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U.S. Code as of:
01/19/04
Section 2632. Special rules for allocation of GST exemption
(a) Time and manner of allocation
(1) Time
Any allocation by an individual of his GST exemption under
section 2631(a) may be made 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 a return is required to be filed.
(2) Manner
The Secretary shall prescribe by forms or regulations the
manner in which any allocation referred to in paragraph (1) is to
be made.
(b) Deemed allocation to certain lifetime direct skips
(1) In general
If any individual makes a direct skip during his 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 direct skip exceeds such unused portion, the entire unused
portion shall be allocated to the property transferred.
(2) Unused portion
For purposes of paragraph (1), the unused portion of an
individual's GST exemption is that portion of such exemption
which has not previously been allocated by such individual (or
treated as allocated under paragraph (1) or subsection (c)(1)).
(3) Subsection not to apply in certain cases
An individual may elect to have this subsection not apply to a
transfer.
(c) Deemed allocation to certain lifetime transfers to GST trusts
(1) In general
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.
(2) Unused portion
For purposes of paragraph (1), the unused portion of an
individual's GST exemption is that portion of such exemption
which has not previously been -
(A) allocated by such individual,
(B) treated as allocated under subsection (b) with respect to
a direct skip occurring during or before the calendar year in
which the indirect skip is made, or
(C) treated as allocated under paragraph (1) with respect to
a prior indirect skip.
(3) Definitions
(A) Indirect skip
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.
(B) GST trust
The term "GST trust" means a trust that could have a
generation-skipping transfer with respect to the transferor
unless -
(i) the trust instrument provides that more than 25 percent
of the trust corpus must be distributed to or may be
withdrawn by one or more individuals who are non-skip persons
-
(I) before the date that the individual attains age 46,
(II) on or before one or more dates specified in the
trust instrument that will occur before the date that such
individual attains age 46, or
(III) upon the occurrence of an event that, in accordance
with regulations prescribed by the Secretary, may
reasonably be expected to occur before the date that such
individual attains age 46,
(ii) the trust instrument provides that more than 25
percent of the trust corpus must be distributed to or may be
withdrawn by one or more individuals who are non-skip persons
and who are living on the date of death of another person
identified in the instrument (by name or by class) who is
more than 10 years older than such individuals,
(iii) the trust instrument provides that, if one or more
individuals who are non-skip persons die on or before a date
or event described in clause (i) or (ii), more than 25
percent of the trust corpus either must be distributed to the
estate or estates of one or more of such individuals or is
subject to a general power of appointment exercisable by one
or more of such individuals,
(iv) the trust is a trust any portion of which would be
included in the gross estate of a non-skip person (other than
the transferor) if such person died immediately after the
transfer,
(v) the trust is a charitable lead annuity trust (within
the meaning of section 2642(e)(3)(A)) or a charitable
remainder annuity trust or a charitable remainder unitrust
(within the meaning of section 664(d)), or
(vi) the trust is a trust with respect to which a deduction
was allowed under section 2522 for the amount of an interest
in the form of the right to receive annual payments of a
fixed percentage of the net fair market value of the trust
property (determined yearly) and which is required to pay
principal to a non-skip person if such person is alive when
the yearly payments for which the deduction was allowed
terminate.
For purposes of this subparagraph, the value of transferred
property shall not be considered to be includible in the gross
estate of a non-skip person or subject to a right of withdrawal
by reason of such person holding a right to withdraw so much of
such property as does not exceed the amount referred to in
section 2503(b) with respect to any transferor, and it shall be
assumed that powers of appointment held by non-skip persons
will not be exercised.
(4) Automatic allocations to certain GST trusts
For purposes of this subsection, an indirect skip to which
section 2642(f) applies shall be deemed to have been made only at
the close of the estate tax inclusion period. The fair market
value of such transfer shall be the fair market value of the
trust property at the close of the estate tax inclusion period.
(5) Applicability and effect
(A) In general
An individual -
(i) may elect to have this subsection not apply to -
(I) an indirect skip, or
(II) any or all transfers made by such individual to a
particular trust, and
(ii) may elect to treat any trust as a GST trust for
purposes of this subsection with respect to any or all
transfers made by such individual to such trust.
(B) Elections
(i) Elections with respect to indirect skips
An election under subparagraph (A)(i)(I) shall be deemed to
be timely if filed on a timely filed gift tax return for the
calendar year in which the transfer was made or deemed to
have been made pursuant to paragraph (4) or on such later
date or dates as may be prescribed by the Secretary.
(ii) Other elections
An election under clause (i)(II) or (ii) of subparagraph
(A) may be made on a timely filed gift tax return for the
calendar year for which the election is to become effective.
(d) Retroactive allocations
(1) In general
If -
(A) a non-skip person has an interest or a future interest in
a trust to which any transfer has been made,
(B) such person -
(i) is a lineal descendant of a grandparent of the
transferor or of a grandparent of the transferor's spouse or
former spouse, and
(ii) is assigned to a generation below the generation
assignment of the transferor, and
(C) such person predeceases the transferor,
then the transferor may make an allocation of any of such
transferor's unused GST exemption to any previous transfer or
transfers to the trust on a chronological basis.
(2) Special rules
If the allocation under paragraph (1) by the transferor is made
on a gift tax return filed on or before the date prescribed by
section 6075(b) for gifts made within the calendar year within
which the non-skip person's death occurred -
(A) the value of such transfer or transfers for purposes of
section 2642(a) shall be determined as if such allocation had
been made on a timely filed gift tax return for each calendar
year within which each transfer was made,
(B) such allocation shall be effective immediately before
such death, and
(C) the amount of the transferor's unused GST exemption
available to be allocated shall be determined immediately
before such death.
(3) Future interest
For purposes of this subsection, a person has a future interest
in a trust if the trust may permit income or corpus to be paid to
such person on a date or dates in the future.
(e) Allocation of unused GST exemption
(1) In general
Any portion of an individual's GST exemption which has not been
allocated within the time prescribed by subsection (a) shall be
deemed to be allocated as follows -
(A) first, to property which is the subject of a direct skip
occurring at such individual's death, and
(B) second, to trusts with respect to which such individual
is the transferor and from which a taxable distribution or a
taxable termination might occur at or after such individual's
death.
(2) Allocation within categories
(A) In general
The allocation under paragraph (1) shall be made among the
properties described in subparagraph (A) thereof and the trusts
described in subparagraph (B) thereof, as the case may be, in
proportion to the respective amounts (at the time of
allocation) of the nonexempt portions of such properties or
trusts.
(B) Nonexempt portion
For purposes of subparagraph (A), the term "nonexempt
portion" means the value (at the time of allocation) of the
property or trust, multiplied by the inclusion ratio with
respect to such property or trust.
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