Late GST exemption allocations allowed for two trusts

Plain-English summary

A grantor created two trusts intended primarily to benefit grandchildren and more remote descendants. Although the grantor had enough generation-skipping transfer tax exemption to give both trusts zero inclusion ratios, the accountant preparing Form 709 mistakenly elected out of automatic allocation. The grantor requested more time to make the intended allocations. The IRS found that the regulatory good-faith and government-prejudice standards were satisfied and granted 120 days to allocate exemption on an amended Form 709.

Ruling snapshot

• Question: May the grantor make late GST exemption allocations to transfers previously made to two descendant trusts?
• Outcome: Approved, with 120 days to file an amended Form 709
• Key authorities: IRC §§ 2631, 2632, and 2642(g)(1); Treas. Reg. § 26.2642-7

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202521013 Third Party Communication: None
Release Date: 5/23/2025 Date of Communication: Not Applicable
Index Number: 2642.07-00
Person To Contact:
------------------ -------------------------- ID No. -----------------
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---------------------------------- Telephone Number:
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--------------------------- Refer Reply To:
CC:PT&E:B04
--------------------------- PLR-116487-24
Date:
February 25, 2025

Legend

Grantor = -------------------------------------------
Trust 1 = ---------------------------------------------------------------------------------
----------------------
Trust 2 = --------------------------------------------------------------
-----------------------
Accountant = -----------------------
Year 1 = -------
Year 2 = -------
a = ---

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

  This letter responds to your authorized representative’s letter dated September 4,

2024, and subsequent correspondence, requesting an extension of time under
§ 2642(g) of the Internal Revenue Code and § 26.2642-7 of the Generation-Skipping
Transfer (GST) Tax Regulations to allocate GST exemption to transfers to a trust.

    The facts and representations submitted are as follows:

     Grantor established and funded Trust 1 in Year 1. Grantor made an additional

transfer to Trust 1 in Year 2. The trustee of Trust 1 may make distributions of income
and principal to Grantor’s issue for their health, education, maintenance, and support.
Trust 1 further provides that Grantor intends for Trust 1 to primarily benefit his
grandchildren and more remote issue and, therefore, distributions to Grantor’s children
are only to be made if no other income or other resources are reasonably available. On
the date that is the later of the death of Grantor, Grantor’s spouse, and the time at which
all living children reach the age of a, Trust 1 will be divided into as many equal shares

PLR-116487-24 2

as there are children of Grantor then living and children of Grantor then deceased
leaving issue then living, each share to be held as a separate trust. The trustee may
make distributions of income and principal to the beneficiaries of the divided trusts for
their health, education, maintenance, and support. The remainder of each separate
trust will be distributed to the remaining beneficiaries upon the close of the perpetuities
period applicable under state law.

    Grantor established and funded Trust 2 in Year 2. The trustee of Trust 2 may

make distributions of income and principal to Grantor’s issue for their health, education,
maintenance, and support. On the date that is the later of the death of Grantor,
Grantor’s spouse, and the time at which all living children reach the age of a, Trust 2 will
be divided into as many equal shares as there are children of Grantor then living and
children of Grantor then deceased leaving issue then living, each share to be held as a
separate trust. The trustee may make distributions of income and principal to the
beneficiaries of the divided trusts. The remainder of each separate trust will be
distributed to the remaining beneficiaries upon the close of the perpetuities period
applicable under state law.

   Grantor engaged Accountant to prepare his Form 709, United States Gift (and

Generation-Skipping Transfer) Tax Return, for Year 2. Grantor intended that the
transfers to Trust 1 and Trust 2 would benefit his grandchildren. Accountant prepared
Grantor’s Year 2 Form 709 and on the return the election under § 2632(c)(5) to opt out
of automatic allocation of GST exemption was mistakenly made. Accordingly, no GST
exemption was allocated to Donor’s Year 2 transfers to Trust 1 or Trust 2.

   Grantor represents that Grantor had sufficient GST exemption available to

allocate to the Year 2 transfers to Trust 1 and Trust 2 so that if relief were granted, each
trust would have a zero inclusion ratio.

  Grantor requests an extension of time to allocate GST exemption to the transfers

made to Trust 1 and Trust 2 in Year 2.

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 2602 provides that the amount of the tax imposed by § 2601 is the

taxable amount multiplied by the applicable rate.

   Section 2631(a) provides that, for purposes of determining the inclusion ratio,

every individual shall be allowed a GST exemption which may be allocated by such
individual (or his executor) to any property with respect to which such individual is the
transferor.

PLR-116487-24 3

   Section 2631(b) provides that any allocation under § 2631(a), once made, shall

be irrevocable.

   Section 2632(a)(1) provides that an individual’s GST exemption may be allocated

at any time on or before the date prescribed for filing the estate tax return for such
individual’s estate (determined with regard to extensions), regardless of whether such
return is required to be filed. Section 2632(a)(2) provides that the manner in which
allocations are to be made shall be prescribed by forms or regulations issued by the
Secretary.

    Section 2632(c)(1) provides that if any individual makes an indirect skip during

such individual’s lifetime, any unused portion of such individual’s GST exemption shall
be allocated to the property transferred to the extent necessary to make the inclusion
ratio for such property zero. If the amount of the indirect skip exceeds such unused
portion, the entire unused portion shall be allocated to the property transferred.

   Section 2632(c)(3)(A) provides that for purposes of this subsection, the term

“indirect skip” means any transfer of property (other than a direct skip) subject to the tax
imposed by chapter 12 made to a GST trust.

 Section 2632(c)(5)(A)(i) provides that an individual may elect to have the

automatic allocation rules not apply to (I) an indirect skip, or (II) any or all transfers
made by such individual to a particular trust.

    Section 2642(b)(1)(A) provides that, except as provided in § 2642(f), if the

allocation of the GST exemption to any transfers of property is made on a gift tax return
filed on or before the date prescribed by § 6075(b) for such transfer or is deemed to be
made under § 2632(b)(1) or (c)(1), the value of such property for purposes of § 2642(a)
shall be its value as finally determined for purposes of chapter 12 (within the meaning of
§ 2001(f)(2)), or, in the case of an allocation deemed to have been made at the close of
an estate tax inclusion period, its value at the time of the close of the estate tax
inclusion period.

  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
comparable relief with respect to transfers made before the date of the enactment of
§ 2642(g).

   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

PLR-116487-24 4

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.

    Section 26.2642-7 of the Generation-Skipping Transfer Tax Regulations sets

forth the procedures for requesting an extension of time to make an allocation of GST
exemption described in § 2642(b)(1) or (2), and an election under § 2632(b)(3) or (c)(5),
and the standards used to determine whether relief may be granted.

    Section 26.2642-7(d)(1) provides that requests for relief will be granted when

and to the extent that the transferor or the executor of the transferor’s estate provides
evidence establishing to the satisfaction of the IRS that the transferor or the executor of
the transferor’s estate acted reasonably and in good faith, and that the grant of relief will
not prejudice the interests of the government.

   Section 26.2642-7(d)(2) provides a nonexclusive list of factors that will be

considered in determining whether the transferor or the executor of the transferor’s
estate acted reasonably and in good faith for purposes of § 26.2642-7, including
reasonable reliance by the transferor or the executor of the transferor’s estate on the
advice of a qualified tax professional.

   Based on the facts submitted and the representations made, we conclude that

the requirements of § 26.2642-7 have been satisfied. Therefore, Grantor is granted an
extension of time of 120 days from the date of this letter to allocate Grantor’s GST
exemption to the Year 2 transfers to Trust 1 and Trust 2.

   The allocation of GST exemption should be made on an amended Form 709 for

Year 2. The Form 709 should be filed with the Internal Revenue Service at the following
address: Internal Revenue Service Center, ATTN: E&G, Stop 824G, 7940 Kentucky
Drive, Florence, KY 41042-2915.

  In accordance with the Power of Attorney on file with this office, we have sent a

copy of this letter to your authorized representative.

   Except as expressly provided herein, we neither express nor imply any opinion

concerning the tax consequences of any aspect of any transaction or item discussed or
referenced in this letter.

  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.

PLR-116487-24 5

  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, Trusts, and Estates)

                                                        Daniel J. Gespass
                                              By:       ______________________________
                                                        [Daniel J. Gespass]
                                                        Senior Technician Reviewer, Branch 4
                                                        Office of the Associate Chief Counsel
                                                        (Passthroughs, Trusts, and Estates)

Enclosure
Copy for § 6110 purposes

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