Correctly reporting an indirect skip
Not long ago I was asked to review a draft gift tax return for an individual who had funded an intentionally defective grantor trust with interests in a family limited partnership. The spouse was a discretionary bene, and the kids each had hanging "Crummey" withdrawal rights. The trust was to continue until the expiration of the state law perpetuities period and then distribute to descendants, per stirpes. The kids had limited testamentary appointment powers. The trust document expressed a presumption that the gift would be split.
The draft return showed a number of errors. The gift was not split, which meant a present interest exclusion of only 13k per kid was claimed, rather than 26k per kid across two returns. The spouse was mistakenly shown as receiving a present interest gift. And crucially, the transfer was reported in part 1 of Schedule A, no skips, rather than part 3, indirect skips, meaning the amount of GST exemption automatically allocated to the transfer would be zero.
The return was on extension and we were under deadline. I clarified with the transferor's lawyer what had been intended, and I worked with the preparer over two or three days to reshape the return.
Because the couple had not extended their joint income tax return and the spouse had not separately requested an extension on the gift tax return, I felt there was some question whether we might have to use date of filing rather than date of transfer values in allocating GST exemption on the split. I put the question out on a couple of listservs, and the consensus seemed to be that since the allocation is automatic unless you elect out, it is not "late" even if the return is untimely. Not sure I entirely subscribe to that view.
Not long ago I was asked to review a draft gift tax return for an individual who had funded an intentionally defective grantor trust with interests in a family limited partnership. The spouse was a discretionary bene, and the kids each had hanging "Crummey" withdrawal rights. The trust was to continue until the expiration of the state law perpetuities period and then distribute to descendants, per stirpes. The kids had limited testamentary appointment powers. The trust document expressed a presumption that the gift would be split.
The draft return showed a number of errors. The gift was not split, which meant a present interest exclusion of only 13k per kid was claimed, rather than 26k per kid across two returns. The spouse was mistakenly shown as receiving a present interest gift. And crucially, the transfer was reported in part 1 of Schedule A, no skips, rather than part 3, indirect skips, meaning the amount of GST exemption automatically allocated to the transfer would be zero.
The return was on extension and we were under deadline. I clarified with the transferor's lawyer what had been intended, and I worked with the preparer over two or three days to reshape the return.
Because the couple had not extended their joint income tax return and the spouse had not separately requested an extension on the gift tax return, I felt there was some question whether we might have to use date of filing rather than date of transfer values in allocating GST exemption on the split. I put the question out on a couple of listservs, and the consensus seemed to be that since the allocation is automatic unless you elect out, it is not "late" even if the return is untimely. Not sure I entirely subscribe to that view.
| memo_redact.pdf |