Final Regulations on Electing Out of Automatic Allocation of GST Exemption (T.D. 9208, issuing Reg §26.2632-1(b).

The regulations address:

(1) The §2632(c)(5)(A)(i) election to not have the §2632(c)(1) deemed allocation of unused generation-skipping transfer (GST) tax exemption apply to certain transfers to a §2632(c)(3)(B) GST trust; and

(2) The election under §2632(c)(5)(A)(ii) to treat a trust as a GST trust for electing out of automatic allocation of unused generation-skipping transfer (GST) tax exemption to certain transfers to GST trusts.

The proposed regulations only allowed transferors to elect out of: (1) a current transfer only; or (2) a current-year transfer and all future transfers to the same trust. The final regulations include the options provided in the proposed regulations and, in addition, give transferors the option of electing out of: (1) only certain designated future transfers to a trust; or (2) all future transfers made by the transferor to any trust (regardless of whether the trust exists at the time of the election out).

An election out of the automatic allocation rules for future years is limited to automatic allocations under §2632(c) (automatic allocations to indirect skips made during the transferor's lifetime) and has no effect on the automatic allocation rules that apply after the transferor's death under §2632(e).

In the case of an automatic allocation to an indirect skip under §2632(c) pursuant to Regs. §26.2632-1(b)(1)(ii), unless the transferor elects out of the automatic allocation rules, the automatic allocation becomes irrevocable on the due date for filing the federal gift tax return, and the allocation is effective as of the date.

The service revised the rules regarding the automatic allocation to an indirect skip subject to an estate tax inclusion period (ETIP) to conform to §2632(c)(4), making the automatic allocation to a direct skip or an indirect skip to be deemed to be made at the close of the ETIP.
The final regulations also provide that the statements required by the regulations to elect out of the automatic GST allocation or to treat a trust as a GST trust should not require a citation to the specific regulation section that authorizes the election.

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