§2632 Special Rules for Allocation of Gst Exemption

Summary

Lets people use their generation-skipping transfer (GST) tax exemption up until the due date for their estate tax return (including extensions). The Treasury must create forms or rules for how to make that allocation. If someone makes a direct skip (a gift that jumps to a skip person) during life, the person’s unused GST exemption is applied to that gift as needed to make the gift’s inclusion ratio zero. If the gift is bigger than the unused exemption, all of the unused exemption is used. “Unused portion” means the part of the GST exemption not already used or treated as used. A person can elect not to have this rule apply. The same basic rule applies to indirect skips (other taxable transfers to a GST trust). An “indirect skip” is a taxable transfer to a GST trust. A “GST trust” is one that could produce a generation‑skipping transfer unless the trust has certain features — for example, rules that require more than 25 percent of the trust to go to non-skip persons before they reach age 46, rules tied to people more than 10 years older, estate‑inclusion features, certain charitable trust types, or other specific deduction-related trust rules. Transfers subject to special rule 2642(f) are treated as made only at the end of the estate tax inclusion period, using the trust’s fair market value then. A person can elect not to apply the indirect‑skip rule to one or more transfers or to treat a trust as a GST trust; those elections are generally made on a timely gift tax return for the year of the transfer (or for the year the election is to begin), or on a later date if the Treasury allows. If a non-skip person who is a lineal descendant of a grandparent (and assigned to a lower generation than the transferor) dies before the transferor, and the transferor files the GST allocation on a gift tax return by the due date for returns for gifts made in the calendar year of that death, then the law treats the allocation as if it had been made on time for each year the transfers occurred, makes the allocation effective right before that death, and fixes the transferor’s unused exemption right before that death. A “future interest” means someone who could get trust income or principal at a future date. Any GST exemption still unused after the normal allocation deadline is automatically allocated first to direct skips at the transferor’s death and then to trusts from which taxable distributions or terminations might happen at or after death. Those automatic allocations are split among the items in proportion to each item’s nonexempt portion (the item’s value multiplied by its inclusion ratio).