26 U.S. Code § 2632 - Special rules for allocation of GST exemption
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(a) Time and manner of allocation
(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)).
(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—
(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
(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(i) the trust instrument provides that more than 25 percent of the trust corpus must be distributed to or may be withdrawn by one or more individuals who are non-skip persons—
(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
(ii) the trust instrument provides that more than 25 percent of the trust corpus must be distributed to or may be withdrawn by one or more individuals who are non-skip persons and who are living on the date of death of another person identified in the instrument (by name or by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
(i) may elect to have this subsection not apply to—
(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.
(d) Retroactive allocations
(1) In general
(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
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,
(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
(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.
Source(Added Pub. L. 99–514, title XIV, § 1431(a),Oct. 22, 1986, 100 Stat. 2721; amended Pub. L. 100–647, title I, § 1014(g)(16),Nov. 10, 1988, 102 Stat. 3566; Pub. L. 107–16, title V, § 561(a), (b),June 7, 2001, 115 Stat. 86, 89.)
2001—Subsec. (b)(2). Pub. L. 107–16, § 561(b), substituted “or subsection (c)(1)” for “with respect to a prior direct skip”.
Subsecs. (c) to (e). Pub. L. 107–16, § 561(a), added subsecs. (c) and (d) and redesignated former subsec. (c) as (e).
1988—Subsec. (b)(2). Pub. L. 100–647substituted “paragraph (1) with respect to a prior direct skip)” for “paragraph (1)) with respect to a prior direct skip”.
Effective Date of 2001 Amendment
“(1) Deemed allocation.—Section 2632(c) of the Internal Revenue Code of 1986 (as added by subsection (a)), and the amendment made by subsection (b) [amending this section], shall apply to transfers subject to chapter 11 or 12 made after December 31, 2000, and to estate tax inclusion periods ending after December 31, 2000.
“(2) Retroactive allocations.—Section 2632(d) of the Internal Revenue Code of 1986 (as added by subsection (a)) shall apply to deaths of non-skip persons occurring after December 31, 2000.”
Effective Date of 1988 Amendment
Amendment by Pub. L. 100–647effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) ofPub. L. 100–647, set out as a note under section 1 of this title.
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