Chapter 33: GST Tax. IRC 2612(c)(1) Certain kinds of trusts IRC26O1 IRC2611. Direct skip generations below transferor. Natural person 2 or more

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1 Skip person IRC 2613(a) I Chapter 33: GST Tax IRC26O1 IRC2611 Direct skip generations below transferor - - Natural person 2 or more IRC 2612(c)(1) Certain kinds of trusts

2 Niece 2 Skip person IRC 2613(a) Naturalperson 2 or more generations below transferor Certain kinds of trusts Generation assignment IRC 2651 Is person in question a lineal descendant of transferor s grandparent? If so, count the actual generations Son GD 4

3 Niece I Sister Son I Niece Sister _1A I I IRC 2651(e) IRC2651(e)? Grandniece %%.%%raridniece Tr:nsferor Jr Doorman Generation assignment -- Is person in question a lineal descendant of transferor s grandparent? If If 2651 so, count the actual generations not, count the difference in ages between transferor and transferee Generation = 25 years

4 4 Generation assignment Is person in question a lineal descendant of transferor s grandparent? If If so, count the actual generations not, count the difference in ages between transferor and transferee Generation = 25 years O-12 /z years apart = same generation 12½-37Vz years younger = 1 generation after More than 37 1h years = skip Direct skip Base of tax is value received by transferee IRC 2623 a Value computed at time of GST must pay tax IRC 2603(a)(3) If GSTis during transferors life, GST tax is treated as an additional gift for gift taxpurposes - IRC 2515 Simulates lifetime gift by intermediate generation GD Son GIFT TAX = $50K GD Son GIFTTAX = $50K G.S.T. TAX = $50K $100K $100K

5 - GIFTTAX = $50K GS.T. TAX = $50K ADDITIONAL GIFT TAX $25K j GD GIFTTAX = $50K G.S.T. TAX = $50K a ADDITIONAL GIFT TAX = $25K GD GIFT TAX = $75K GIFTTAX = $SOK G.SJ. TAX = $50K ADDITIONAL GIFT TAX = $25K Direct skip? IRREV. I TRUST 7 GIFT TAX = $75K /$i5ok Skip person per 2613(a)(2)? GIFT TAX = $50K

6 6 Trust as skip person IRC 2613(a)(2) All interests held by skip persons, or No one holds an Interest and at no time may a distribution be made to a non-skip person Interest IRC 2652(c) Present Could Charitable right to income or corpus receive current income or corpus, or beneficiary Direct skip? I IRREV. TRUST Skip person per 2613(a)(2)? INCOME 1 ACCUMULATED FOR 10 YEARS REMAINDER - to GRANDCHILD or HER ESTATE Direct skip? 1TRUST. IRREV. Skip person per 2613(a)(2)? INCOME TO GRANDCHILD FOR 10 YEARS REMAINDER TO CHILD Taxable termination IRC 2612(a)(1)

7 7 Taxable termination Any termination of an interest in property, unless: Immediately afterward, a nonskip At person has an interest, or no time thereafter may a distribution (including terminating distribution) be made to a skip person Direct skip? INCOME TO MY IRREV. SON FOR LIFE TRUST REMAINDER TO S14o pelon per 2613( a)(2)? INCOME TO MY FiREV. SON FOR LIFE TRUST REMAINDER TO :- TRUST Taxable termination INCOME TO MY SON FOR LIFE REMAINDER TO

8 8 Taxable termination Base of tax is value of all property in trust IRC 2622 Deduction similar to IRC 2053 Value computed at time of termination Trustee must pay tax IRC 2603(a)(2) Value is not reduced by the GST tax paid Simulates testamentary transfer by intermediate generation Taxable distribution IRC 2612(b) Direct skip? IRREV. TRUST INCOME TO MY SONFORIOYEARS F, IRREV. INCOME TO MY TRUST SONFORIO rears - Skip person per 2613(a)(2)? REMAINDER TO Z REMAINDERTO 1TRUSTEE CAN INVADE CORPUS FOR - CORPUS LTRUSTEE CAN INVADE FOR

9 Taxable distribution 0 1 IRREV. - TRUST Taxable distribution LL TRUSTEE - CORPUS INCOME TO MY SON FOR 10 YEARS REMAINDER TO,RANDDAUGHTER CAN INVADE FOR Base of tax is value of property distributee received IRC 2621 Deduction for expenses of figuring tax Value computed at time of distribution Transferee must pay tax IRC 2603(a)(1) If trust pays tax, that s an additional GST IRC 2621(b) Value is not reduced by the GST tax paid Simulates testamentary transfer by intermediate generation GST exemption IRC 2631 $3,500,000 Tax rate IRC % times inclusion ratio

10 To 10 Tax rate IRC % times inclusion ratio I - Inclusion ratio IRC 2642 app1icab1e fraction Allocating the exemption IRC 2632 GST exemption allocated to the trust (or direct skip) Value of property transferred to trust (or direct skip) Allocating the exemption Lifetime direct skip takes exemption up to full value unless transferor elects otherwise IRC 2632(b) or estate can allocate exemption any time up to filing estate tax return Value of property is locked at time of allocation If transferor doesn t allocate, IRC 2632(c) does it for you direct skips first, then to trusts in order created $2,500,000 7 fr Grandchild I L.. IRREV. INCOME TO $2,500,000 TRUST SON FOR LIFE REMAINDER TO GRANDCHILD 2