How to Opt Out of the Automatic Allocation Rules

In PLR 201921001, the IRS granted an extension of time to opt out of the GST automatic allocation rules under Code Section 2632(c).  The Automatic Allocation rules applies to transfers beginning January 1, 2001.  To avoid the need for a PLR granting an extension to elect out, here’s what you need to do, as described in PLR 201921001.

As background, Code Section 2632(c) provides that “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.”

A transferor may prevent the automatic allocation of GST exemption (elect out of the automatic allocation rules) with respect to any transfer or transfers constituting an indirect skip made to a trust. A transferor may elect out with respect to one or more (or all) current-year transfers made by the transferor to a specified trust or trusts.

In order to elect out, the transferor must attach an election out statement to a Form 709 filed on or before the due date for timely filing the Form 709. In general, the election out statement must identify the trust, and specifically must provide that the transferor is electing out of the automatic allocation of GST exemption with respect to the described transfer or transfers. To elect out, the Form 709 with the attached election out statement must be filed on or before the due date for timely filing the Form 709 for the calendar year in which the transfer to be covered by the election out was made.

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