Private Letter Ruling 200709010 and The Automatic Allocation of GST Exemption

A boring title for a post but an interesting PLR. I first saw it posted on the Colorado Estate Planning Blog by Kreig Mitchell (who really appears to know his stuff).

Private Letter Ruling 200709010 addresses the situation where an estate planning client creates an estate plan intending to use their $1 million generation skipping transfer tax exemption, but then continues to make post-December 31, 2000 transfers to their irrevocable trust which benefits certain “skip persons.”

However, the transfers to this particular type of irrev. trust are “indirect transfers” that automatically use up the client’s GST tax exclusion amount if the client does not elect out of the automatic allocation. This election has to be made by the client by filing an “election out” statement to their Form 709 Federal Gift Tax Return for the year in which the gift is completed.

Mr. Mitchell wisely notes:

“If the estate planning client does not make this automatic allocation election, then the estate planning client may not have a sufficiently large generation skipping transfer tax exemption upon his or her demise, as may be required by the estate planning client’s estate planning documents.

Luckily the IRS, as is the case in this private letter ruling, is generally willing to allow estate planning clients to make this election by submitting a private letter ruling request prior to the IRS discovering the issue.”

Thanks Kreig!

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