one of the more nuanced areas of the Internal Revenue Code (the Code), tricking or perplexing clients and their advisers for decades. While the Code grants each taxpayer an exemption from GST tax in the amount of $13.99 million as of Jan. 1, 2025, indexed for inflation, taxpayers may inadvertently elect to allocate this GST exemption when they do not mean to, or fail to allocate when they should have. The Internal Revenue Service (the IRS) previously offered relief under Code Section 2642(g)(1) pursuant to Treasury Regulation Section 301.9100-3. Under new final regulations, effective for relief filed on or after May 6, 2024, clients can request a private letter ruling (PLR) to correct past mistakes in GST exemption allocations and elections. While some provisions of the final regulations are more burdensome than under the Section 9100 relief or even the proposed regulations, overall, the final regulations offer a more streamlined and thorough process for clients and their advisers to plan strategically for requesting relief from the IRS for these mistakes.
Generation-Skipping Transfer Tax
During a person’s lifetime, or upon his or her death, GST exemption may be allocated to transfers, either outright to individuals or to in trusts for their benefits. A donor is deemed to have automatically allocated her GST exemption to “direct skips” under Code Section 2632(b)(1), but may make an “opt-out” election under Code Section 2632(b)(3) if she does not want these automatic allocation rules to apply; similarly, since 2001, Code Section 2632(c) provides for automatic allocations to “indirect skips” made from “GST trusts,” but the donor may make an “opt-out” election so that the trust is not treated as a GST trust and does not receive automatic allocation under Code Section 2632(c)(5). While there is much flexibility in this type of GST exemption planning, there is also considerable complexity, which has caused difficulties and problems for clients and their advisers over the years for transfers to trusts.
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