Beth Kaufman Discusses Inadvertent GST Exemption Exclusions with Tax Notes

Tax Notes

Republicans rushing to enact the new tax law may have inadvertently excluded late allocations of generation-skipping transfer tax exemption from the benefit of the doubled gift and estate tax exemption.

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Beth Shapiro Kaufman, a former attorney in Treasury’s Office of Tax Legislative Counsel, observed that the effective date language in the 2017 tax law differs from that in another recent tax overhaul, the American Taxpayer Relief Act of 2012. That provision is more explicit about the connection to generation-skipping transfers, indicating that the amendments made in that section apply to “estates of decedents dying, gifts made, or generation-skipping transfers after December 31, 2012.”

Kaufman, now president of Caplin and Drysdale, gave Tax Analysts an example of how this uncertainty might come into play by describing a hypothetical taxpayer who set up a generation-skipping trust in 2012 and applied all of her remaining generation-skipping transfer exemption to the trust, but the exemption amount was only enough to give the trust an inclusion ratio of 75 percent. Post-TCJA, if the transferor wanted that trust to have an inclusion ratio of zero, she might wish to make a late allocation using the additional exemption amount, Kaufman said.

But, Kaufman continued, “the way the effective date was written, it is not clear that the [transferor] has the ability to make that late allocation, because in this situation, we neither have a decedent who has died after December 31, 2017, nor do we have a gift made after December 31, 2017.”

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Intentional or Not

Nevertheless, Kaufman indicated that she thought there was no way Congress intended “to deprive taxpayers of the ability to use the additional GST exemption other than by making new gifts or by dying.” Most estate planners likely haven’t given this issue any thought, she said.

For the full article, please visit Tax Notes’s website (subscription required).

Excerpt taken from the article “GST Exemption a Victim of ‘Sloppy Drafting,’ but It May Not Matter” by Jonathan Curry for Tax Notes.

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