how to avoid them and how to fix them september 29, 2016 … · 2016. 9. 21. · • if non-skip...
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HowtoAvoidThemandHowToFixThemSeptember29,2016
DenverEstatePlanningCouncilBethShapiroKaufman
} Background} Commonproblems} HowtoAvoidThem} HowtoFixThem
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OR
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} LifetimeDirectSkips} Unusedexemptionatdeath- First,todirectskipsatdeath- Second,totrustsfromwhichaTDorTTmightoccuratorafterthetransferor’sdeath
- Withincategories,proportional
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} Moredeemedallocations:-Deemedallocationtolifetimegiftsto“GSTTrusts”(Codesection2632(c))
} Createdavenuesofrelief:-9100–typereliefmadeavailableforlateGSTelections(Codesection2642(g)(1);Notice2001-50
-Addedsubstantialcompliance(Codesection2642(g)(2))
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} Deemedallocationrulesusually workaswewouldlike} Notableexceptions:- Insurancetrusts- ETIPs
} Theargumentsfornotrelyingondeemedallocation- Preparershouldbethinkingabouteachallocation- Correctanswermaydependonwealthofthetaxpayer
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} Directskipdefined- Anoutrightgifttoaskipperson- Agiftintrust,wherethetrusthasonlyskippersonsascurrentbeneficiaries
- Agiftintrustthathasnocurrentbeneficiaryandnopermitteddistributionstonon-skippersons
} Indirectskipdefined- AtransferofpropertytoaGSTtrust- Trustisnotaskipperson- Thetrusthas“GSTpotential”(couldhaveTDorTTinthefuture)
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} AtrustthatcouldhaveaGSTwithrespecttothetransferorUNLESS:-Morethan25%ofcorpusdistributabletonon-skippersons• beforeage46OR• uponthedeathofsomeone>10yearsolderthanthenon-skippersonOR
• Ifnon-skippersondies,distributabletoestateorsubjecttoGPOA- Recipientistrust• anyportionincludedinnon-skipperson’sestate• thatisaCLAT,CRAT,CRUT orcertainCLUTs
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} Part1:Giftssubjectonlytogifttax} Part2:Directskips– listinchronologicalorder- IncludingattheendofanETIP
} Part3:Indirectskips(“maylaterbesubjecttoGST”)–listinchronologicalorder- Includesboth“GSTTrusts”and- NonGSTTrusts
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FromScheduleA ToScheduleD
Part1– GiftsNotSubjecttoGST
Doesn’tgoonScheduleD
Part2– DirectSkips ScheduleD,Part1
Part3– Indirect Skips ScheduleD,Part2•Line 5ifautomaticallocation•Line6ifmanuallyallocating(mustattachNoticeofAllocation)•Don’tlistifnotallocatingexemption
} ScheduleA,Part2(directskips)- Electionoutofdeemedallocationundersection2632(b)
} ScheduleA,Part3(indirectskips)- Section2632(c)election• Thiscouldbeforthisgiftor• Forallfuturegiftstothistrustor• Both
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} Gifttaxannualexclusion(Codesection2503(b))- Transfer- Toanyperson- Ofapresentinterest
} GSTcounterparttotheannualexclusion(Codesection2642(c))- Isadirectskipwhichisanon-taxablegiftforgifttaxpurposes- Onlyappliestoagiftintrustif• Forthebenefitofoneskippersonbeneficiary• Onlytheonebeneficiarycanreceiveanyincomeorprincipalduringthelifeofthebeneficiary
• Ifthetrustdoesnotterminatebeforethebeneficiary’sdeath,theassetsofthetrustwillbeincludedinthegrossestateofthebeneficiary
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} Ifgivenazeroinclusionratiounder2642(c),noissue} Wasgiftpre-2001?- SeeRevProc2004-46forsimplifiedrelief
} Wasgiftin2001orlater:- IstrustaGSTtrust?• Ifyes,deemedallocation
§ Shouldyouoptout?
• Ifno,shouldyoumanuallyallocate?
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} Bewareofgiftsthatcan’tbesplit} Andgiftsyoudon’twanttosplit} RulesoperatedifferentlyforgiftandGSTpurposes} RulesinCodesection2652(a)- Usuallytransferoristhedonor- Ifanyportionistreatedasgiftbyspouse,spouseisalsothetransferorofthatportion• Treas.Reg.26.2652-1(a)(4):evenifelectingspousehasaninterestinthetransferredproperty
} Whatifelectionismadebuttrustiswhollyineligibleforgiftsplitting?PLRs 201523003,201108010
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} BeawareofthedifferencebetweengiftandGSTrules} Fileagifttaxreturnevenforannualexclusiongifts} Questionwhetherornotallocationisappropriate} Whatisthebestwaytoimplement– deemedormanual?
} Properlyaccountforalldeemedandmanualallocations
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} CategorizegiftscorrectlyonScheduleA} FigureoutwhetherornotPart3giftaretoGSTtrusts} ConsiderthecolumnCcheckboxescarefully- Includeanoptoutstatementwhererequired
} CarryforwardtheScheduleAitemstoScheduleD} IncludeaNoticeofAllocationforallindirectskipstowhichyouaremanuallyallocatingexemption
} Regardpriorreturnswithahealthyskepticism} Puthelpfullanguageinyourtrustinstrument
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} AllocationtoatrustwithanETIP notvaliduntilETIPends- AnETIP postponesadirectskip
} AutomaticallocationrulesmayapplyatendofETIP} Examples- GRAT- CertainUGMA accounts
} Inyearofgift:electout} InyearofETIP termination:considermanualallocationofexemption
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} CreateticklerforyearETIP ends} LookoutforuseofGSTexemptionforothertransfersduringETIP
} ShouldyouallocateinyearETIP ends?- Isitapostponeddirectskip?- Howlikelyaredistributionstoskippersons?- Istheresomethingbettertodowiththeexemption?
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} Separatetrusts– CodeSection2654(b)- Differenttransferors- Substantiallyseparateandindependentsharesofdifferentbeneficiaries
} Severanceofatrustincludedinthegrossestate(Treas.Reg.Section26.2654-1(b))- Pursuanttogoverninginstrumentorstatelaw- Priortoduedate(includingextension)forestatetaxreturn- Severedonafractionalbasis- Retroactivetodateofdeath
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} QualifiedSeverance(Treas.Reg.Section26.2642-6)- Pursuanttogoverninginstrumentorstatelaw-Mustbeeffectiveunderlocallaw- Severedonafractionalbasis- Termsmustprovideintheaggregateforthesamesuccessionofinterests
- Cannotshiftabeneficialinteresttoalowergenerationorextendthetimeforvesting
- Afterseverance,resultingtrustsmusthaveaninclusionratioofzeroorone
-MustbereportedbyfilingaForm706-GS(T)- Canbedoneatanytime,buthasprospectiveeffectonly
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} CodeSection2652(a)(3)- Electiontotreatdonor/decedentasthetransferorofQTIP property-MadeonsamereturnonwhichQTIP electionismade-Mustapplytoallofthepropertyinthetrust• Canseverunderregulationsection26.2654-1(b)tocomply
- Electionirrevocableoncemade
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} Askforsection9100relief} Argueforsubstantialcompliance} Makealateallocation} Modify,decant,merge,orseverthetrust
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} Section9100reliefavailableformissedelections- AvailableforallGSTelections- Butnotwhereyoumadetheelectionandshouldnothave
} 301.9100-2makesreliefavailableforstatutoryorregulatoryelections,butonlyfor6monthsafterdeadline
} 301.9100-3makesreliefavailableforregulatoryelections- Notice2001-50makesthisapplicabletoGSTelections,untilfinalregulationsareissued
} Simplifiedreliefforfailuretoallocatetoannualexclusiongifts,RevProc2004-46
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} Generalregulationsforregulatorydeadlinesunder301.9100-3
} GSTspecificproposedregulations26.2642-7(2008)} Mustdemonstratethat- Taxpayeractedreasonablyandingoodfaith- Thereisnoprejudicetotheinterestsofthegovernment
} Supportapplicationwithevidenceofintent,affidavitsfromallinvolved
} Alternative:Rulingrequestresubstantialcompliance
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} Iftheproblemisthatyoufailedtoallocateexemption,consideralateallocation- Lateallocationsareeffectiveasofthedaymade,butcanelecttousethevalueasofthefirstdayofthemonth.Codesection2642(b)(3)andregulationsunder26.2632-1
- AllocationismadeonaNoticeofAllocationattachedtoaForm709forthecurrentyear
} Iftheassetvaluehasdeclined(ornotappreciatedverymuch),lateallocationisagoodsolution
} Iftrusttoolarge,considerdistributionstonon-skippersonsfirst
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} Modify,decant,ormergethetrust} Needstobeallowedbystatelaworthegoverninginstrumentandsatisfythe“grandfathering”regulations
} Typesofmodificationsthatmighthelp- Addanon-skippersonbeneficiaryoffutureadditions- AddaGPOA- Changedistributionstandard
} IRSwillnotruleondecanting(norulearea);rulingonmergerormodificationmaybeavailable
} Severthetrustintoanexempttrustandanon-exempttrust
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} Assoonasnewyearstarts,indexedexemptionisavailableforuse
} Don’tneedtowaitfornewversionof709} Usecurrentversionandallocateasalateallocation} Effectivedateofallocationmostlikelydateofallocation
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BethShapiroKaufmanCaplin&DrysdaleOneThomasCircle,NWSuite1100Washington,[email protected]
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