GST Trust Administration Challenges for Fiduciaries

This CLE/CPE course will provide estate planning counsel and fiduciaries with a practical guide to meeting the challenges of administering a generation-skipping transfer (GST) trust. The panel will discuss critical issues related to calculating the GST tax inclusion ratio and those involving both GST-exempt and non-exempt trusts, where tax consequences may arise from disproportionate allocation provisions. The webinar will also address implications and potential solutions to mixed inclusion ratio trusts to rehabilitate flawed planning.

Critical to successful multi-generational gift tax planning and compliance is a solid foundation in the complex GST tax regime of Section 2632 and following statutes. Beyond identifying skip-person transferees and gifts that will trigger GST tax, fiduciaries must have a detailed understanding of the rules to calculate the tax cost of GSTs.

Section 2642 provides the framework for determining the taxable portion of any GST. The inclusion ratio works with the "applicable fraction" to determine the tax rate of a GST. A trust with an inclusion ratio of 0 is exempt from GST tax, while a trust with a ratio of 1 is fully taxable; either of these ratios is considered optimally efficient, depending on drafting and planning goals. However, post-death events often create challenges to existing allocation provisions.

Trustees or other parties such as trust protectors or directors with authority to effect distributions may have the power to make non-pro rata or non-per stirpes allocations of GST exemption amounts, even in cases where the decedent has distributed property on a pro rata basis.

Additionally, the fiduciary may be able to sever a GST trust into separate instruments. Depending on the asset makeup, a fiduciary may also tailor investment decisions to minimize the GST tax impact of transfers, such as having the GST-exempt trust invest in growth assets that produce minimal trust accounting income to distribute.

Listen as our experienced panel provides a practical guide to the tax-efficient administration of GST trusts.