At Last: The
Final Regulations Governing Valuation of Life Insurance Policies in Qualified
Plans (CC 05-31)
Twice in
one week at the end of August, the IRS issued regulations designed to combat
the practice known as springing cash value arrangements (see Section
17.3, Subdivision A of this Service). On August 22 it published
Temporary Regulations governing the valuation of annuities distributed to Roth
IRAs (for a full account and analysis see Tax News August 23, 2005, New
Regulations Curb Springing Cash Value Arrangements in Roth IRA Annuity Exchange
Transactions). On August 26 the IRS issued Final Regulations
under I.R.C. §402(c), effective August 29, 2005, regarding the amount
includible in a distributee’s income when life insurance contracts are
distributed by a qualified retirement plan. Treas. Dec. 9223 (Aug. 29,
2005). The regulations also deal with the treatment of property sold by a
qualified retirement plan to a plan participant or beneficiary for less than
fair market value. At the same time, the IRS has also finalized
regulations under I.R.C. §§79 and 83 regarding the amounts includible in income
when an employee is provided permanent benefits in combination with group-term
life insurance or when a life insurance contract is transferred in connection
with the performance of services.
This
Service has covered the IRS’s efforts to curb springing cash value arrangements
in Section 17.3, Subdivision A and in numerous Current Comments and Tax News,
including:
·
CC
04-07, The New IRS Guidance on Life Insurance Valuation: Implications for
Pension Rescue;
·
CC
04-06, IRS Issues Guidance on Valuation of Life Insurance in Qualified Plans;
·
CC
03-10, Using Life Insurance to Reduce the Tax Bite on Retirement Plan Assets at
Death;
·
CC
03-09, Valuing Life Insurance Policies for Tax Purposes;
These
Final Regulations do little more than finalize the Proposed Regulations the IRS
issued in 2004 (69 Fed. Reg. 7384, February 15, 2004). Even so, they
provide a useful occasion to review how the IRS brought the springing cash
value problem on itself, and how it proposes to solve the problem through
regulation.
Unclear Regulations Give Rise to
the Problem
What is a
springing cash value arrangement? Such arrangements were developed at
least in part to minimize the income taxes applicable with respect to
distributions of life insurance policies from qualified plans—since such
distributions represent taxable income to the recipient measured by the cash
value of the policy at the time of the distribution. (See C
04-06, IRS Issues Guidance on Valuation of Life Insurance in Qualified Plans,
for a discussion of the §412(i) perceived abuses that gave rise to the
regulations.) The idea is to keep the stated cash values during early
policy years artificially low in relation to the premiums paid by the plan for maintenance
of the policy and to distribute it at this low cash value, letting the cash
value later “spring” back to the level it would have reached absent the
arrangement. Thus, the distribution is taxed at an artificially low rate
and the distributee ultimately enjoys a much higher, untaxed cash value.
How is
such a valuation game even possible? Because of slackly written
regulations. Treas. Reg. §1.402(a)-1(a)(1)(iii) provides, in general, that a
distribution of property by a qualified plan shall be taken into account by the
distributee at its "fair market value." However, Treas. Reg.
§1.402(a)-1(a)(2) of the regulations provides, in general, that upon the
distribution of an annuity or life insurance contract, the "entire cash
value" of the contract must be included in the distributee’s income.
Neither term is defined and nowhere are their interrelations set forth.
Little wonder, then, that marketers constructed products with depressed cash
surrender values, construing those as the “entire cash value” and that as
equivalent to the “fair market value.”
Similarly,
I.R.C. §79(a)(1) provides that the cost of group term life insurance provided
by an employer on the life of an employee is included in the employee’s income
to the extent the coverage exceeds $50,000 (less the cost covered by the
employee, if any). If the policy includes “permanent benefits”
(essentially, an economic value that extends for more than a policy year), the
amount taxable to the employee is determined by a formula set forth at Treas.
Reg. §1.79-1(d)(2), which included, before it was amended by these regulations,
“the net level premium reserved at the end of that policy year for all benefits
provided to the employee by the policy or, if greater, the cash value of the
policy at the end of that policy year.”
Further,
there was a conflict between statute and regulations with respect to I.R.C.
§83. The statute provides that when any property is transferred to a
person in connection with the performance of services, the service provider must
include in income the excess of fair market value (with qualifications) over
the amount paid for the property, but before being amended by these
regulations, Treas. Reg. §1.83-3(e) provided that “in the case of a transfer of
a life insurance contract, retirement income contract, endowment contract, or
other contract providing life insurance protection, only the cash surrender
value of the contract is considered to be property.”
But the
IRS was not alone responsible for the confusion. The Department of Labor
got into the act with Prohibited Transaction Exemption 77-8, 1977-2 C.B. 425
(subsequently amended and re-designated as P.T.E. 92-6). P.T.E. 92-6
specifies the parties to whom a plan may sell an insurance contract
(pertinently, the insured plan participant or a relative who is the policy’s
beneficiary). However, it also states that fair market value and cash
surrender value may diverge, and that when the former exceeds the latter when a
contract is sold, the difference is not a distribution from the plan.
Early Examples of the Concept
What to
apply, then, in the various possible situations in which a plan could transfer
a life policy to a participant? Fair market value or cash surrender
value? The IRS was not finished sowing confusion. The earliest precursor
to a discussion of springing cash value was probably Rev. Rul. 59-195.
Here, the Service held that when an employer has purchased a life policy on an
employee and paid premiums, then sold it with premiums remaining, the value for
gain purposes in the year of purchase should be computed along the lines of §
25.2512–6 of the Gift Tax Regulations, under which “the value of such a policy
is not its cash surrender value but the interpolated terminal reserve at the
date of sale plus the proportionate part of any premium paid by the employer
prior to the date of the sale which is applicable to a period subsequent to the
date of the sale,” except—of course!—when “because of the unusual nature of the
contract such approximation is not reasonably close to the full value.”
Which right away raises the question “why not just use the full value, whatever
that is, and be done with it?” but more on that later.
Who knows
who first devised a springing cash value policy, but the first time the IRS
discussed a recognizable example was in Notice 89-25 [1989-1 C.B. 662],
Q&A-10. There, a qualified plan purchased a life insurance policy on
the life of the account owner, with a single premium of $400,000. After
two years the policy was distributed to the insured, with a stated cash
surrender value of $112,360 and “life insurance reserves” of $426,596. At
the end of the fifth policy year, the surrender value sprang from $126,248 to
$489,908, matching the reserve amount. Thus, the account owner would have
been taxed on only $112,360 but would have a policy with a value of $489,908.
In Notice
89-25, it was enough for the IRS to make the obvious response and lay down,
along the lines of Rev. Rul. 59-195, that the policy reserves “represent a much
more accurate approximation of the fair market value of the policy when
distributed than does the policy’s cash surrender value.” Unfortunately,
the ingenuity of marketers easily found ways around this pronouncement, as the
Preamble to the Final Regulations notes:
Since
Notice 89-25 was issued, life insurance contracts have been marketed that are
structured in a manner which results in a temporary period during which neither
a contract`s reserves nor its cash surrender value represent the fair market
value of the contract. For example, some life insurance contracts may provide
for large surrender charges and other charges that are not expected to be paid
because they are expected to be eliminated or reversed in the future (under the
contract or under another contract for which the first contract is exchanged),
but this future elimination or reversal is not always reflected in the
calculation of the contract`s reserve. If such a contract is distributed prior
to the elimination or reversal of those charges, both the cash surrender value
and the reserve under the contract could significantly understate the fair
market value of the contract.
Springing
cash value had come into its own.
And so it
was that the IRS came to ask, by 2004, the question posed above: Why not just
recognize the “full value” or “fair market value” when a qualified plan
distributes a life policy to a participant (or other permissible
distributee)? The question answered itself, and the Proposed Regulations
embodied “the requirement that a distribution of property must be included in
the distributee’s income at fair market value is controlling in those
situations where the existing regulations provide for the inclusion of the
entire cash value.” The IRS simply replaces the problematic terms with
“fair market value” where possible (Treas. Reg. §1.79-1,
§1.402(a)-1(a)(1)(iii), and §1.402(a)-1(a)(2)), and amends §1.83-3 to provide
that the “policy cash value” and all other rights under the contract, rather
than the cash surrender value, is treated as property for purposes of a
transfer in connection with the performance of services (with a grandfather
clause for split-dollar
contracts entered into before September 17, 2003, the effective date of the
final split-dollar
regulations).
Determining “Fair Market Value”
Of course,
there’s more to it than that. It is necessary to define “fair market
value” (or “full value”) for these purposes. It cannot quite be “fair
market value” in the usual sense of the term, i.e. what a willing buyer would
pay a willing seller. This sense only applies when there is a real market
of buyers and sellers engaging in arm’s-length transactions (the
However,
all the Proposed Regulations say about fair market value is contained in a
parenthetical:
Thus,
these proposed regulations provide that, in those cases where a qualified plan
distributes a life insurance contract, retirement income contract, endowment
contract, or other contract providing life insurance protection, the fair
market value of such a contract (i.e., the value of all rights under the
contract, including any supplemental agreements thereto and whether or not
guaranteed) is generally included in the distributee’s income and not merely
the entire cash value of the contracts.
Instead of
characterizing fair market value further, the Service issued Rev. Proc.
2004-16, which defined a safe harbor, a set of circumstances under which cash
value could be regarded as fair market value:
Cash value
(without reduction for surrender charges) may be treated as the fair market
value of a contract as of a determination date [essentially, the date on which
benefits are provided] provided such cash value is at least as large as the
aggregate of: (1) the premiums paid from the date of issue through the date of
determination, plus (2) any amounts credited (or otherwise made available) to
the policyholder with respect to those premiums, including interest, dividends,
and similar income items (whether under the contract or otherwise), minus (3)
reasonable mortality charges and reasonable charges (other than mortality
charges), but only if those charges are actually charged on or before the date
of determination and are expected to be paid.
(There is
an identical characterization for variable contracts except that (2) reads:
“(2) all adjustments made with respect to those premiums during that period
(whether under the contract or otherwise) that reflect investment return and
the current market value of segregated asset accounts.”)
Some of
the technical details of this definition in application, including a discussion
of the IRS’s example explaining how it applies to a springing cash value policy
with an artificial surrender charge, are explained in CC
04-06, IRS Issues Guidance on Valuation of Life Insurance in Qualified Plans.
Rev. Proc. 2005-25
In
response to comments on Rev. Proc. 2004-16, particularly about its failure to
accommodate surrender charges, the IRS issued Rev. Proc. 2005-25, which
expanded the safe harbors. It did so by introducing a forbidding formula
(in variable and non-variable flavors) that—it’s important to note—is—at last
!—a definition of fair market value that allows one to calculate this
quantity. For a detailed explanation, see Tax
News April 11, 2005, New Rev. Proc. 2005-25 Delivers Promised Guidance for
Valuation of Life Insurance. Very briefly put, for an insurance contract,
retirement income contract, endowment contract, or other contract providing
life insurance protection, fair market value can be measured as the greater of
(a) the interpolated terminal reserve plus a pro rata portion of estimated
dividends, and (b) the product of the PERC amount (variable or non-variable, as
the case may be) and the “Average Surrender Factor.” Criterion (a) is the
gift tax notion the IRS first used in Rev. Rul. 59-195. The PERC amount
is calculated by adding Premiums and Earnings (including
dividends) and subtracting Reasonable Charges (mortality charges
and the like) not expected to be reversed at a later date. And the
Average Surrender Factor is the greater of .7 and a fraction consisting of the
surrender amount on the first day of the policy year over the PERC
amount. This is essentially a way of factoring in the effect of surrender
charges, and disregarding them if they reduce the value of the contract to less
than .7 of what it would have been without them. Since, in order for
springing cash value arrangements to have their desired effect, they would have
to reduce the value of the contract substantially less than .7, this
brain-cracking formula is what hides the true sting in the tail with respect to
such arrangements.
The IRS
states that there were no objections to the Proposed Regulations themselves
during the comment period or at the public hearing, only to Rev. Proc.
2004-16. Thus, matters are essentially as they were when the Proposed
Regulations were announced.
·
When
a qualified plan distributes a life insurance contract, retirement income
contract, endowment contract, or other contract providing life insurance
protection, the policy`s fair market value is included in the distributee`s
income. Fair market value is the policy`s cash value plus the value of
all rights under the contract, including any supplemental agreements
thereto. If such a distribution was not included in the distributee’s
income under previous regulations, it is not included under the Final
Regulations.
·
When
a qualified plan distributes an annuity contract, the distribution is treated
as a lump sum distribution for 10-year averaging purposes under §402(e), even
if it is not currently taxable.
·
When
a qualified plan distributes property to a participant or beneficiary for less
than fair market value, the “bargain element” (the difference between the
consideration and the fair market value) is a distribution under the
plan. This requirement is effective only for transactions on or after
August 29, 2005, the effective date of the Final Regulations, although such
transactions result in income recognition if made after February 13, 2004, the
effective date of the Proposed Regulations.
·
“Fair
market value” is substituted for “cash value” in regulations under §§ 79 and
83. Thus, the formula for determining permanent benefits under §79 now
relies on fair market value. Similarly, the fair market value of property
received as compensation is now included in income under §83. Note that
the Final Regulations do not apply to split-dollar arrangements entered into
before the effective date of the final split-dollar regulations and not
materially modified since.
Copyright
© 2000 - 2005 Advanced Planning Press, LLC. All Rights Reserved. 800-532-9955
GST Tax Update (CC 05-32)
Introduction
This article
is an overview of selected issues concerning recent changes, regulations, and
revenue procedures in the generation-skipping transfer (GST) tax rules.
Fortunately, since the Economic Growth and Tax Relief Reconciliation Act of
2001, Pub L No 107-16, 115 Stat 38 (2001 Tax Act), there has been no new GST
tax legislation; however, as discussed below, new regulations and revenue
procedures have been issued, and the U.S. gift tax return has been updated to
reflect the changes brought about by the 2001 Tax Act.
Increase in the GST Tax Exemption
Amount and Lowering of the GST Tax Rate
Under the
2001 Tax Act, the GST tax exemption amount is currently equal to the estate tax
applicable exclusion amount under IRC § 2010(c) for the year in which the GST
transfer is made. In 2010, the GST tax will be repealed in its entirety, and
there will be no GST tax exemption amount. IRC §§ 2631(c),2664. Then in 2011,
the GST tax exemption will revert back to the amount it would have risen to,
with inflation adjustments, under the tax regulations in force before the 2001
Tax Act. Thus, the GST tax exemption and GST tax rate is illustrated in the
table below.
Distributions and Gifts in 2009
and 2010
In 2009,
clients may want to consider making inter vivos gifts into GST trusts that are
not direct-skip trusts, paying gift tax, and using their remaining GST tax
exemption (since this exemption will disappear in 2010 and will reappear at
only $1.1 million, plus post-2002 inflation adjustments, in 2011). An
alternative, if direct skips can be made, would be to make direct skips in 2010
when there is no GST tax and the gift tax rate is 35 percent. In addition, in
2010 when there is no GST tax, non-GST tax-exempt trusts should make
distributions to skip persons. Consider including a trust protector or special
power holder in the trust instrument who is authorized to appoint the trust
property to the grantor’s descendants, especially during the no GST tax window
period of 2010. Because there will be no GST tax exemption available in 2010
(and thus no ability to allocate a person’s exemption to create a GST
tax-exempt trust), it is uncertain whether or not, if other irrevocable
trusts are established in 2010, they will be grandfathered from the GST tax
once the pre-2001 Tax Act law returns in 2011. [1]
If these trusts are not grandfathered from the GST tax, they will have an
inclusion ratio of one.
|
Year |
GST tax
exemption amounts |
GST tax
rate |
|
2002 |
$1,100,000 |
50% |
|
2003 |
$1,120,000 |
49% |
|
2004 |
$1,500,000
(no inflation adjustment) |
48% |
|
2005 |
$1,500,000
(no inflation adjustment) |
47% |
|
2006 |
$2,000,000
(no inflation adjustment) |
46% |
|
2007 |
$2,000,000
(no inflation adjustment) |
45% |
|
2008 |
$2,000,000
(no inflation adjustment) |
45% |
|
2009 |
$3,500,000
(no inflation adjustment) |
45% |
|
2010 |
Repealed |
0% |
|
2011 |
$1,100,000 (plus post-2002 inflation adjustments) |
55% |
In
addition, especially during the no GST-taxwindow period of 2010, when
non-GST-tax-exempt trusts should make distributions to skip persons, consider
including a trust protector or special power holder in the trust instrument who
is authorized to appoint the trust property to the grantor’s descendants.
Retroactive Allocation of GST Tax
Exemption for a Nonskip Beneficiary’s Unnatural Order of Death While the
Transferor Is Alive
The 2001
Tax Act allows a transferor to make a retroactive allocation of the
transferor’s GST tax exemption for lifetime transfers to an inter vivos trust
if a nonskip beneficiary of the trust dies after December 31, 2000, but before
the transferor. IRC § 2632(d). The retroactive allocation does not protect
against an unnatural order of death that occurs after the transferor’s death.
Nor does the retroactive allocation apply to grantor-retained annuity trusts,
qualified personal residence trusts, or any inter vivos trust that is subject
to an estate tax inclusion period (ETIP), since IRC § 2642(f) prohibits the
allocation of the transferor’s GST tax exemption while the trust is subject to
possible inclusion in the gross estate of the transferor or of his or her
spouse. Any allocation of the GST tax exemption during the ETIP period will
not take effect until this period’s expiration and would be applied at the
trust’s then fair market value.
This
retroactive allocation is available only if the predeceasing beneficiary was
both a nonskip person and a lineal descendant of the transferor’s grandparent
or of a grandparent of the transferor’s spouse, assigned to a generation
younger than the generation of the then living transferor. The value of the
property on the date that property was transferred to the trust is used to
determine the applicable fraction and inclusion ratio for the retroactive GST
tax exemption allocation on a chronological basis (i.e., to earlier transfers
first). The retroactive allocation of the GST tax exemption must be made on the
transferor’s
Caution: The new rule applies for retroactive
allocations for nonskip beneficiaries dying after December 31, 2000, but will
be automatically repealed when the 2001 Tax Act sunsets on December 31, 2010.
Trust
Severance Rules Liberalized
The 2001
Tax Act liberalizes the rules for severing a trust. IRC § 2642(a)(3). The act
permits the qualified severance of an existing single trust (inter vivos or
testamentary) into multiple trusts
·
if
the severance or division is permitted by state law or is authorized in the
governing instrument;
·
if
the single trust is divided on a fractional basis (and not on a pecuniary
basis);
·
if
the terms of the new (divided) trusts provide, in the aggregate, for the same
succession of interests of beneficiaries as in the original trust; and
·
if
the original trust has an inclusion ratio other than one or zero (It is then
divided into two trusts, one of which has an inclusion ratio of one and the
other of which has an inclusion ratio of zero). [2]
Qualified
Severance and Unnatural Order of Death
The
qualified severance rule may be used in conjunction with the unnatural order of
death election under IRC § 2632(d), which is discussed above. For example, an
irrevocable life insurance trust (ILIT) providing an income interest to the
transferor’s spouse with remainder to the transferor’s two children may now be
divided. This, together with the unnatural order of death election, could allow
the ILIT to be divided into two parts, and then the transferor’s GST tax
exemption could be allocated to the part that the deceased child’s descendants
succeed to, if one of the transferor’s children were to predecease the
transferor after the establishment of the ILIT.
Determining
the Value of Property on a Timely GST Tax Exemption Allocation
The 2001
Tax Act provides that the value of property, for purposes of determining the inclusion
ratio (and, thereby, the rate of GST tax imposed on taxable events) in
connection with timely and automatic allocations of GST tax exemption, is the
value finally determined for gift or estate tax purposes. IRC §§
2642(b)(1)–(2). The value, for purposes of an allocation that was made at the
end of an ETIP, is its estate or gift tax value at the end of the ETIP. [3]
Caution: This new rule is effective for
transfers made after December 31, 2000, but will be automatically repealed
when the 2001 Tax Act sunsets on December 31, 2010.
The Internal
Revenue Service May Grant an Extension of Time to Make a Timely GST Tax
Exemption Allocation
The 2001
Tax Act directs the Internal Revenue Service (IRS) to grant extensions of time
to allocate the GST tax exemption and to grant exceptions to the filing
deadlines, considering all relevant circumstances, including evidence of intent
in the trust instrument or instrument of transfer for it to be GST tax exempt.
IRC § 2642(g)(1). If a time extension to make a GST tax exemption allocation is
granted, the allocation will not be considered “late” under Treas. Reg. §
26.2642-2(a)(2) but rather “timely” under Treas. Reg. § 26.2642-2(a)(1);
therefore, the applicable fraction and inclusion ratio will be determined by
the date of the transfer, not by the date on which the allocation is
actually made. Relief for filing a late, but timely, GST tax exemption will be
available for:
·
lifetime
allocations of GST tax exemption under IRC §2642(b)(1);
·
death-time
allocations of GST tax exemptions under IRC §2642(b)(2);
·
elections
out of automatic allocations to direct and indirect skips under IRC §§ 2632(b)(3)
and (c)(5)(A)(i); and
·
elections
into automatic allocations for trusts that are neither direct skips nor indirect
skips, as is permitted under IRC § 2632(c)(5)(A)(ii).
Caution: This relief is available for
requests pending on, or filed after, December 31, 2000, but will be
automatically repealed when the 2001 Tax Act sunsets on December 31, 2010. 2001
Tax Act §§ 564(b)(1), 901.
IRS Guidance
The IRS
issued preliminary guidance on this relief provision in IRS Notice 2001-50,
2001-2 CB 189, which is effective for relief requests pending on or filed after
December 31, 2000. The notice states that taxpayers may seek an extension of
time to make the above allocations and elections under the rules of Treas. Reg.
§ 301.9100-3. In general, under these rules, relief is granted if it is
established to the satisfaction of the IRS that the taxpayer acted reasonably
and in good faith and that the grant of relief will not prejudice the
government’s interests. Taxpayers requesting relief should follow the
procedures in Rev Proc 2001-3, §5.02, 2001-1 I RB 111.
In Rev
Proc 2004-46, 2004-31 IRB 141 (July 29, 2004), the IRS issued additional
guidance for relief concerning certain inter vivos gifts to trusts made on or
before December 31, 2002, and qualified for the gift tax annual exclusion. This
revenue procedure provides a simplified alternate method (which is also less
expensive, since no user fee is charged for requests filed under this revenue
procedure) to obtain an extension of time to make a late allocation of GST tax
exemption. As a result of this revenue procedure, there will be no need to
obtain a private letter ruling if 15 conditions are satisfied. Relief under the
revenue procedure is available if:
·
on
or before December 31, 2000, the taxpayer made or was deemed to have made a
transfer by gift to a trust from which a GST may be made;
·
at
the time the taxpayer files the request for relief under the revenue procedure,
no taxable distributions have been made and no taxable terminations have
occurred;
·
the
transfer to the trust qualified for the gift tax annual exclusion under IRC §
2503(b), and the amount of the transfer, when added to the value of all other
gifts by the transferor to that donee in the same year, was equal to or less
than the amount of the applicable annual exclusion amount under IRC § 2503(b)
for the year of the transfer;
·
no
GST tax exemption was allocated to the transfer, whether or not a
·
at
the time the taxpayer files a request for relief under the revenue procedure,
the taxpayer has unused GST tax exemption available to allocate to the
transfer;
·
the
taxpayer files a U.S. gift tax return for the year of the transfer to the
trust, regardless of whether a Form 709 had been previously filed for that
year, and states at the top of the gift tax return that it is being “FILED
PURSUANT TO REV. PROC. 2004-46”;
·
the
taxpayer reports on the gift tax return the value of the transferred property
as of the date of the transfer;
·
the
taxpayer allocates GST tax exemption to the trust by attaching a statement to
the gift tax return entitled “Notice of Allocation”; [4]
and
·
the
U.S. gift tax return is filed on or before the date prescribed for filing the
taxpayer’s federal estate tax return for the his or her estate (determined with
regard to any extensions actually obtained), regardless of whether an estate
tax return is required to be filed. If the IRS grants the relief, the
transferor’s GST tax exemption will be allocated effective on the date of the
inter vivos transfer. A grant of relief does not, however, preclude a
subsequent determination by the IRS that the transfer is subject to an ETIP
under IRC § 2642(f).
Substantial
Compliance Suffices for GST Tax Exemption Allocations
The 2001
Tax Act provides that substantial compliance with the statutory and regulatory
requirements for allocating the GST tax exemption under IRC § 2632 is
sufficient to establish that this exemption was allocated to a particular
transfer or trust. IRC § 2642(g)(2). A taxpayer who demonstrates an intent to
have an inclusion ratio of zero with respect to a particular transfer or trust
is deemed to have allocated to the transfer or trust sufficient GST tax
exemption to produce the lowest possible inclusion ratio. The IRS is directed
to consider all relevant circumstances to determine whether there has been
substantial compliance, including evidence of intent in the trust instrument
or instrument of transfer and any other factors as the secretary of the treasury
deems appropriate. Drafters may want to consider adding an introductory clause
to trusts that are intended to be GST tax exempt. In light of the new automatic
GST tax exemption allocation rules for new lifetime transfers under IRC §
2632(c), the substantial compliance rules or extension-of-time rules could be
best used for GST transfers occurring some time after the transferor’s death.
IRC § 2642(g)(2).
Caution:
The new rule
applies to transfers made after December 31, 2000, and will be automatically
repealed when the 2001 Tax Act sunsets on December 31, 2010. 2001 Tax Act §
901.
Automatic
Allocation of GST Tax Exemption to Indirect Skips
The 2001
Tax Act provides for automatic allocation of a transferor’s GST tax exemption
to certain lifetime transfers that are not direct skips but that are made to an
inter vivos trust (such as an ILIT) that subsequently could have a GST with
respect to the transferor (indirect skips). Such a trust is referred to as a
GST trust under IRC § 2632(c)(3)(B). The rule applies to inter vivos transfers
made after December 31, 2000, and to ETIPs ending after December 31, 2000. IRC
§ 2632(c). This new rule is in addition to the pre-2001 Tax Act automatic GST
tax exemption allocation rules concerning lifetime direct skips under IRC §
2632(b). Thus, as a result of the new law, both lifetime direct skips and
lifetime indirect skips are subject to the automatic GST tax exemption
allocation rules. [5]
Practice
Point: Trusts
that were initially designed to not be GST trusts (including many typical ILITs
in which the surviving spouse has a life estate if he or she survives the
insured spouse) may, as a result of the new law, be classified as GST trusts.
GST tax exemptions will automatically be allocated to transfers made to these
trusts. Consequently, taxpayers should consider making a one-time election to
permanently opt in or out of GST trust status and the GST automatic allocation
rules. See below for a discussion of how to opt in or out of the GST automatic
allocation rules. See,
below for a sample form of memo an attorney may send to clients who have
irrevocable life insurance trusts.
Caution: The new automatic allocation rule
to indirect skips applies to transfers made after December 31, 2000, and will
be automatically repealed when the 2001 Tax Act sunsets on December 31, 2010.
2001 Tax Act § 901.
Revised
In 2003,
the IRS revised IRS Form 709 (United States Gift [and Generation-Skipping
Transfer] Tax Return) to incorporate the revisions in the GST tax rules
promulgated by the 2001 Tax Act; in particular, the automatic GST allocation
rules (discussed in the section above).
·
Transfers
to a trust that is a both a nonskip person and not a “GST Trust” (as defined in
IRC § 2632(c)(3)(B)) are reported on Part 1 of Schedule A, and a Notice of GST
Tax Exemption Allocation must be attached to the Form 709.
·
Direct
skips (including transfers to a trust that is a skip person) are reported on
Part 2 of Schedule A. Allocation of GST tax exemption for direct skips
reported on Part 2 of Schedule A are made on line 4 of Part 2 of Schedule C.
·
A
new Part 3 (Indirect Skips) has been added to Schedule A of Form 709, which is
to be used to report gifts to trusts that are currently subject only to the
gift tax, but may later be subject to the GST tax, i.e., a GST trust. Only
those gifts defined as indirect skips in IRC § 2632(c)(3)(A) (or those gifts
that the donor wants to be treated as indirect skips) are to be listed in Part
3 of Schedule A. In addition, if a donor wants to treat gifts to a non-GST for
purposes of the GST automatic allocations rules, the donor must attach an
explanation to the Form 709.
·
A
new line 5 has been added to Part 2 of Schedule C of Form 709 for use in reporting
the allocation of GST tax exemption to indirect skip transfers reported on Part
3 of Schedule A.
·
Column
C in Parts 2 and 3 of Schedule A of Form 709 is now used to elect out of the
GST automatic allocation rules of IRC §§ 2632(b) (concerning direct skips) and
(c) (concerning indirect skips to a GST trust), and an explanation must be
attached to the Form 709.
·
As
stated above, if a donor does not want to have the GST automatic allocation
rules apply to both the current transfer and all future transfers or, if the
donor wants to treat a non-GST trust as a GST trust for purposes of the GST
automatic allocations rules, the donor must attach an explanation to the Form
709. On June 29, 2005, the IRS issued final regulations concerning the electing
in and out of the GST automatic allocation rules concerning indirect skips and
GST trusts (discussed above). Treasury Decision 9208 (6/29/2005). The final
regulations provide guidance on how to (1) elect out of the GST automatic
allocation rules for both a current transfer and any future transfers to a GST
trust, and how to terminate that election (Treas Reg § 26.2632-1(b)(2)(iii));
and (2) elect to treat a non-GST trust as a GST trust and have the GST
automatic allocation rules apply to both current and future transfers to that
trust and terminate that election (Treas Reg § 26.2632-1(b)(3)).
·
The instructions
for IRS Form 709 also state that IRS Form 709-
The IRS
has issued Form 8892, Payment of Gift/GST Tax and/or Application for Extension
of Time to File Form 709, to request an extension of time to file IRS Form 709
(and paying any applicable gift or GST taxes). Form 8892 should be used when
(1) the taxpayer owes gift or GST tax and has requested an initial extension to
file his or her individual income tax return pursuant to IRS Form 4868, (2) the
taxpayer has already obtained an initial four month extension to file Form 709
pursuant to IRS Form 4868 and the taxpayer needs an additional extension of
time only for his or her Form 709 (and not for his or her individual income tax
return), or (3) the taxpayer needs an initial extension of time only for his or
her Form 709 (and not for his or her individual income tax return).
IRS Permits
Late Reverse QTIP Election
The
reverse QTIP election allows the decedent, rather than the surviving spouse,
to be treated, for GST tax purposes, as the transferor of property for which
the QTIP election is made. IRC § 2652(a)(3). Since the reverse QTIP election
is not available for an IRC § 2056(b)(5) general power of appointment trust,
care must be taken to make sure that the QTIP trust does not give the surviving
spouse any powers that rise to this general power of appointment trust level.
Time for Making the Reverse QTIP
Election
Generally
speaking, a reverse QTIP election for a decedent transferor must be made on the
last timely filed estate tax return (including extensions) or, if no timely
return is filed, on the first late return. Treas. Reg. § 20.2056(b)-7(b)(4)(i).
Extension of Time to Make a Late
Reverse QTIP Election
A
discretionary extension of time to make a reverse QTIP election is available
under Treas. Reg. § 301.9100-1, but the extension of time is not available to
modify automatic allocation of the GST tax exemption. Treas. Reg. §
26.2632-1(d). However, Rev Proc 2004-47, 2004-32 IRB 169 (Aug 5, 2004),
provides a simplified alternate method (which is less expensive—no user fee is
charged for requests filed under this revenue procedure) for making a late testamentary
reverse QTIP election for a deceased transferor. This alternate method, which
became effective August 9, 2004, may be used in lieu of the private letter
ruling process, if the requirements of the revenue procedure are met. [6]
If the IRS grants the relief, the deceased transferor’s unused GST tax
exemption will be automatically allocated to the reverse QTIP trust (or reverse
QTIP property, as the case may be) effective on the decedent’s date of death
and at the property’s value as finally determined for federal estate tax
purposes. A grant of relief (1) does not extend the time to make an allocation
of any remaining GST tax exemption, (2) does not include or grant permission to
retroactively allocate the decedent’s remaining GST tax exemption, and (3)
does not include or grant permission to make a late severance of a trust included
in the decedent’s gross estate into two or more trusts (such as the severance
of a single QTIP trust into a reverse QTIP trust and a nonreverse QTIP trust).
Practice
Point: A reverse
QTIP election is effective as to the whole QTIP trust in question. A partial
reverse QTIP election (as to part of a QTIP trust) is not permitted. Treas.
Reg. § 26.2654-1(b)(1). Therefore, if the deceased transferor’s unused GST tax
exemption amount is less than the single QTIP trust, it will be necessary for
the single QTIP trust to first be divided (severed) into a reverse QTIP trust
and a non-reverse QTIP trust prior to the allocation of the deceased
transferor’s GST tax exemption. Because the revenue procedure does not
authorize a late severance of the QTIP trust, it may be possible to make a
qualified severance of the QTIP trust prior to requesting a late reverse QTIP
election under the revenue procedure. A qualified severance of a trust may be
made at any time. IRC § 2642(a)(3)(C). See above.
Predeceased
Parent Rule Regulations Update
The
predeceased parent rule provides that if a skip person’s ancestor, who is a
descendant of the transferor (for GST tax purposes), predeceases the
transferor, the skip person moves up in generation assignments (vis-a-vis the
transferor). Furthermore, if a beneficiary who is a descendant of the
transferor (for GST tax purposes) dies within 90 days after the date of a GST
transfer that occurs because of the death of the transferor, the beneficiary is
treated as having predeceased the transferor, and the deceased beneficiary’s
child will move up a generation assignment (visa-vis the transferor) and be
placed in the same generation assignment held by his or her (now deceased)
parent vis-a-vis the transferor. IRC § 2651(e); Treas. Reg. §26.2651-1(a)(2)(iii).
This
survivorship rule expands the “predeceased parent rule” of IRC § 2651(e), by
allowing a grandchild to move up into his parent’s generation for GST tax
purposes if the parent dies within 90 days of a transferor. Expanded by the Tax
Reform Act of 1997 (TRA 1997), the “predeceased parent rule” now applies to
taxable terminations, taxable distributions, and direct skips and, under
certain circumstances, includes grandnieces and grandnephews as permissible
skip persons. On July 18, 2005, the IRS issued amendments to the final
regulations concerning the predeceased parent rule under IRC § 2651(e).
Treasury Decision 9214 (7/18/2005). See Treas. Reg. §§ 26.2612-1, 26.2651-1,
.2651-2, 2651-3. The. amendments to the final regulations discuss the 90-day
survival rule, how to determine the date of a transfer for applying the predeceased
parent rule, and when certain adopted individuals (and their spouses and
descendants) are to be reassigned to a different generation for GST purposes.
Although
the GST tax is scheduled to be repealed in 2010, the nation’s current fiscal
crisis, the trade deficit, the war on terrorism, and the looming Social
Security and Medicare crisis all combine to provide additional uncertainty
about the likelihood of a permanent repeal of this tax. Therefore practitioners
still need to consider the impact the GST tax may have on a client’s estate
plan. The GST tax may be well alive in 2011, and planning today will help to
minimize the tax.
End Notes
1. A testamentary trust (whether established under a will or under a
decedent’s previously revocable living trust), established by a person who dies
in 2010 when there is no federal estate tax or GST tax, should be able
(theoretically) to make subsequent distributions to skip persons that are not
subject to GST tax, since there will be no transferor under IRC § 2652(a)(1)
with respect to the testamentary trust. An inter vivos trust established in
2010 when the GST tax will not be in effect, however, will probably see its
subsequent distributions to skip persons be subjected to GST tax, since there
will be a transferor when the trust is established, due to the gift tax being
in effect in 2010. How does a transferor allocate the GST tax exemption to such
a trust? Would he or she use a prospective protective election? Will the late
allocation rules apply? Will the automatic allocation rules apply? These
questions remain unanswered at the moment.
2. See Sebastian V. Grassi, Coping with the Proposed GST Tax
Qualified-Severance Regulations (with Drafting Examples), Prac Tax Law, Winter
2005, at 21, for a more detailed discussion of the qualified severance rule and
its proposed regulations.
3. Allocation of GST tax exemption is not effective until the
close of the ETIP. IRC § 2642(f). An ETIP is the period during which the trust
property would be included in the gross estate of the transferor or the
transferor’s spouse if either were to die. Treas Reg § 26.2632-1(c)(2).
4. The notice of allocation must contain the following
information: (1) a clear identification of the trust, including the trust’s
taxpayer identification number, as defined in IRC § 6109 and the regulations
under it, when applicable; (2)the value of the property transferred as of the
date of the transfer (adjusted to account for split gifts, if any); (3) the
amount of the taxpayer’s unused GST exemption at the time the notice of
allocation is filed (a taxpayer must have unused GST exemption at the time the
notice of allocation is filed); (4) the amount of GST exemption allocated to
the transfer; (5) the inclusion ratio of the trust after the allocation; and
(6) a statement that all of the nine requirements (discussed above) of § 3.01
of Rev Proc 2004-46 have been met. The
5. See §4.22 of Grassi, A Practical Guide to Drafting
Irrevocable Life Insurance Trusts (ALI-ABA, Philadelphia, PA 2003) (800)
253-6397, www. ali aba.org/aliaba/BK28.asp. for a detailed discussion (with
examples) of the new GST tax exemption allocation rules.
6. Relief is available under Rev Proc 2004-47, if, on
the date of the filing of the request for relief, the following requirements
are met: (1) a valid QTIP election under IRC § 2056(b)(7) was made for the
property or trust on the federal estate tax return filed for the decedent’s
estate; (2) the reverse QTIP election was not made on the estate tax return as
filed because the taxpayer relied on the advice and counsel of a qualified tax
professional and that qualified tax professional failed to advise the taxpayer
of the need, advisability, or proper method to make a reverse QTIP election;
(3) the decedent has a sufficient amount of unused GST tax exemption, after the
automatic allocation of the GST tax exemption under IRC § 2632(e) and Treas Reg
§ 26.2632-1(d)(2), to result in a zero inclusion ratio for the reverse QTIP
trust or property; (4) the decedent’s estate is not eligible under Treas Reg §
301.9100-2(b) for an automatic six-month extension to file the decedent’s
estate tax return; (5) the surviving spouse has not made a lifetime disposition
of all or any part of the qualifying income interest for life in the QTIP trust
or property; (6) the surviving spouse is alive or no more than six months have
passed since the death of the surviving spouse; (7) the decedent’s estate files
with the IRS a request for an extension of time to make a reverse QTIP election
and the request has a cover sheet that states at the top of the document,
Request for Extension Filed Pursuant To Rev Proc 2004-47; (8) the following
items are attached to the request for relief: (a) copies of Parts 1 through 5
and Schedule M of the decedent’s estate tax return as filed with the IRS; (b) a
properly completed Schedule R, which is required to make a reverse QTIP election;
(c) a statement describing why the reverse QTIP election was not made on the
decedent’s estate tax return as filed; (d) a statement affirming that all of
the requirements in items (1 )–(6) have been met; (e) a dated declaration,
signed by the executor of the decedent’s estate, stating, “Under penalties of
perjury, I declare that, to the best of my knowledge and belief, the facts
presented in support of this election are true, correct, and complete. In
addition, all attachments provided in support of this request for relief are
true and correct copies of the original documents”; and (f) a signed statement
from the qualified tax professional on whom the taxpayer relied when preparing
the decedent’s original estate tax return. The statement should establish the
tax professional’s qualifications as a qualified tax professional and must
include a dated declaration stating, “Under penalties of perjury, I declare
that, to the best of my knowledge and belief, the facts presented in support of
this request for relief are true, correct, and complete.” The request for
relief is to be sent to the
Relief
under the revenue procedure is not available if (1) the transfer is to an inter
vivos QTIP trust or (2) the surviving spouse is not a
Sebastian V. Grassi, Jr. Listed in The Best Lawyers in
TO:
[Clients with Irrevocable Life Insurance Trusts]
FROM:
[Name of Advisor]
RE: Irrevocable
Life Insurance Trusts and Final IRS Regulations Concerning Automatic Allocation
of Generation Skipping Tax Exemption
DATE: [Date]
Why the Memo
You are
receiving this memorandum because our records indicate that you have an
irrevocable life insurance trust (“ILIT”), and may be affected by a recent
change in the tax laws, as discussed below.
Changes in the Tax Laws.
In May of
2001 Congress enacted the 2001 Tax Act at record breaking speed, with little or
no input from the estate tax bar, and no advance warning. Some of the
provisions of the 2001 Tax Act are very favorable to taxpayers, but some
provisions are less favorable. One provision in particular, the GST tax
exemption automatic allocation rule (discussed below), is generally not
favorable to persons who have established ILITs.
Primary Purpose of an ILIT.
The
primary purpose of an ILIT is to provide life insurance benefits to the
insured’s immediate family, and to assist the insured’s estate in paying any
death taxes that may be owed. If all goes well, the ILIT’s receipt of the life
insurance benefits are income tax free and death tax free.
When an
insured creates a “typical” ILIT for the primary benefit of his or her
surviving spouse (assuming the insured is married, and the spouse’s life is not
insured by the ILIT under a 1st or 2nd to die life insurance policy) and/or
children, the insured is generally not concerned about the grandchildren’s
inheritance under the ILIT since it is expected that after the death of the
surviving spouse, the children will receive all of the money in the ILIT when
they reach a specified age. Thus, the “typical” ILIT is not
designed to provided a primary inheritance to the insured’s grandchildren -
although in some instances grandchildren may receive an inheritance from an
ILIT if their parent (the insured’s child) dies before attaining a specific
age.
Special Tax on Gifts and
Inheritances Left to Grandchildren.
Since
1986, there has been a special tax on gifts and inheritances left to
grandchildren by their grandparents. This tax is in addition to the federal
gift tax and federal estate tax. This special tax is called the Generation
Skipping Transfer Tax (“GST Tax”). The tax is imposed at the highest federal
estate tax rate. The tax is designed to discourage grandparents from gifting or
leaving a sizeable inheritance to grandchildren. By leaving money to
grandchildren, the grandparent has “skipped” over a generation - the children’s
generation, and the IRS has lost the opportunity to impose a federal estate tax
on that money when the children die. Hence the name, Generation Skipping
Transfer Tax - it is a tax imposed for skipping over an intervening generation
(the children), and is designed to insure that the IRS gets to tax the
“skipped” over gift or inheritance received by the grandchild. Fortunately,
every individual has a $1,000,000 GST tax exemption (indexed for inflation)
(“GST tax exemption”). This means that a grandparent can make a gift and/or
leave an inheritance to his or her grandchildren and not have to pay the GST
tax, provided the gift/inheritance does not exceed the grandparent’s then
available unused GST tax exemption amount. A person’s GST tax exemption amount
can be used up (“allocated”) during their lifetime by making gifts to
grandchildren, or it can be allocated when the grandparent dies and leaves an
inheritance to his or her grandchildren.
Allocation of GST Tax Exemption
to ILITs.
Unless an
ILIT is specifically designed from the onset to benefit the insured’s
grandchildren or to serve a long term trust for the benefit of multiple
generations of the insured’s descendants (such as children, grandchildren,
great grandchildren, etc.), insureds generally do not allocate their GST tax
exemption to the annual premiums payments or gifts made to the ILIT. This is
because, in many instances, it may be wasteful to allocate GST tax
exemption to a trust that may never leave any money to the grandchildren.
However, because of the possibility that a grandchild could receive some money
from the ILIT if the grandchild’s parent (i.e., the insured’s child) dies
before receiving all of his or her inheritance under the ILIT, attorneys
typically add special provisions in an ILIT that attempt to avoid or minimize
the GST tax. These provisions may result in the payment of a federal
estate tax on money received by the grandchildren from the ILIT - but since the
federal estate tax rate is a graduated rate (similar to the graduated income
tax rate), the federal estate tax will almost always be less than the GST tax
(which, as previously mentioned, is imposed at the highest federal estate tax
rate).
How the New Tax Law Affects Your
GST Tax Exemption.
Prior to
the 2001 Tax Act, an insured had to make an affirmative decision to allocate
his or her GST tax exemption to an ILIT, and had to file a Notice to Allocate
GST Tax Exemption with the IRS. If the insured “did nothing” (i.e., did not
file the Notice), the IRS did not allocate any GST tax exemption to the ILIT
premium payments, etc. Thus, the insured was in control of how and when his or
her GST tax exemption would be allocated, if at all, to the ILIT. However, when
the 2001 Tax Act went into effect, Congress and President Bush decided that the
IRS (and not the insured) should generally determine when a person’s GST tax
exemption should be allocated to an ILIT; and a set of very complicated rules
was enacted. The new rules favor (and mandate) the automatic allocation of GST
tax exemption to an ILIT. There are certain limited exceptions, but most ILITs
do not meet these exceptions. Although these new rules are meant to be helpful
to taxpayers, they are in fact very complicated, unrealistic concerning their
limited exceptions, and difficult and expensive for taxpayers to comply
with. (So much for “tax reform”.)
What Does This Mean to You?
Just
recently, the IRS (finally) issued some guidance on the new 2001 Tax Act rules
concerning the automatic allocation of an insured’s GST tax exemption to premium
payments and gifts made to an ILIT. It was hoped that the “new and gentler” IRS
would permit taxpayers to retroactively “just say no” to the new 2001 Tax Act
rules concerning the automatic allocation of GST tax exemption to ILITs, but
that is not the case. Instead, the IRS held steadfast and has stated, in
effect, “what’s done is done,” and only going forward can a taxpayer, such as
an insured who has established an ILIT, make an election to either: (1) “opt
out” of the new GST tax exemption allocation rules (and thus decide for
themselves as to how and when they want to allocate their GST tax
exemption to an ILIT), or (2) permanently “opt in” to the new rules,
particularly if they are uncertain as to whether or not their ILIT comes within
one of the limited exceptions. Regrettably, the IRS has not issued any guidance
on the limited exceptions. Because of this, tax advisors are alerting their
clients concerning the “opt in” and “opt out” issues, and informing them of the
uncertainty created by the new rules, and lack of IRS guidance.
What Should You Do?
If you
want to make sure that any inheritance your grandchildren or
great-grandchildren may receive from your ILIT is not subject to the
confiscatory GST tax, or if you want to stop the IRS from automatically
allocating your GST tax exemption to your ILIT premiums and gifts, you need to
do the following:
1) Have
your tax advisor review your ILIT to see if it comes within one of the limited
exceptions to the automatic allocation of your GST tax exemption - as
previously mentioned, most do not. If the ILIT does come within an exception,
then no GST exemption has been automatically allocated to the ILIT by the IRS
under the new 2001Tax Act rule, and you will have to do one of the following:
(A) Affirmatively
allocate your GST tax exemption to the ILIT in order to avoid the
imposition of a federal estate tax or GST tax on an inheritance a grandchild or
great-grandchild may receive from the ILIT as a result of their parent dying
prematurely. This will require the filing of a notice with the IRS along with a
U.S. Gift Tax Return (IRS Form 709); and it may also require you, through your
tax advisor, to make what is commonly known as a “late” allocation of your GST
tax exemption. [1] This option results in your “opting in” to the automatic GST
tax exemption allocation rules. GENERALLY, THIS IS THE SAFEST AND MOST CAUTIOUS
WAY TO PROCEED UNDER THE CIRCUMSTANCES.
(B) File
a notice with the IRS along with a U.S. Gift Tax Return (IRS Form 709)
informing the IRS that you do not want your GST tax exemption to ever be
automatically allocated to your ILIT.[2] This option results in your “opting
out” of the automatic GST tax exemption allocation rules.
2) Have
your tax advisor review your ILIT to see if it falls outside the limited
exceptions to the automatic allocation of your GST tax exemption - most ILITs
do, unless they were designed from the onset to be “generation skipping ILITs.”
If the ILIT does fall outside of the limited exceptions, this means that the
IRS has been automatically allocating your GST tax exemption to your ILIT
premium payments and gifts since the enactment of the 2001 Tax Act, and
you will have to do one the following:
(A) Continue to permit the
IRS to automatically allocate your GST tax exemption to premium payments and
gifts you make to your ILIT (even though your grandchildren may never receive
one dollar from the ILIT). This will require the filing of a notice to the IRS
along with a U.S. Gift Tax Return (IRS Form 709); and it may also require you,
through your tax advisor, to make what is commonly known to as a “late”
allocation of your GST tax exemption. [3] This option results in your “opting
in” to the automatic GST tax exemption allocation rules. You must opt in via
the special notice since the rules for the automatic allocation of your GST
tax exemption to your ILIT may not be applied consistently each year - this is
one of the flaws in the new law. GENERALLY, THIS IS THE SAFEST AND MOST
CAUTIOUS WAY TO PROCEED UNDER THE CIRCUMSTANCES.
(B) Stop
the IRS from continuing to automatically allocate your GST tax exemption to
premium payments and gifts you make to your ILIT. This will require you,
through your tax advisor, to file a special notice with the IRS along with a US
Gift Tax Return. [4] This option results in your “opting out” of the automatic GST
tax exemption allocation rules.
The Bottom Line.
The IRS is
“forcing” you to make a decision concerning the allocation of your GST tax
exemption, and for you to inform it of the decision. Therefore it is imperative
that you show this memo to your tax advisor so that he or she can help you in
your making an appropriate decision.
We Can Assist You.
If you
would like our firm to arrange for a review your ILIT, and make a
recommendation concerning your options, please contact me at [ phone # of
Advisor].
Caution.
Doing
nothing may result in serious tax consequences to your estate and to your
family.
[1] See, Treasury
Regulation section 26.2632-1(b)(3) (as redesignated by T. D. 9209
(6/27/2005)).
[2] See, Treasury
Regulation section 26.2632-1(b)(2)(iii)(as re-designated per T. D. 9209
(6/27/05)).
[3] See, Treasury
Regulation section 26.2632-1(b)(3)(as re-designated per T. D. 9209 (6/27/05)).
[4] See, Treasury
Regulation section 26.2632-1(b)(2)(iii)(as re-designated per T. D. 9209
(6/27/05)).
Copyright © 2005
Sebastian V. Grassi, Jr.
For a
discussion of the GST exemption as a prospecting tool see the Current Comment::
GST
Tax Planning: A Powerful Prospecting Tool (CC 04-03)
For a
discussion of the Insurance Funded GST-exempt irrevocable life insurance trust
see:
Section
2.1, Subdivision C, The Insurance Funded Family Bank