Estate receives extra time to allocate GST exemption to a family trust

Plain-English summary

A decedent's residuary trust created an irrevocable subtrust for the decedent's spouse and descendants. The spouse was entitled to the subtrust's net income and held a limited power to appoint principal among the decedent's descendants, but could not receive principal during life. The attorney who prepared the estate tax return failed to allocate the decedent's generation-skipping transfer exemption to the subtrust, and a later estate-planning review uncovered the error. The IRS found that the estate met the standards for late-election relief and granted the personal representative 120 days to allocate available GST exemption. The allocation would take effect on the transfer date and use the value finally determined for federal estate-tax purposes.

Ruling snapshot

• Question: May the personal representative make a late allocation of the decedent's GST exemption to the family subtrust?
• Outcome: approved
• Key authorities: IRC §§ 2631, 2642(b), and 2642(g); Treas. Reg. § 301.9100-3; Notice 2001-50

Full text (IRS public release)

Internal Revenue Service                                     Department of the Treasury
                                                             Washington, DC 20224

Number: 201801001                                            Third Party Communication: None
Release Date: 1/5/2018                                       Date of Communication: Not Applicable
Index Number: 2642.00-00, 9100.00-00
                                                             Person To Contact:
----------------------------------                           ------------------------------, ID No. ------------
-----------------------------                                ---------
----------------------------------                           Telephone Number:
                                                             ----------------------
In Re: --------------------------------------------------- Refer Reply To:
-----------------------------------------------------      CC:PSI:B04
                                                           PLR-111445-17
                                                             Date:
                                                             September 20, 2017

Legend

Decedent         = ---------------------------
Spouse           = ---------------------
Trust 1          = ----------------------------------
Trust 2          = --------------------------------------------------------------------
Trustees         = ------------------------------------------------
Son              = ----------------------
Attorney 1       = ----------------------------
Attorney 2       = ----------------------------
Date 1           = ------------------------
Date 2           = ------------------------
Year 1           = -------
Year 2           = -------

Dear ----------------:

This responds to your personal representative’s letter of March 31, 2017, requesting an
extension of time under § 301.9100 of the Procedure and Administration Regulations
and § 2642(g) of the Internal Revenue Code to allocate generation-skipping transfer
(GST) exemption to a trust.

Facts

The facts and representations submitted are summarized as follows: Decedent
executed a will on Date 1. Decedent’s son, Son, is the personal representative of
Decedent’s estate. Decedent died on Date 2. Under Decedent’s will the residue to his
estate passed to Trust 1. Trust 1 created an irrevocable sub-trust, Trust 2, established

PLR-111445-17                                 2

on Date 2, for the benefit of Decedent’s Spouse and issue. No additional transfers have
been made to Trust 2.

Section D of Trust 2 provides, in part, that during Spouse’s lifetime, the Trustee, shall
pay or apply for the benefit of Spouse all of the net income of Trust 2. No part of the
principal of Trust 2 is to be distributed to Spouse during her lifetime. Spouse has a
limited power to appoint the principal of Trust 2 in favor of Decedent’s issue, by a writing
signed by Spouse during her lifetime or by will. Any property not appointed during
Spouse’s lifetime or at death passes to Decedent’s children. If a child predeceases
Decedent the property is to be distributed to the child’s issue by right of representation.

Attorney prepared Form 706 United States Estate (and Generation-Skipping Transfer)
Tax Return for Year 1. However, Attorney failed to allocate Decedent’s GST exemption
to Trust 2. The error was discovered in Year 2 when Spouse and Son consulted
Attorney 2 regarding the family estate planning and discovered that Decedent’s GST
exemption had not been allocated to the Year 1 transfer to Trust 2 on the Form 706.

You have requested an extension of time under § 2642(g)(1) and § 301.9100-3 to allow
to allocate Decedent’s GST exemption to the transfer to Trust 2 in Year 1.

Law and Analysis

Section 2601 imposes a tax on every generation-skipping transfer. A generation-
skipping transfer is defined under § 2611(a) as (1) a taxable distribution, (2) a taxable
termination, and (3) a direct skip.

Section 2631(a) provides that, for purposes of determining the GST tax, every individual
shall be allowed a GST exemption amount which may be allocated by such individual
(or his executor) to any property with respect to which such individual is the transferor.
Section 2631(b) provides that any allocation under § 2631(a), once made, shall be
irrevocable.

Section 2642(b)(2)(A) provides that if property is transferred as a result of the death of
the transferor, the value of such property for purposes of section 2642(a) shall be its
value as finally determined for purposes of chapter 11; except that, if the requirements
prescribed by the Secretary respecting allocation of post-death changes in value are not
met, the value of such property shall be determined as of the time of the distribution
concerned. Section 2642(b)(2)(B) provides that any allocation to property transferred
as a result of the death of the transferor shall be effective on and after the date of the
death of the transferor.

Section 2642(g)(1)(A) provides that the Secretary shall by regulation prescribe such
circumstances and procedures under which extensions of time will be granted to make
an allocation of GST exemption described in § 2642(b)(1) or (2), and an election under
§ 2632(b)(3) or (c)(5). Such regulations shall include procedures for requesting

PLR-111445-17                                 3

comparable relief with respect to transfers made before the date of the enactment of
this paragraph.

Section 2642(g)(1)(B) provides that in determining whether to grant relief under this
paragraph, the Secretary shall take into account all relevant circumstances, including
evidence of intent contained in the trust instrument or instrument of transfer and such
other factors as the Secretary deems relevant. For purposes of determining whether to
grant relief under this paragraph, the time for making the allocation (or election) shall be
treated as if not expressly prescribed by statute.

Notice 2001-50, 2001-2 C.B. 189, provides that, under § 2642(g)(1)(B), the time for
allocating the GST exemption to lifetime transfers is to be treated as if not expressly
prescribed by statute and taxpayers may seek an extension of time to make an
allocation described in § 2642(b)(1) or (b)(2) under the provisions of § 301.9100-3.

Section 301.9100-1(c) provides that the Commissioner has discretion to grant a
reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3
to make a regulatory election, or a statutory election (but no more than 6 months except
in the case of a taxpayer who is abroad), under all subtitles of the Code except subtitles
E, G, H, and I.

Section 301.9100-3 provides the standards used to determine whether to grant an
extension of time to make an election whose due date is prescribed by a regulation (and
not expressly provided by statute). In accordance with § 2642(g)(1)(B) and Notice 2001-
50, taxpayers may seek an extension of time to make an allocation described in
§ 2642(b)(1) or (b)(2) or an election described in § 2632(b)(3) or (c)(5) under the
provisions of § 301.9100-3.

Requests for relief under § 301.9100-3 will be granted when the taxpayer provides the
evidence to establish to the satisfaction of the Commissioner that the taxpayer acted
reasonably and in good faith, and that granting relief will not prejudice the interests of
the government.

Section 301.9100-3(b)(1)(v) provides that a taxpayer is deemed to have acted
reasonably and in good faith if the taxpayer reasonably relied on a qualified tax
professional, including a tax professional employed by the taxpayer, and the tax
professional failed to make, or advise the taxpayer to make, the election.

Based on the facts submitted and the representations made, we conclude that the
requirements of § 301.9100-3 have been satisfied. Therefore, Son, as personal
representative of Decedent’s estate, is granted an extension of time of 120 days from
the date of this letter to allocate Decedent’s available GST exemption to the Year 1
transfer to Trust 2. The allocation will be effective as of the respective date of the
transfer to Trust 2 and the value of the transfer to Trust 2 as determined for federal

PLR-111445-17                                4

estate tax purposes will be used in determining the amount of Decedent’s GST
exemption to be allocated to Trust 2.

This allocation should be made on a supplemental Form 709 and filed with the
Cincinnati Service Center at the following address: Internal Revenue Service, Cincinnati
Service Center – Stop 82, Cincinnati, OH 45999. A copy of this letter should be
attached to the supplemental Forms 709.

The rulings contained in this letter are based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the material submitted
in support of the request for rulings, it is subject to verification on examination.

Except as specifically ruled herein, we express or imply no opinion on the federal tax
consequences of the transaction under the cited provisions or under any other
provisions of the Code.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) provides
that it may not be used or cited as precedent.

                                     Sincerely,

                                      Associate Chief Counsel
                                     (Passthroughs & Special Industries)

                              By:    Lorraine E. Gardner
                                      Lorraine E. Gardner
                                      Senior Counsel, Branch 4
                                      Office of the Associate Chief Counsel
                                      (Passthroughs and Special Industries)

Enclosures
Copy for section 6110 purposes
Copy of this letter

cc: