Deemed Allocation of GST Exemption: Or Is Estate Tax Inclusion Preferable?

With the currently high GST and estate tax exemption amounts, allowing the deemed allocation rule to apply to indirect skip trusts might not be the most tax efficient result.  For example, estate tax inclusion in order to achieve the step up in basis under Code § 1014 is often preferable for more modest estates.

Under Code § 2632(e), the balance of GST exemption that is not deemed allocated to direct skips on death will be allocated pro rata to each trust in which a taxable distribution or taxable termination may arise, even if an estate tax return is not required to be filed.  This automatic allocation is irrevocable.

See yesterday’s LISI Estate Planning Newsletter #2714 by Keith Schiller for information on planning techniques and post-death cures if the automatic allocation rules are not preferable.

LISI Estate Planning Newsletter #2714 (April 3, 2019) at http://www.LeimbergServices.com. Copyright 2019 Leimberg Information Services, Inc. (LISI).

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Convincing a Surviving Spouse to File an Estate Tax Return

The doubled estate and gift tax exemption, albeit temporary, resulting from the Tax Cuts and Jobs Act, has made it more difficult to convince surviving spouses with modest estates to file a Form 706 estate tax return to preserve the deceased spouse’s unused exemption (“DSUE”) amount.  Failure to file a Form 706 causes all of that remaining exemption to be forfeited.

If, as a practitioner, you are unable to convince a surviving spouse to file a Form 706, you’ll want to document your communications with the surviving spouse on this topic.  And, you’re not alone.  According to IRS data, only 681 NONtaxable returns were filed in 2017 claiming  DSUE amounts.

Curry, Jonathan. Getting Surviving Spouse to File Estate Return Now Even Harder. Taxnotes.com. Feb. 1, 2019.