Trusts and Estates

Ca. Trs. & Estates Quarterly 2015, Volume 21, Issue 3


By Beth Shapiro Kaufman, Esq.,* and Megan E. Wernke, Esq.*

Advisors to taxpayers with estates larger than the $5.43 million exemption often plan carefully to reduce the imposition of the generation-skipping transfer ("GST") tax. However, generous exemptions and careful estate planning are for naught if clients and their advisors fail to properly and effectively allocate their GST exemption on the Form 709, U.S. Gift (and Generation-Skipping Transfer) Tax Return. (References herein to Form 709 or the Instructions are to Form 709 and the related Instructions for use in connection with gifts made during calendar year 2014.)

Unfortunately, the Form 709 is not well adapted for GST reporting, particularly in the context of gifts to trusts. In addition, when the Form 709 was updated to reflect the deemed allocation rules at IRC sections 2632(b) and 2632(c), the revisions were not nearly extensive enough, making the return cumbersome to use. Combined with the complicated underlying law, it is no surprise that estate planners, return preparers, and their clients regularly make improper and imprudent GST exemption allocations.

And of course, because each year’s Form 709 builds on GST exemptions allocated in previous years, an error in identifying or reporting allocated GST in one year can lead to a cascade of errors and improper allocations in future years, culminating in potentially incorrect estate tax returns.

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