Paragraph 1. The authority citation for part 26 continues to read, in
part, as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. In §26.2600-1, the entries for §26.2632-1 are amended
by revising the entry for paragraph (b)(2) and adding entries for paragraphs
(b)(3), (b)(4) and (e) to read as follows:
§26.2632-1 Allocation of GST exemption.
* * * * *
(b) * * *
(2) Automatic allocation to indirect skips made after December
31, 2000—(i) In general. An indirect
skip is a transfer of property to a GST trust as defined in section 2632(c)(3)(B)
provided that the transfer is subject to gift tax and does not qualify as
a direct skip. In the case of an indirect skip made after December 31, 2000,
to which section 2642(f) (relating to transfers subject to an estate tax inclusion
period (ETIP)) does not apply, the transferor’s unused GST exemption
is automatically allocated to the property transferred (but not in excess
of the fair market value of the property on the date of the transfer). The
automatic allocation pursuant to this paragraph is effective whether or not
a Form 709 is filed reporting the transfer, and is effective as of the date
of the transfer to which it relates. An automatic allocation is irrevocable
after the due date of the Form 709 for the calendar year in which the transfer
is made. In the case of an indirect skip to which section 2642(f) does apply,
the indirect skip is deemed to be made at the close of the ETIP and the GST
exemption is deemed to be allocated at that time. In either case, except as
otherwise provided in paragraph (b)(2)(ii) of this section, the automatic
allocation of exemption applies even if an allocation of exemption is made
to the indirect skip in accordance with section 2632(a).
(ii) Prevention of automatic allocation. Except
as otherwise provided in forms or other guidance published by the Service,
the transferor may prevent the automatic allocation of GST exemption with
regard to an indirect skip (including indirect skips to which section 2642(f)
may apply) by making an election, as provided in paragraph (b)(2)(iii) of
this section. Notwithstanding paragraph (b)(2)(iii)(B) of this section, the
transferor may also prevent the automatic allocation of GST exemption with
regard to an indirect skip by making an affirmative allocation of GST exemption
on a Form 709 filed at any time on or before the due date for timely filing
(within the meaning of paragraph (b)(1)(ii) of this section) of an amount
that is less than (but not equal to) the value of the property transferred
as reported on that return, in accordance with the provisions of paragraph
(b)(4) of this section. See paragraph (b)(4)(iii) Example 6 of
this section. Any election out of the automatic allocation rules under this
section has no effect on the application of the automatic allocation rules
applicable after the transferor’s death under section 2632(e) and paragraph
(d) of this section.
(iii) Election to have automatic allocation rules not apply—(A) In
general. A transferor may prevent the automatic allocation of GST
exemption (elect out) with respect to any transfer or transfers constituting
an indirect skip made to a trust or to one or more separate shares that are
treated as separate trusts under §26.2654-1(a)(1) (collectively referred
to hereinafter as a trust). In the case of a transfer treated under section
2513 as made one-half by the transferor and one-half by the transferor’s
spouse, each spouse shall be treated as a separate transferor who must satisfy
separately the requirements of paragraph (b)(2)(iii)(B) to elect out with
respect to the transfer. A transferor may elect out with respect to—
(1) One or more prior-year transfers subject to
section 2642(f) (regarding ETIPs) made by the transferor to a specified trust
or trusts;
(2) One or more (or all) current-year transfers
made by the transferor to a specified trust or trusts;
(3) One or more (or all) future transfers made
by the transferor to a specified trust or trusts;
(4) All future transfers made by the transferor
to all trusts (whether or not in existence at the time of the election out);
or
(5) Any combination of paragraphs (b)(2)(iii)(A)(1)
through (4) of this section.
(B) Manner of making an election out. Except as
otherwise provided in forms or other guidance published by the IRS, an election
out is made as described in this paragraph (b)(2)(iii)(B). To elect out, the
transferor must attach a statement (election out statement) to a Form 709
filed within the time period provided in paragraph (b)(2)(iii)(C) of this
section (whether or not any transfer was made in the calendar year for which
the Form 709 was filed, and whether or not a Form 709 otherwise would be required
to be filed for that year). See paragraph (b)(4)(iv) Example 1 of
this section. The election out statement must identify the trust (except for
an election out under paragraph (b)(2)(iii)(A)(4) of
this section), and specifically must provide that the transferor is electing
out of the automatic allocation of GST exemption with respect to the described
transfer or transfers. Prior-year transfers that are subject to section 2642(f),
and to which the election out is to apply, must be specifically described
or otherwise identified in the election out statement. Further, unless the
election out is made for all transfers made to the trust in the current year
and/or in all future years, the current-year transfers and/or future transfers
to which the election out is to apply must be specifically described or otherwise
identified in the election out statement.
(C) Time for making an election out. To elect out,
the Form 709 with the attached election out statement must be filed on or
before the due date for timely filing (within the meaning of paragraph (b)(1)(ii)
of this section) of the Form 709 for the calendar year in which—
(1) For a transfer subject to section 2642(f),
the ETIP closes; or
(2) For all other elections out, the first transfer
to be covered by the election out was made.
(D) Effect of election out. An election out does
not affect the automatic allocation of GST exemption to any transfer not covered
by the election out statement. Except for elections out for transfers described
in paragraph (b)(2)(iii)(A)(1) of this section that are
specifically described in an election out statement, an election out does
not apply to any prior-year transfer to a trust, including any transfer subject
to an ETIP (even if the ETIP closes after the election is made). An election
out does not prevent the transferor from allocating the transferor’s
available GST exemption to any transfer covered by the election out, either
on a timely filed Form 709 reporting the transfer or at a later date in accordance
with the provisions of paragraph (b)(4) of this section. An election out with
respect to future transfers remains in effect unless and until terminated.
Once an election out with respect to future transfers is made, a transferor
need not file a Form 709 in future years solely to prevent the automatic allocation
of the GST exemption to any future transfer covered by the election out.
(E) Termination of election out. Except as otherwise
provided in forms or other guidance published by the IRS, an election out
may be terminated as described in this paragraph (b)(2)(iii)(E). Pursuant
to this section, a transferor may terminate an election out made on a Form
709 for a prior year, to the extent that election out applied to future transfers
or to a transfer subject to section 2642(f). To terminate an election out,
the transferor must attach a statement (termination statement) to a Form 709
filed on or before the due date of the Form 709 for the calendar year in which
is made the first transfer to which the election out is not to apply (whether
or not any transfer was made in the calendar year for which the Form 709 was
filed, and whether or not a Form 709 otherwise would be required to be filed
for that year). The termination statement must identify the trust (if applicable),
describe the prior election out that is being terminated, specifically provide
that the prior election out is being terminated, and either describe the extent
to which the prior election out is being terminated or describe any current-year
transfers to which the election out is not to apply. Consequently, the automatic
allocation rules contained in section 2632(c)(1) will apply to any current-year
transfer described on the termination statement and, except as otherwise provided
in this paragraph, to all future transfers that otherwise would have been
covered by the election out. The termination of an election out does not affect
any transfer, or any election out, that is not described in the termination
statement. The termination of an election out will not revoke the election
out for any prior-year transfer, except for a prior-year transfer subject
to section 2642(f) for which the election out is revoked on a timely filed
Form 709 for the calendar year in which the ETIP closes or for any prior calendar
year. The termination of an election out does not preclude the transferor
from making another election out in the same or any subsequent year.
(3) Election to treat trust as a GST trust—(i) In
general. A transferor may elect to treat any trust as a GST trust
(GST trust election), without regard to whether the trust is subject to section
2642(f), with respect to—
(A) Any current-year transfer (or any or all current-year transfers)
by the electing transferor to the trust;
(B) Any selected future transfers by the electing transferor to the
trust;
(C) All future transfers by the electing transferor to the trust; or
(D) Any combination of paragraphs (b)(3)(i)(A) through (C) of this section.
(ii) Time and Manner of making GST trust election.
Except as otherwise provided in forms or other guidance published by the Internal
Revenue Service, a GST trust election is made as described in this paragraph
(b)(3)(ii). To make a GST trust election, the transferor must attach a statement
(GST trust election statement) to a Form 709 filed on or before the due date
for timely filing (within the meaning of paragraph (b)(1)(ii) of this section)
of the Form 709 for the calendar year in which the first transfer to be covered
by the GST trust election is made (whether or not any transfer was made in
the calendar year for which the Form 709 was filed, and whether or not a Form
709 otherwise would be required to be filed for that year). The GST trust
election statement must identify the trust, specifically describe or otherwise
clearly identify the transfers to be covered by the election, and specifically
provide that the transferor is electing to have the trust treated as a GST
trust with respect to the covered transfers.
(iii) Effect of GST trust election. Except as otherwise
provided in this paragraph, a GST trust election will cause all transfers
made by the electing transferor to the trust that are subject to the election
to be deemed to be made to a GST trust as defined in section 2632(c)(3)(B).
Thus, the electing transferor’s unused GST exemption may be allocated
automatically to such transfers in accordance with paragraph (b)(2) of this
section. A transferor may prevent the automatic allocation of GST exemption
to future transfers to the trust either by terminating the GST trust election
in accordance with paragraph (b)(3)(iv) of this section (in the case of trusts
that would not otherwise be treated as GST trusts) or by electing out of the
automatic allocation of GST exemption in accordance with paragraph (b)(2)
of this section.
(iv) Termination of GST trust election. Except
as otherwise provided in forms or other guidance published by the Service,
a GST trust election may be terminated as described in this paragraph (b)(3)(iv).
A transferor may terminate a GST trust election made on a Form 709 for a prior
year, to the extent that election applied to future transfers or to a transfer
subject to section 2642(f). To terminate a GST trust election, the transferor
must attach a statement (termination statement) to a Form 709 filed on or
before the due date for timely filing (within the meaning of paragraph (b)(1)(ii)
of this section) a Form 709 for the calendar year: in which is made the electing
transferor’s first transfer to which the GST trust election is not to
apply; or that is the first calendar year for which the GST trust election
is not to apply, even if no transfer is made to the trust during that year.
The termination statement must identify the trust, describe the current-year
transfer (if any), and provide that the prior GST trust election is terminated.
Accordingly, if the trust otherwise does not satisfy the definition of a GST
trust, the automatic allocation rules contained in section 2632(c)(1) will
not apply to the described current-year transfer or to any future transfers
made by the transferor to the trust, unless and until another election under
this paragraph (b)(3) is made.
(4) * * *(i) * * * See paragraph (b)(4)(ii) of this section. * * *
(ii) * * *(A) * * * (1) * * * For purposes of this
paragraph (b)(4)(ii), the Form 709 is deemed filed on the date it is postmarked
to the Internal Revenue Service address as directed in forms or other guidance
published by the Service. * * *
* * * * *
(iii) Examples. The following examples illustrate
the provisions of this paragraph (b):
Example 1. Modification of allocation
of GST exemption. On December 1, 2003, T transfers $100,000 to
an irrevocable GST trust described in section 2632(c)(3)(B). The transfer
to the trust is not a direct skip. The date prescribed for filing the gift
tax return reporting the taxable gift is April 15, 2004. On February 10, 2004,
T files a Form 709 on which T properly elects out of the automatic allocation
rules contained in section 2632(c)(1) with respect to the transfer in accordance
with paragraph (b)(2)(iii) of this section, and allocates $50,000 of GST exemption
to the trust. On April 13th of the same year, T files an additional Form 709
on which T confirms the election out of the automatic allocation rules contained
in section 2632(c)(1) and allocates $100,000 of GST exemption to the trust
in a manner that clearly indicates the intention to modify and supersede the
prior allocation with respect to the 2003 transfer. The allocation made on
the April 13 return supersedes the prior allocation because it is made on
a timely-filed Form 709 that clearly identifies the trust and the nature and
extent of the modification of GST exemption allocation. The allocation of
$100,000 of GST exemption to the trust is effective as of December 1, 2003.
The result would be the same if the amended Form 709 decreased the amount
of the GST exemption allocated to the trust.
Example 2. Modification of allocation
of GST exemption. The facts are the same as in Example
1 except, on July 8, 2004, T files a Form 709 attempting to reduce
the earlier allocation. The return filed on July 8, 2004, is not a timely
filed return. The $100,000 GST exemption allocated to the trust, as amended
on April 13, 2004, remains in effect because an allocation, once made, is
irrevocable and may not be modified after the last date on which a timely
filed Form 709 may be filed.
Example 3. Effective date of late allocation
of GST exemption. On November 15, 2003, T transfers $100,000 to
an irrevocable GST trust described in section 2632(c)(3)(B). The transfer
to the trust is not a direct skip. The date prescribed for filing the gift
tax return reporting the taxable gift is April 15, 2004. On February 10, 2004,
T files a Form 709 on which T properly elects out of the automatic allocation
rules contained in section 2632(c)(1) in accordance with paragraph (b)(2)(iii)
of this section with respect to that transfer. On December 1, 2004, T files
a Form 709 and allocates $50,000 to the trust. The allocation is effective
as of December 1, 2004.
Example 4. Effective date of late allocation
of GST exemption. T transfers $100,000 to an irrevocable GST trust
on December 1, 2003, in a transfer that is not a direct skip. On April 15,
2004, T files a Form 709 on which T properly elects out of the automatic allocation
rules contained in section 2632(c)(1) with respect to the entire transfer
in accordance with paragraph (b)(2)(iii) of this section and T does not make
an allocation of any GST exemption on the Form 709. On September 1, 2004,
the trustee makes a taxable distribution from the trust to T’s grandchild
in the amount of $30,000. Immediately prior to the distribution, the value
of the trust assets was $150,000. On the same date, T allocates GST exemption
to the trust in the amount of $50,000. The allocation of GST exemption on
the date of the transfer is treated as preceding in point of time the taxable
distribution. At the time of the GST, the trust has an inclusion ratio of
.6667 (1 - (50,000/150,000)).
Example 5. Automatic allocation to split-gift.
On December 1, 2003, T transfers $50,000 to an irrevocable GST Trust described
in section 2632(c)(3)(B). The transfer to the trust is not a direct skip.
On April 30, 2004, T and T’s spouse, S, each files an initial gift tax
return for 2003, on which they consent, pursuant to section 2513, to have
the gift treated as if one-half had been made by each. In spite of being made
on a late-filed gift tax return for 2003, the election under section 2513
is valid because neither spouse had filed a timely gift tax return for that
year. Previously, neither T nor S filed a timely gift tax return electing
out of the automatic allocation rules contained in section 2632(c)(1). As
a result of the election under section 2513, which is retroactive to the date
of T’s transfer, T and S are each treated as the transferor of one-half
of the property transferred in the indirect skip. Thus, $25,000 of T’s
unused GST exemption and $25,000 of S’s unused GST exemption is automatically
allocated to the trust. Both allocations are effective on and after the date
that T made the transfer. The result would be the same if T’s transfer
constituted a direct skip subject to the automatic allocation rules contained
in section 2632(b).
Example 6. Partial allocation of GST
exemption. On December 1, 2003, T transfers $100,000 to an irrevocable
GST trust described in section 2632(c)(3)(B). The transfer to the trust is
not a direct skip. The date prescribed for filing the gift tax return reporting
the taxable gift is April 15, 2004. On February 10, 2004, T files a Form 709
on which T allocates $40,000 of GST exemption to the trust. By filing a timely
Form 709 on which a partial allocation is made of $40,000, T effectively elected
out of the automatic allocation rules for the remaining value of the transfer
for which T did not allocate GST exemption.
(iv) Example. The following example illustrates
language that may be used in the statement required under paragraph (b)(2)(iii)
of this section to elect out of the automatic allocation rules under various
scenarios:
Example 1. On March 1, 2006, T transfers $100,000
to Trust B, a GST trust described in section 2632(c)(3)(B). Subsequently,
on September 15, 2006, T transfers an additional $75,000 to Trust B. No other
transfers are made to Trust B in 2006. T attaches an election out statement
to a timely filed Form 709 for calendar year 2006. Except with regard to paragraph
(v) of this Example 1, the election out statement identifies
Trust B as required under paragraph (b)(2)(iii)(B) of this section, and contains
the following alternative election statements:
(i) “T hereby elects that the automatic allocation rules will
not apply to the $100,000 transferred to Trust B on March 1, 2006.”
The election out of the automatic allocation rules will be effective only
for T’s March 1, 2006, transfer and will not apply to T’s $75,000
transfer made on September 15, 2006.
(ii) “T hereby elects that the automatic allocation rules will
not apply to any transfers to Trust B in 2006.” The election out of
the automatic allocation rules will be effective for T’s transfers to
Trust B made on March 1, 2006, and September 15, 2006.
(iii) “T hereby elects that the automatic allocation rules will
not apply to any transfers to Trust B made by T in 2006 or to any additional
transfers T may make to Trust B in subsequent years.” The election out
of the automatic allocation rules will be effective for T’s transfers
to Trust B in 2006 and for all future transfers to be made by T to Trust B,
unless and until T terminates the election out of the automatic allocation
rules.
(iv) “T hereby elects that the automatic allocation rules will
not apply to any transfers T has made or will make to Trust B in the years
2006 through 2008.” The election out of the automatic allocation rules
will be effective for T’s transfers to Trust B in 2006 through 2008.
T’s transfers to Trust B after 2008 will be subject to the automatic
allocation rules, unless T elects out of those rules for one or more years
after 2008. T may terminate the election out of the automatic allocation rules
for 2007, 2008, or both in accordance with the termination rules of paragraph
(b)(2)(iii)(E) of this section. T may terminate the election out for one or
more of the transfers made in 2006 only on a later but still timely filed
Form 709 for calendar year 2006.
(v) “T hereby elects that the automatic allocation rules will
not apply to any current or future transfer that T may make to any trust.”
The election out of the automatic allocation rules will be effective for all
of T’s transfers (current-year and future) to Trust B and to any and
all other trusts (whether such trusts exist in 2006 or are created in a later
year), unless and until T terminates the election out of the automatic allocation
rules. T may terminate the election out with regard to one or more (or all)
of the transfers covered by the election out in accordance with the termination
rules of paragraph (b)(2)(iii)(E) of this section.
(c) Special rules during an estate tax inclusion period—(1) In
general—(i) Automatic allocations with respect
to direct skips and indirect skips. A direct skip or an indirect
skip that is subject to an estate tax inclusion period (ETIP) is deemed to
have been made only at the close of the ETIP. The transferor may prevent the
automatic allocation of GST exemption to a direct skip or an indirect skip
by electing out of the automatic allocation rules at any time prior to the
due date of the Form 709 for the calendar year in which the close of the ETIP
occurs (whether or not any transfer was made in the calendar year for which
the Form 709 was filed, and whether or not a Form 709 otherwise would be required
to be filed for that year). See paragraph (b)(2)(i) of this section regarding
the automatic allocation of GST exemption to an indirect skip subject to an
ETIP.
(ii) Other allocations. An affirmative allocation
of GST exemption cannot be revoked, but becomes effective as of (and no earlier
than) the date of the close of the ETIP with respect to the trust. If an allocation
has not been made prior to the close of the ETIP, an allocation of exemption
is effective as of the close of the ETIP during the transferor’s lifetime
if made by the due date for filing the Form 709 for the calendar year in which
the close of the ETIP occurs (timely ETIP return). An allocation of exemption
is effective in the case of the close of the ETIP by reason of the death of
the transferor as provided in paragraph (d) of this section.
(iii) Portion of trust subject to ETIP. If any
part of a trust is subject to an ETIP, the entire trust is subject to the
ETIP. See §26.2642-1(b)(2) for rules determining the inclusion ratio
applicable in the case of GSTs during an ETIP.
* * * * *
(5) * * *
Example 5. Election out of automatic
allocation of GST exemption for trust subject to an ETIP. On December
1, 2003, T transfers $100,000 to Trust A, an irrevocable GST trust described
in section 2632(c)(3) that is subject to an estate tax inclusion period (ETIP).
T made no other gifts in 2003. The ETIP terminates on December 31, 2008. T
timely files a gift tax return (Form 709) reporting the gift on April 15,
2004. On May 15, 2006, T files a Form 709 on which T properly elects out of
the automatic allocation rules contained in section 2632(c)(1) with respect
to the December 1, 2003, transfer to Trust A in accordance with paragraph
(b)(2)(iii) of this section. Because the indirect skip is not deemed to occur
until December 31, 2008, T’s election out of automatic GST allocation
filed on May 15, 2006, is timely, and will be effective as of December 31,
2008 (unless revoked on a Form 709 filed on or before the due date of a Form
709 for calendar year 2008).
(d) * * *(1) * * * A late allocation of GST exemption by an executor,
other than an allocation that is deemed to be made under section 2632(b)(1)
or (c)(1), with respect to a lifetime transfer of property is made on Form
706, Form 706NA, or Form 709 (filed on or before the due date of the transferor’s
estate tax return) and applies as of the date the allocation is filed. * *
*
* * * * *
(e) Effective dates. This section is applicable
as provided in §26.2601-1(c), with the following exceptions:
(1) Paragraphs (b)(2) and (b)(3), the third sentence of paragraph (b)(4)(i),
the fourth sentence of paragraph (b)(4)(ii)(A)(1), paragraphs
(b)(4)(iii) and (b)(4)(iv), and the fourth sentence of paragraph (d)(1) of
this section, which will apply to elections made on or after July 13, 2004;
and
(2) Paragraph (c)(1), and Example 5 of paragraph
(c)(5), which will apply to elections made on or after June 29, 2005.
