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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3747
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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I have a question about gifts and form 709.

Resolved Question:

I have a question about gifts and form 709. A father transferred $1 million of stock to a generation skipping trust for his son, (there are no grandchildren). It is actually an irrevocable defective grantor trust.  Does this get reported in Part 1 as a gift to his son (not part 2 or 3) of schedule A?

Submitted: 9 months ago.
Category: Tax
Expert:  Lane replied 9 months ago.

Lane :

If you do that would, pre-empt the ability to continue the deferral , this is an allocation/election issue

Lane :

The answer is, it depends ...

Lane :

One can affirmatively allocate GST exemption for unborn skip persons. GST exemption allocations where there is no potential for GST taxation are void so if no skip persons ever exist, there can be no GST tax and allocation has no effect. However, a “trust will also be a skip person if there are no interests in the property transferred to the trust held by any person, and future distributions of terminations from the trust can be made only to skip persons.” (709 instructions, p. 7 and I.R.C. § 2613(a))

Lane :

Electing out of the default rule and affirmatively allocating the exemption can avoid GST tax on future appreciation

Lane :

Form 709 must be filed to elect out of the deemed allocation rule, even if the annual gift tax exclusion would normally apply. See Form 709 Instructions and Regs. § 26.2632-1.

Lane :

YOU need to talk to the trustee/atty or grantor and find out what the objective is ... if assets are such that eventually there WILL be a use for the GST ... understand?

Lane :

In actuality, Form 709 need not be filed to report an automatic allocation. “Nevertheless, it is often desirable to do so for record keeping and to begin the running of the statute of limitations on the valuation of the gift and the inclusion ratio. IRC § 6501(a).

Lane :

Finally, for allocations made on Form 709 for the year of the transfer (whether automatic or affirmative), the value of the transfer is also the value on the date of transfer. IRC Section 2632(c); Reg. Section 26-2642-2(a)(1). Thus, the value at the time of the transfer can be locked in by filing Form 709.

Customer:

Previously the attorney told me they wanted to use up the GST with this transfer to the trust

Lane :

Right, so it's a transfer to the trust ... again, I'd talk to the atty and see whether he means allocate or preserve ... typically this NOT be part 1, but it IS a choice and will affect future use

Customer:

Ok, so if it is determined they want to allocate to GST now, it would be reported as a gift to the trust?

Lane :

.Yes

Lane :

THis is a very open-ended technique I'd really talk to the atty, he'll be VERY specific on the 709 question

Lane :

relative to which options are being kept open

Customer:

And this would be a direct skip?

Lane :

Again, depends

Lane :

Direct Skip means a transfer subject to gift or estate tax made to a skip person including a trust if all trust beneficiaries are skip persons. IRC § 2612(c)(1). Transfers to trusts having both non-skip and skip persons as beneficiaries are not direct skips.

Lane :

IF 3rd generation planning is what tis is being left open to ... this would NOT be a direct skip

Customer:

I am waiting for a copy of the trust document, so I don't know for sure what the details are until I get that.

Lane :

I think a quick call to the attycould be very efficient.... The way this can be used in the future will turn, at least partially, on how/whether you do the 709

Lane :

( you COULD call the grantor, but that might effectively be passing the buck ... with this technique, your client MAY not understand fully)

Customer:

I am trying to get the understanding of whether the trust can be a skip person, per your response/definition above, so I can see once I get the document. Is it actually possible for the IDGT to be a skip person if distributions can only be made to skip persons (even though they don't exist yet)?

Lane :

YEs

Customer:

The attorney would know, but I want to make sure I understand the 709 reporting prior to calling him so I know when he provides answers if I have any other questions to ask.

Lane :

Skip Person means (i) a natural person donee who is a generation that is at least two generations below the transferor’s generation, i.e. a grandchild, great-grandchild, great-niece, etc., (ii) one statutorily “assigned”to such a generation (e.g. beneficiaries 37.5 years younger than the transferor) or (iii) trusts if all interests in property transferred to the trust are held by skip persons. I.R.C. § 2613(a).



Form 709 instructions, p. 7, Determining the Generation of a Donee; Regs. § 26.2651-1.


Customer:

ok so if the trust only allows for distributions to skip persons, then the trust is a skip person and then be reported as an indirect skip in part 3 to the trust?

Lane :

exacty

Lane :

WHich wiuld the more common scenario

Lane :

(sorry for the typos)

Lane :

DO you know if there are assets (assel levels) such that , even with portability, so 10,500,000 if they both passed today, there may be a need to shelter more than that?

Customer:

They may have more assets than that

Lane :

Then I think you're going to end up in art 3

Lane :

(part 3)

Lane :

Need to get ready for a 2:00 client meeting. Let me know where you want to go form here... (my apologies) ... hopefully you're ready to ask the right questions

Customer:

Thank you it was very helpful

Lane :

Sounds like you're there, with the input - Thanks

Lane :

DO speak to atty

Lane :

If this HAS helped, I would appreciate a feedback rating of 3 (OK) or better … That's the only way they will pay us here.


HOWEVER, if you need more on this, PLEASE COME BACK here, so you won't be charged for another question.

Lane :

Thanks again,

Lane :

Lane

Customer:

ok will do.

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3747
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and 3 other Tax Specialists are ready to help you
Expert:  Lane replied 9 months ago.
Our chat has ended, but you can still continue to ask me questions here until you are satisfied with your answer. Come back to this page to view our conversation and any other new information.

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Expert:  Lane replied 9 months ago.

Thanks Diane,

Let me know if I can help further.

If you'd like to work with ME again just say "For Lane only," at the beginning of your next question


OR set me up as your preferred expert on your home page.


Thanks again,

Lane

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3747
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and 3 other Tax Specialists are ready to help you
Customer: replied 9 months ago.

Thank you. I apologize for not getting back to this. I completed the gift tax return with your assistance/information provided above. It was extremely helpful.

Expert:  Lane replied 9 months ago.


I truly appreciate.

Thank you Diane.

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3747
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and 3 other Tax Specialists are ready to help you

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