FOR LIVE PROGRAM ONLY GST and Form 709: Fundamentals of ...media.straffordpub.com/products/gst-and-form-709... · 8/24/2017 · Dan is included on Worth magazine’s list of the

IMPORTANT INFORMATION FOR THE LIVE PROGRAM

This program is approved for 2 CPE credit hours. To earn credit you must:

• Participate in the program on your own computer connection (no sharing) – if you need to registeradditional people, please call customer service at 1-800-926-7926 x10 (or 404-881-1141 x10). Straffordaccepts American Express, Visa, MasterCard, Discover.

• Listen on-line via your computer speakers.

• Respond to five prompts during the program plus a single verification code. You will have to writedown only the final verification code on the attestation form, which will be emailed to registeredattendees.

• To earn full credit, you must remain connected for the entire program.

GST and Form 709: Fundamentals ofGeneration-Skipping Transfer Tax ReportingIdentifying Skip Persons, Direct vs. Indirect Skips, Exemption Allocations and More

THURSDAY, AUGUST 24, 2017, 1:00-2:50 pm Eastern

FOR LIVE PROGRAM ONLY

WHO TO CONTACT DURING THE LIVE EVENT

For Additional Registrations:-Call Strafford Customer Service 1-800-926-7926 x10 (or 404-881-1141 x10)

For Assistance During the Live Program:-On the web, use the chat box at the bottom left of the screen

If you get disconnected during the program, you can simply log in using your original instructions and PIN.

IMPORTANT INFORMATION FOR THE LIVE PROGRAM

This program is approved for 2 CPE credit hours. To earn credit you must:

• Participate in the program on your own computer connection (no sharing) – if you need to registeradditional people, please call customer service at 1-800-926-7926 x10 (or 404-881-1141 x10). Straffordaccepts American Express, Visa, MasterCard, Discover.

• Listen on-line via your computer speakers.

• Respond to five prompts during the program plus a single verification code. You will have to writedown only the final verification code on the attestation form, which will be emailed to registeredattendees.

• To earn full credit, you must remain connected for the entire program.

Tips for Optimal Quality

Sound QualityWhen listening via your computer speakers, please note that the qualityof your sound will vary depending on the speed and quality of your internetconnection.

If the sound quality is not satisfactory, please e-mail [email protected] so we can address the problem.

FOR LIVE PROGRAM ONLY

Sound QualityWhen listening via your computer speakers, please note that the qualityof your sound will vary depending on the speed and quality of your internetconnection.

If the sound quality is not satisfactory, please e-mail [email protected] so we can address the problem.

Aug. 24, 2017

GST and Form 709

Daniel L. Daniels, Partner

Wiggin and Dana, Greenwich, Conn.

[email protected]

Tracy J. Roberts, Partner

Powell Roberts, Costa Mesa, Calif.

[email protected]

Scott K. Tippett, Attorney

The Tippett Law Firm, Oak Ridge, N.C.

[email protected]

Notice

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BYTHE SPEAKERS’ FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANYOTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THATMAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING ORRECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

You (and your employees, representatives, or agents) may disclose to any and all persons,without limitation, the tax treatment or tax structure, or both, of any transactiondescribed in the associated materials we provide to you, including, but not limited to,any tax opinions, memoranda, or other tax analyses contained in those materials.

The information contained herein is of a general nature and based on authorities that aresubject to change. Applicability of the information to specific situations should bedetermined through consultation with your tax adviser.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BYTHE SPEAKERS’ FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANYOTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THATMAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING ORRECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

You (and your employees, representatives, or agents) may disclose to any and all persons,without limitation, the tax treatment or tax structure, or both, of any transactiondescribed in the associated materials we provide to you, including, but not limited to,any tax opinions, memoranda, or other tax analyses contained in those materials.

The information contained herein is of a general nature and based on authorities that aresubject to change. Applicability of the information to specific situations should bedetermined through consultation with your tax adviser.

GST Fundamentals

© 2015 Wiggin and Dana LLP -

Daniel L. Daniels is a partner in Wiggin and Dana LLP. Dan divides his timebetween the firm’s Greenwich and New York offices. Dan focuses his practicerepresenting business owners, corporate executives and other wealthy individualsand their families. Dan is included on Worth magazine’s list of the top 100 trustlawyers in the United States. He is a Fellow of the American College of Trust andEstate Counsel and is listed in The Best Lawyers in America. Dan received his A.B.degree, summa cum laude, from Dartmouth College in 1984 and his J.D., cum laude,from Harvard Law School in 1987.

Wiggin and Dana LLP is a full-service law firm of approximately 135 lawyerswith six offices in the Northeast, including Greenwich, Stamford, New Haven andHartford, Connecticut, as well as New York and Philadelphia. Since its founding in1934, the Firm has served the legal needs of entrepreneurs, corporate executives andother wealthy individuals and their families, as well as charitable and educationalinstitutions, emerging companies, middle market business organizations and Fortune500 corporations.

© 2016 Wiggin and Dana LLP 6

Daniel L. Daniels is a partner in Wiggin and Dana LLP. Dan divides his timebetween the firm’s Greenwich and New York offices. Dan focuses his practicerepresenting business owners, corporate executives and other wealthy individualsand their families. Dan is included on Worth magazine’s list of the top 100 trustlawyers in the United States. He is a Fellow of the American College of Trust andEstate Counsel and is listed in The Best Lawyers in America. Dan received his A.B.degree, summa cum laude, from Dartmouth College in 1984 and his J.D., cum laude,from Harvard Law School in 1987.

Wiggin and Dana LLP is a full-service law firm of approximately 135 lawyerswith six offices in the Northeast, including Greenwich, Stamford, New Haven andHartford, Connecticut, as well as New York and Philadelphia. Since its founding in1934, the Firm has served the legal needs of entrepreneurs, corporate executives andother wealthy individuals and their families, as well as charitable and educationalinstitutions, emerging companies, middle market business organizations and Fortune500 corporations.

Tracy J. Roberts has over 19 years of experience in estate planning,charitable planning, trust administration and probate law. Since 2005,Tracy has been certified by the State Bar of California Board of LegalSpecialization as a specialist in estate planning, trust and probate law. Shereceived her Juris Doctor from UCLA School of Law and herundergraduate degree from the University of Arizona. Tracy enjoysworking with individuals and families to create a plan that is specific to heneeds and wishes of each client. Outside of the office, Tracy has a passionfor helping animals and is the current President of the Orange CountySociety for the Prevention of Cruelty to Animals.


Tracy J. Roberts has over 19 years of experience in estate planning,charitable planning, trust administration and probate law. Since 2005,Tracy has been certified by the State Bar of California Board of LegalSpecialization as a specialist in estate planning, trust and probate law. Shereceived her Juris Doctor from UCLA School of Law and herundergraduate degree from the University of Arizona. Tracy enjoysworking with individuals and families to create a plan that is specific to heneeds and wishes of each client. Outside of the office, Tracy has a passionfor helping animals and is the current President of the Orange CountySociety for the Prevention of Cruelty to Animals.

Introduction to the GST Tax

• Purpose of Tax

• Need to learn GST “vocabulary”– Skip person and non-skip person– Taxable Termination– Direct Skip

– Taxable Distribution

• Tax Rate– Inclusion ratio– GST exemption


• Purpose of Tax

• Need to learn GST “vocabulary”– Skip person and non-skip person– Taxable Termination– Direct Skip

– Taxable Distribution

• Tax Rate– Inclusion ratio– GST exemption

“Name That Transfer”

• T makes a gift of property to his grandchild, GC• T transfers property to a trust to pay income his

child, C, for life, with the remainder to pass to C’schildren

• T makes a gift to a sprinkle trust for the benefit ofhis children and grandchildren

• Trustee of that trust makes distributions tograndchildren







• T makes a gift of property to his grandchild, GC –Direct Skip

• T transfers property to a trust to pay income hischild, C, for life, with the remainder to pass to C’schildren




• T makes a gift of property to his grandchild, GC –Direct Skip

• T transfers property to a trust to pay income hischild, C, for life, with the remainder to pass to C’schildren





child, C, for life, with the remainder to pass to C’schildren – Initial transfer not a GST event; C’sdeath is a taxable termination





child, C, for life, with the remainder to pass to C’schildren – Initial transfer not a GST event; C’sdeath is a taxable termination






• T makes a gift to a sprinkle trust for the benefit ofhis children and grandchildren – No GST





• T makes a gift to a sprinkle trust for the benefit ofhis children and grandchildren – No GST


“Name That Transfer”• T makes a gift of property to his grandchild, GC• T transfers property to a trust to pay income his



• Trustee of that trust makes distributions tograndchildren – Taxable Distribution





• Trustee of that trust makes distributions tograndchildren – Taxable Distribution

“Name that Transfer”- Bonus Questions(Hint: Know the transferor “move down” rule)

• T makes a gift to a sprinkle trust for the benefit

of his grandchildren and great grandchildren• Trustee later makes a distribution from the trust

to a grandchild• Trustee later makes a distribution from the trust

to a great grandchild


• T makes a gift to a sprinkle trust for the benefit

of his grandchildren and great grandchildren• Trustee later makes a distribution from the trust




• T makes a gift to a sprinkle trust for the benefitof his grandchildren and great grandchildren –

Direct Skip• Trustee later makes a distribution from the trust











to a grandchild – No GST (Move-down rule)• Trustee later makes a distribution from the trust





to a grandchild – No GST (Move-down rule)• Trustee later makes a distribution from the trust





to a grandchild – No GST (Move Down Rule)• Trustee later makes a distribution from the trust

to a great grandchild – Taxable Distribution




to a grandchild – No GST (Move Down Rule)• Trustee later makes a distribution from the trust

to a great grandchild – Taxable Distribution

Transferor• In general

– Transferor is decedent for property transferred at death– Transferor is donor for property transferred by gift

• Why do we care who is the transferor?– Only the transferor can allocate GST exemption– Identity of transferor provides starting point for determining

whether a transferee is a skip person or not– The “Reverse” QTIP election

• Identity of transferor can change over time– Transferor is person who transfers property and with respect to

whom the property was most recently subject to estate or gift tax


• In general– Transferor is decedent for property transferred at death– Transferor is donor for property transferred by gift

• Why do we care who is the transferor?– Only the transferor can allocate GST exemption– Identity of transferor provides starting point for determining

whether a transferee is a skip person or not– The “Reverse” QTIP election

• Identity of transferor can change over time– Transferor is person who transfers property and with respect to

whom the property was most recently subject to estate or gift tax

Interest• Why do we care about the term “interest”?

– Integral part of the definition of certain generation skippingevents

– A taxable termination occurs when there is• A termination of an “interest” in property held in trust• Unless immediately thereafter a non-skip person has an interest in

the property

– A transfer to a trust will be not be a direct skip as long as a non-skip person has an interest in the trust


• Why do we care about the term “interest”?– Integral part of the definition of certain generation skipping

events– A taxable termination occurs when there is

• A termination of an “interest” in property held in trust• Unless immediately thereafter a non-skip person has an interest in

the property

– A transfer to a trust will be not be a direct skip as long as a non-skip person has an interest in the trust

Interest – Special Rule for Charities• A charity may have an interest in a trust for GST

tax purposes in two situations:– Charity has a present non-discretionary right to receive income or

principal from the trust– Charity is the remainderman of a CRAT, CRUT or pooled income

fund• Example: T transfers property to a CRT to pay a unitrust percentage

to GC for life, remainder to charity. T’s transfer is not a direct skip.Distributions to GC are taxable distributions.


• A charity may have an interest in a trust for GSTtax purposes in two situations:– Charity has a present non-discretionary right to receive income or

principal from the trust– Charity is the remainderman of a CRAT, CRUT or pooled income

fund• Example: T transfers property to a CRT to pay a unitrust percentage

to GC for life, remainder to charity. T’s transfer is not a direct skip.Distributions to GC are taxable distributions.

Skip Person/Non-Skip Person• A skip person may be a natural person or a trust• A natural person is a skip person if she is assigned

to the second or lower generation below thetransferor

• A trust is a skip person if either:– all interests in the trust are held by skip persons; or– no person holds an interest in the trust and at no time after the

transfer may a distribution be made to a non-skip person

• A non-skip person is a natural person or trust that isnot a skip


• A skip person may be a natural person or a trust• A natural person is a skip person if she is assigned

to the second or lower generation below thetransferor

• A trust is a skip person if either:– all interests in the trust are held by skip persons; or– no person holds an interest in the trust and at no time after the

transfer may a distribution be made to a non-skip person

• A non-skip person is a natural person or trust that isnot a skip

Skip Person Quiz• T creates a trust naming his grandchild, GC, as the

only permissible income and principal beneficiary,remainder to great-grandchildren

• T creates a trust for GC. Trustee directed toaccumulate income until GC is 21 then pay incometo GC for life, remainder to GGC

• T creates a sprinkle trust for C and GC for the life ofC, remainder to GC


• T creates a trust naming his grandchild, GC, as theonly permissible income and principal beneficiary,remainder to great-grandchildren




only permissible income and principal beneficiary,remainder to great-grandchildren - Skip Person




• T creates a trust naming his grandchild, GC, as theonly permissible income and principal beneficiary,remainder to great-grandchildren - Skip Person





• T creates a trust for GC. Trustee directed toaccumulate income until GC is 21 then pay incometo GC for life, remainder to GGC – Skip Person




• T creates a trust for GC. Trustee directed toaccumulate income until GC is 21 then pay incometo GC for life, remainder to GGC – Skip Person





• T creates a sprinkle trust for C and GC for the life ofC, remainder to GC – Skip Person




• T creates a sprinkle trust for C and GC for the life ofC, remainder to GC – Skip Person

Skip Person Quiz – Advanced Questions

• T creates a CRT to pay an annuity interest to GC,remainder to charity

• T creates a sprinkle trust for C and his five GCs forthe life of C, remainder to GC; Crummey rights aregiven to all six beneficiaries





• T creates a CRT to pay an annuity interest to GC,remainder to charity – Nonskip Person



• T creates a CRT to pay an annuity interest to GC,remainder to charity – Nonskip Person




• T creates a sprinkle trust for C and his five GCs forthe life of C, remainder to GC; Crummey rights aregiven to all six beneficiaries– Nonskip Person– Crummey rights are ignored



• T creates a sprinkle trust for C and his five GCs forthe life of C, remainder to GC; Crummey rights aregiven to all six beneficiaries– Nonskip Person– Crummey rights are ignored

Inclusion Ratio

• What is it?• Essentially, the proportion of the trust that is

subject to GST tax• More correctly, it’s a factor in determining the

GST Tax Rate• Tax rate = (Top Estate Tax Rate) X Inclusion Ratio


• What is it?• Essentially, the proportion of the trust that is

subject to GST tax• More correctly, it’s a factor in determining the

GST Tax Rate• Tax rate = (Top Estate Tax Rate) X Inclusion Ratio

Determining Inclusion Ratio

• Inclusion ratio equals 1 - “applicable fraction”

• Applicable Fraction– Amount of GST Exemption allocated/value of

property in the trust


• Inclusion ratio equals 1 - “applicable fraction”

• Applicable Fraction– Amount of GST Exemption allocated/value of

property in the trust

Inclusion Ratio Example

• T transfers $100,000 to trust• T allocates $40,000 of GST Exemption• Applicable fraction equals $40,000/$100,000, or

.40• Inclusion ratio equals 1 - .40, or .60• Tax rate equals .60 x .40% = 24%


• T transfers $100,000 to trust• T allocates $40,000 of GST Exemption• Applicable fraction equals $40,000/$100,000, or

.40• Inclusion ratio equals 1 - .40, or .60• Tax rate equals .60 x .40% = 24%

GST Exclusions

• GST Annual Exclusion– Outright Gifts– Special Rule for Trusts– Impact on Crummey Gifts

• GST Med-Ed Exclusion


• GST Annual Exclusion– Outright Gifts– Special Rule for Trusts– Impact on Crummey Gifts

• GST Med-Ed Exclusion

GOAL IS AN INCLUSION RATIO OF EITHER ZEROOR ONE

• Mixed inclusion ratio wastes GST exemptionwhen distributions from a trust are made tochildren

• Mixed inclusion ratio causes unnecessary GST taxwhen distributions from a trust are made tograndchildren

• A trust with a zero inclusion ratio will be investeddifferently from a trust with a one inclusion ratio


• Mixed inclusion ratio wastes GST exemptionwhen distributions from a trust are made tochildren

• Mixed inclusion ratio causes unnecessary GST taxwhen distributions from a trust are made tograndchildren

• A trust with a zero inclusion ratio will be investeddifferently from a trust with a one inclusion ratio

Achieving a Zero Inclusion Ratio• Allocate GST exemption to each transfer to the trust• Timely allocation permits use of date-of-gift value

for purposes of allocation• Late allocation requires use of values as of date

return is filed– Special first of the month rule

• Planning pointers:– Be sure trust agreement includes power for trustee to split into zero

and one inclusion ratio trusts– Use intentional late allocation for life insurance in trust?


• Allocate GST exemption to each transfer to the trust• Timely allocation permits use of date-of-gift value

for purposes of allocation• Late allocation requires use of values as of date

return is filed– Special first of the month rule

• Planning pointers:– Be sure trust agreement includes power for trustee to split into zero

and one inclusion ratio trusts– Use intentional late allocation for life insurance in trust?

Automatic Allocation Rules• Lifetime Direct Skips• Automatic Allocation at Death• Rules on Automatic Allocation to “Indirect

Skips”• An Indirect Skip is a transfer that is not a direct

skip which is made to a “GST Trust”• A “GST Trust” is any trust that could have a

taxable termination or taxable distributionunless one of six exceptions applies


• Lifetime Direct Skips• Automatic Allocation at Death• Rules on Automatic Allocation to “Indirect

Skips”• An Indirect Skip is a transfer that is not a direct

skip which is made to a “GST Trust”• A “GST Trust” is any trust that could have a

taxable termination or taxable distributionunless one of six exceptions applies

Exceptions• 1. More than 25% of corpus must be

distributed or may be withdrawn by non-skippersons before they attain age 46

• 2. More than 25% of corpus must bedistributed or may be withdrawn by non-skippersons who are living on the date of death of aperson identified in the trust agreement who ismore than 10 years older than such non-skippersons


• 1. More than 25% of corpus must bedistributed or may be withdrawn by non-skippersons before they attain age 46

• 2. More than 25% of corpus must bedistributed or may be withdrawn by non-skippersons who are living on the date of death of aperson identified in the trust agreement who ismore than 10 years older than such non-skippersons

Exceptions• 3. Under the trust agreement, if a non-skip

person dies on or before an event described inException 1 or Exception 2, more than 25% ofthe trust corpus must be distributed to suchperson’s estate is subject to a GPA held by suchperson

• 4. The trust is a trust any portion of whichwould be included in the estate of a non-skipperson if such person died immediately after thetransfer to the trust


• 3. Under the trust agreement, if a non-skipperson dies on or before an event described inException 1 or Exception 2, more than 25% ofthe trust corpus must be distributed to suchperson’s estate is subject to a GPA held by suchperson

• 4. The trust is a trust any portion of whichwould be included in the estate of a non-skipperson if such person died immediately after thetransfer to the trust

Exceptions• 5. The trust is a CLAT, CRAT or CRUT• 6. The trust is a CLUT and is required to pay

the remainder interest to a non-skip person ifthe person is alive at the termination of the leadinterest


• 5. The trust is a CLAT, CRAT or CRUT• 6. The trust is a CLUT and is required to pay

the remainder interest to a non-skip person ifthe person is alive at the termination of the leadinterest

Unintended Consequences of theAutomatic Allocation Rules?

• Straightforward ILIT is a GST Trust?– Sprinkle trust for spouse and children– Upon death of last to die of grantor and spouse, division into

per stirpes shares for descendants, with each descendant’sshare held in trust until age 40

– Exceptions 3, 4, 5 and 6 clearly don’t apply– Exceptions 1 and 2 seem like they were intended to apply but,

under a close inspection, may not apply– Result is an automatic allocation to a trust that the grantor

likely did not intend to have exemption applied to– Opt out


• Straightforward ILIT is a GST Trust?– Sprinkle trust for spouse and children– Upon death of last to die of grantor and spouse, division into

per stirpes shares for descendants, with each descendant’sshare held in trust until age 40

– Exceptions 3, 4, 5 and 6 clearly don’t apply– Exceptions 1 and 2 seem like they were intended to apply but,

under a close inspection, may not apply– Result is an automatic allocation to a trust that the grantor

likely did not intend to have exemption applied to– Opt out

Unintended Consequences of theAutomatic Allocation Rules?

• Termination of an ETIP in a GRAT or QPRT– Suppose GRAT or QPRT provides for distribution to an “ILIT-like”

trust upon expiration of the trust term– None of the exceptions would appear to apply; therefore, the

trust probably is a GST trust– An allocation of GST exemption to property subject to an ETIP is

not effective until the close of the ETIP– Result is an automatic allocation to the trust, utilizing GST

exemption in an amount equal to the full value of the trustproperty at the close of the ETIP

– This could cause a waste of the grantor’s entire exemption– Opt out


• Termination of an ETIP in a GRAT or QPRT– Suppose GRAT or QPRT provides for distribution to an “ILIT-like”

trust upon expiration of the trust term– None of the exceptions would appear to apply; therefore, the

trust probably is a GST trust– An allocation of GST exemption to property subject to an ETIP is

not effective until the close of the ETIP– Result is an automatic allocation to the trust, utilizing GST

exemption in an amount equal to the full value of the trustproperty at the close of the ETIP

– This could cause a waste of the grantor’s entire exemption– Opt out

Contact Information

Daniel L. DanielsWiggin and Dana LLP30 Milbank Avenue

Greenwich, CT 06830203.363.7665

[email protected]

Tracy J. RobertsPowell Roberts, Inc

959 S. Coast Drive, Suite 380,Costa Mesa, CA 92626

[email protected]

http://powellroberts.com/


Daniel L. DanielsWiggin and Dana LLP30 Milbank Avenue

Greenwich, CT 06830203.363.7665

[email protected]

Tracy J. RobertsPowell Roberts, Inc

959 S. Coast Drive, Suite 380,Costa Mesa, CA 92626

[email protected]

http://powellroberts.com/

Filing Requirements: Who What When Where

Filing Requirements: Who What When Where

General rule: Gifts to another person inexcess of the annual exclusion amount($14,000 for 2017) or a future interest mustbe reported.

Exceptions: Gifts between citizen spouses (other than non-qualifying

terminable interests) Transfers to political organizations Payments that qualify for the educational exclusion Payments that qualify for the medical exclusion Gift splitting between spouses

General rule: Gifts to another person inexcess of the annual exclusion amount($14,000 for 2017) or a future interest mustbe reported.

Exceptions: Gifts between citizen spouses (other than non-qualifying

terminable interests) Transfers to political organizations Payments that qualify for the educational exclusion Payments that qualify for the medical exclusion Gift splitting between spouses

44

Form 709 is an annual return. Donors must file a Form 709 no earlier than January 1, but no

later than April 15, of the year after the gift was made. For donors dying during the year the gift was made, the 709

return is due not later than the earlier of : The due date of the donors estate tax return, or April 15 of the year after the gift was made, or the extended

due date granted for filing the donor’s gift tax return. Extension of Time to File (not an extension to pay). Extending the donor’s time to file his or her income tax return

will automatically extend the time to file the donor’s Form709

Form 8892

Form 709 is an annual return. Donors must file a Form 709 no earlier than January 1, but no

later than April 15, of the year after the gift was made. For donors dying during the year the gift was made, the 709

return is due not later than the earlier of : The due date of the donors estate tax return, or April 15 of the year after the gift was made, or the extended

due date granted for filing the donor’s gift tax return. Extension of Time to File (not an extension to pay). Extending the donor’s time to file his or her income tax return

will automatically extend the time to file the donor’s Form709

Form 8892

45

By mail: Department of the Treasury Internal Revenue Service Center Cincinnati, OH 45999

By private delivery service (DHL, FedEx, UPS): Internal Revenue Service 201 West Rivercenter Boulevard Covington, KY 41011

By mail: Department of the Treasury Internal Revenue Service Center Cincinnati, OH 45999

By private delivery service (DHL, FedEx, UPS): Internal Revenue Service 201 West Rivercenter Boulevard Covington, KY 41011

46

Is the donor married? Community property or election to

split gifts? Generally, if you split onegift, you must split them all.

Is the non-donor spouse required tofile a Form 709?

Is the donee a “skip person”?

Is the donor married? Community property or election to

split gifts? Generally, if you split onegift, you must split them all.

Is the non-donor spouse required tofile a Form 709?

Is the donee a “skip person”?

47

Schedule A Gifts Subject Only to Gift Tax Gifts to donor’s spouse Gifts to third parties that are to be split with donor’s spouse Charitable gifts Other gifts Direct skips Only those gifts that are currently subject to both the gift and

GST taxes Indirect skips Some gifts made to trusts are subject only to gift tax at the

time of the transfer but may later be subject to GST tax.

Schedule A Gifts Subject Only to Gift Tax Gifts to donor’s spouse Gifts to third parties that are to be split with donor’s spouse Charitable gifts Other gifts Direct skips Only those gifts that are currently subject to both the gift and

GST taxes Indirect skips Some gifts made to trusts are subject only to gift tax at the

time of the transfer but may later be subject to GST tax.

48

Sample description of cash bequest to non-skipperson

49

Sample description of cash bequest to a trust that is a skipperson

50

Sample description of cash and securities bequest to a GRATthat may benefit a skip person

51

Sample description of gift of units in an LLC to a trust that maybenefit a skip person

52

Automatic Allocation and 2632 elections Direct skip: Opt out by checking column C on Schedule A, Part 2 and pay

the GST Tax or pay the GST Tax on a timely fired Form 709. Indirect skip (check column C on Schedule A, Part 3 – and

attach a statement explaining the election): Opt out one time Opt out forever Opt in

Automatic Allocation and 2632 elections Direct skip: Opt out by checking column C on Schedule A, Part 2 and pay

the GST Tax or pay the GST Tax on a timely fired Form 709. Indirect skip (check column C on Schedule A, Part 3 – and

attach a statement explaining the election): Opt out one time Opt out forever Opt in

53

Sample allocation of GST exemption when no elections aremade:

ALLOCATION OF GST EXEMPTIONSchedule D, Part 2

2017 Form 709 – United States Gift (and Generation-Skipping Transfer)Tax Return for Jed Clampet (SSN: 123-45-6789)

As indicated on this return at Schedule D, Part 2, Line 3, Jed Clampet (“Donor”) has $5,340,000 of GST exemptionavailable for this return.

SCHEDULE D, PART 2, LINE 5

To the extent that the automatic allocation rules do not apply with respect to the gifts reported on this return, Donorhereby allocates GST exemption to the gift reported on this return as item 1 of Schedule A-1, Part 3 as follows:

1. Beverly Hills Trust Company, Trustee of the Elle Mae Clampet TrustEIN 11-1111111The gift to the trust reported on this Form 709 to which the Donor wishes to allocate GST exemption is thetransfer described in item 1 of Schedule A-1, Part 3. The amount of GST exemption allocated to this gift on thisForm 709 as filed by the Donor is $100,000.00; provided that Donor intends to allocate, and hereby allocates,the smallest amount of GST exemption necessary to produce a zero inclusion ratio as to such property (as theterm “inclusion ratio” is defined in Section 2642(a) of the Internal Revenue Code of 1986 (the “Code”)). Based onthis Form 709 as filed, the smallest amount of GST exemption necessary to produce an inclusion ratio of zero (asto the value of the properties of the trust deemed contributed by Donor) is $100,000.00 pursuant to Section2642(b)(1) of the code.

TOTAL GST EXEMPTION ALLOCATED TO SCHEDULE D, PART 2, LINE 5= $100,000.00 (subject to adjustment as noted)

ALLOCATION OF GST EXEMPTIONSchedule D, Part 2

2017 Form 709 – United States Gift (and Generation-Skipping Transfer)Tax Return for Jed Clampet (SSN: 123-45-6789)

As indicated on this return at Schedule D, Part 2, Line 3, Jed Clampet (“Donor”) has $5,340,000 of GST exemptionavailable for this return.

SCHEDULE D, PART 2, LINE 5

To the extent that the automatic allocation rules do not apply with respect to the gifts reported on this return, Donorhereby allocates GST exemption to the gift reported on this return as item 1 of Schedule A-1, Part 3 as follows:

1. Beverly Hills Trust Company, Trustee of the Elle Mae Clampet TrustEIN 11-1111111The gift to the trust reported on this Form 709 to which the Donor wishes to allocate GST exemption is thetransfer described in item 1 of Schedule A-1, Part 3. The amount of GST exemption allocated to this gift on thisForm 709 as filed by the Donor is $100,000.00; provided that Donor intends to allocate, and hereby allocates,the smallest amount of GST exemption necessary to produce a zero inclusion ratio as to such property (as theterm “inclusion ratio” is defined in Section 2642(a) of the Internal Revenue Code of 1986 (the “Code”)). Based onthis Form 709 as filed, the smallest amount of GST exemption necessary to produce an inclusion ratio of zero (asto the value of the properties of the trust deemed contributed by Donor) is $100,000.00 pursuant to Section2642(b)(1) of the code.

TOTAL GST EXEMPTION ALLOCATED TO SCHEDULE D, PART 2, LINE 5= $100,000.00 (subject to adjustment as noted)

54

Supplemental Documents (Form 712, Appraisals, any other valuationmethodology)

Reporting non-gift transfers and adequate disclosure – the gift mustbe disclosed adequately to begin the running of the statute oflimitations .

Typically, a gift will be adequately disclosed if the return orstatement includes: A full complete Form 709 A description of the transferred property and any consideration

received by the donor; The identity of, and relationship between the donor and each

donee; For property transferred in a trust, the trust’s EIN and a brief

description of the terms of the trust (or a copy of the trust ). Either: (1) a qualified appraisal; or (2) a detailed description of

the method used to determine the fair market value of the gift.

Supplemental Documents (Form 712, Appraisals, any other valuationmethodology)

Reporting non-gift transfers and adequate disclosure – the gift mustbe disclosed adequately to begin the running of the statute oflimitations .

Typically, a gift will be adequately disclosed if the return orstatement includes: A full complete Form 709 A description of the transferred property and any consideration

received by the donor; The identity of, and relationship between the donor and each

donee; For property transferred in a trust, the trust’s EIN and a brief

description of the terms of the trust (or a copy of the trust ). Either: (1) a qualified appraisal; or (2) a detailed description of

the method used to determine the fair market value of the gift.

55

Under Treas. Reg. § 25.2513-2(a)(1), consent maybe signified in one of three ways on line 18:

Criss-Cross: The consent of each spouse may be signifiedon the other spouse’s 709.

Straight-Lines: The consent of each spouse may besignified on his or her own 709; or

Doubling-Up: The consent of both spouses may besignified on one of the returns.

Under Treas. Reg. § 25.2513-2(a)(1), consent maybe signified in one of three ways on line 18:

Criss-Cross: The consent of each spouse may be signifiedon the other spouse’s 709.

Straight-Lines: The consent of each spouse may besignified on his or her own 709; or

Doubling-Up: The consent of both spouses may besignified on one of the returns.

56

The “criss-cross” signing technique is the mostcommonly used, because it is found in theInstructions to the Form 709.

The “doubling-up” technique should be used ifone of the exceptions to the rule requiring theconsenting spouse to file a return applies so thatonly the donor spouse files a Form 709.

Tres. Reg. § 25.2513-2(a)(1) requires that theconsent of both spouses be signified on thedonor spouse’s 709.

The “criss-cross” signing technique is the mostcommonly used, because it is found in theInstructions to the Form 709.

The “doubling-up” technique should be used ifone of the exceptions to the rule requiring theconsenting spouse to file a return applies so thatonly the donor spouse files a Form 709.

Tres. Reg. § 25.2513-2(a)(1) requires that theconsent of both spouses be signified on thedonor spouse’s 709.

57

In the case of a split gift, the Instructions to Form 709 require thatthe entire value of every gift made during the calendar year whilemarried be entered on the donor spouse’s Schedule A, even if giftsto any one donee are valued at less than $14,000 before gift-splitting, and even though the same gifts would not have to bereported on a return where gift-splitting was not elected.

TIP: If a donor made gifts of small amounts to several individuals, itshould be acceptable to lump those smaller gifts together with astatement on Schedule A to the effect of:

Seven different individuals, names and addresses available uponrequest.

Various gifts to friends and family totaling $23,000. The mostgiven to any one individual was $5,000.

In the case of a split gift, the Instructions to Form 709 require thatthe entire value of every gift made during the calendar year whilemarried be entered on the donor spouse’s Schedule A, even if giftsto any one donee are valued at less than $14,000 before gift-splitting, and even though the same gifts would not have to bereported on a return where gift-splitting was not elected.

TIP: If a donor made gifts of small amounts to several individuals, itshould be acceptable to lump those smaller gifts together with astatement on Schedule A to the effect of:

Seven different individuals, names and addresses available uponrequest.

Various gifts to friends and family totaling $23,000. The mostgiven to any one individual was $5,000.

58

59

Taxpayers must indicate in question A, locatedat the top of Schedule A, whether the value ofany gift reported on Schedule A reflects adiscount of any kind. If yes, taxpayers arerequired to attach an explanation of the basisfor the discounts and show the amount of thediscounts taken.

Taxpayers must indicate in question A, locatedat the top of Schedule A, whether the value ofany gift reported on Schedule A reflects adiscount of any kind. If yes, taxpayers arerequired to attach an explanation of the basisfor the discounts and show the amount of thediscounts taken.

60

Statute of Limitations for Gift Tax Returns

IRC Section 6501(a) provides that the statute oflimitations for assessment of tax is generallythree years from the time tax return is filed.Returns filed before April 15th, are treated as having

been filed on April 15th (or the due date of the returnthat year, if different) for purposes of determining theend of the statute of limitations period.For late-filed returns, the three year period begins

running the date the return is filed.

Statute of Limitations for Gift Tax Returns

IRC Section 6501(a) provides that the statute oflimitations for assessment of tax is generallythree years from the time tax return is filed.Returns filed before April 15th, are treated as having

been filed on April 15th (or the due date of the returnthat year, if different) for purposes of determining theend of the statute of limitations period.For late-filed returns, the three year period begins

running the date the return is filed.

61

Statute of Limitations for Gift Tax Returns Exceptions: filing a false return, fraud, and failure to

adequately disclose. For failure to adequately disclose,the IRS may institute a proceeding to challenge theinadequately disclosed gift at any time.

For taxpayers who omit an amount in excess of 25% ofthe gifts reported are subject to a six year statute oflimitations.

See CCA 200221010 for an example of where the IRSapplied Section 6501(e)(2).

Statute of Limitations for Gift Tax Returns Exceptions: filing a false return, fraud, and failure to

adequately disclose. For failure to adequately disclose,the IRS may institute a proceeding to challenge theinadequately disclosed gift at any time.

For taxpayers who omit an amount in excess of 25% ofthe gifts reported are subject to a six year statute oflimitations.

See CCA 200221010 for an example of where the IRSapplied Section 6501(e)(2).

62

5 Year Election

Taxpayers may “front-end load” gifts to QTPsunder IRC Sec. 529 by electing to treat up tofive times the annual exclusion amount($70,000 in 2015 and 2016) as made ratablyover a 5-year period, beginning in the year ofthe contribution. To make this election, checkthe box in question B, located at the top ofSchedule A.

5 Year Election

Taxpayers may “front-end load” gifts to QTPsunder IRC Sec. 529 by electing to treat up tofive times the annual exclusion amount($70,000 in 2015 and 2016) as made ratablyover a 5-year period, beginning in the year ofthe contribution. To make this election, checkthe box in question B, located at the top ofSchedule A.

63

Gifts Subject Only to Gift Tax

65

Ordering the Gifts Place gifts reported on Part 1 into one of four categories,

then list earliest to latest within each category: Gifts made to your spouse. Gifts made to third parties that are to be split with your spouse. Charitable gifts (if you are not splitting gifts with your spouse). Other gifts.

For transfers that result in gifts to two or more individuals(such as life estate to one with the remainder to the other),list the each gift separately.

Assign a separate item number to each transfer listed onSchedule A.

Ordering the Gifts Place gifts reported on Part 1 into one of four categories,

then list earliest to latest within each category: Gifts made to your spouse. Gifts made to third parties that are to be split with your spouse. Charitable gifts (if you are not splitting gifts with your spouse). Other gifts.

For transfers that result in gifts to two or more individuals(such as life estate to one with the remainder to the other),list the each gift separately.

Assign a separate item number to each transfer listed onSchedule A.

66

Column B: Report gifts in chronological order. Identifythe donee’s name and address, the relationship of thedonee to the donor and a description of the gift. If asecurity was gifted, such as a stock or bond, list theCUSIP number for such security.

Column C: Column C is not applicable in Part 1 ofSchedule A.

Column D: Taxpayer’s basis in the gifted property.Typically this is cost plus improvements, less applicable

depreciation, amortization, and depletion.TIP: Useful to share basis information with the beneficiary of the

asset, because this will be the beneficiary's basis in the asset aswell.

Column B: Report gifts in chronological order. Identifythe donee’s name and address, the relationship of thedonee to the donor and a description of the gift. If asecurity was gifted, such as a stock or bond, list theCUSIP number for such security.

Column C: Column C is not applicable in Part 1 ofSchedule A.

Column D: Taxpayer’s basis in the gifted property.Typically this is cost plus improvements, less applicable

depreciation, amortization, and depletion.TIP: Useful to share basis information with the beneficiary of the

asset, because this will be the beneficiary's basis in the asset aswell.

67

Column E: Date the gift was made to the donee. Ifgifts were made to a donee on a monthly basis, it ispermissible to state “Various” as the date of the gift.

Column F: Fair market value of the gifted property asof the date of the gift. If a valuation discount wastaken, the discounted value is reflected in column Fand the taxpayer must indicate that a valuationdiscount was taken, as discussed above, byanswering yes to question A, located at the top ofSchedule A. The taxpayer should disclose theappropriate information and attach the requireddocumentation to the Form 709. IRC Sec. 6501.

Column E: Date the gift was made to the donee. Ifgifts were made to a donee on a monthly basis, it ispermissible to state “Various” as the date of the gift.

Column F: Fair market value of the gifted property asof the date of the gift. If a valuation discount wastaken, the discounted value is reflected in column Fand the taxpayer must indicate that a valuationdiscount was taken, as discussed above, byanswering yes to question A, located at the top ofSchedule A. The taxpayer should disclose theappropriate information and attach the requireddocumentation to the Form 709. IRC Sec. 6501.

68

Column G: One-half of the fair market value reported incolumn F in cases in which the taxpayer has elected tosplit the gifts with his or her spouse under Section 2513 ofthe Code.◦ If the taxpayer is filing a 709 to report gifts of a spouse for which

a gift-splitting election was made, and the taxpayer did not makeany gifts of her own during that year, no transfers will be listed inthe top half of Part 1; the bottom half of Part 1 would include thefull value of the taxpayer’s spouse’s gift in Column F, and one-half the value in Column G.

Column H: The net transfer. If the taxpayer elects to splither gifts with her spouse under Section 2513 of the Code,the gift is reduced by one-half of hher gifts (this one-halfis reported un Column G, as described above).

Column G: One-half of the fair market value reported incolumn F in cases in which the taxpayer has elected tosplit the gifts with his or her spouse under Section 2513 ofthe Code.◦ If the taxpayer is filing a 709 to report gifts of a spouse for which

a gift-splitting election was made, and the taxpayer did not makeany gifts of her own during that year, no transfers will be listed inthe top half of Part 1; the bottom half of Part 1 would include thefull value of the taxpayer’s spouse’s gift in Column F, and one-half the value in Column G.

Column H: The net transfer. If the taxpayer elects to splither gifts with her spouse under Section 2513 of the Code,the gift is reduced by one-half of hher gifts (this one-halfis reported un Column G, as described above).

69

Most traditional trusts will be reported onPart 3 of Schedule A. A trust will only bereported on Part 1 if it is (1) a non-skipperson that is (2) not a GST Trust. Followingis a sampling of trusts that would be reportedon Part 1:

2503(c) Trust for a Non-Skip Persons. A 2503(c)trust (discussed in the next section) created for thegrantor’s child, niece, nephew, or other non-skipperson is properly reported on Part 1.

Most traditional trusts will be reported onPart 3 of Schedule A. A trust will only bereported on Part 1 if it is (1) a non-skipperson that is (2) not a GST Trust. Followingis a sampling of trusts that would be reportedon Part 1:

2503(c) Trust for a Non-Skip Persons. A 2503(c)trust (discussed in the next section) created for thegrantor’s child, niece, nephew, or other non-skipperson is properly reported on Part 1.

70

Direct Skips

71

All Gifts that are subjectto both GST tax and gifttax (direct skips) arereported on Part 2 ofSchedule A, inchronological order.

All Gifts that are subjectto both GST tax and gifttax (direct skips) arereported on Part 2 ofSchedule A, inchronological order.

72

An individual’s GST tax exemption will beautomatically allocated to the direct skips sothat the inclusion ratio of the property is zero.IRC Sec. 2632(b).

To opt-out of the automatic allocation of GST taxexemption to direct skips, mark Column C of Part 2of Schedule A. An explanation must be attached tothe 709 clearly describing the transaction and theextent to which the automatic allocation of GST taxexemption should not apply.

An individual’s GST tax exemption will beautomatically allocated to the direct skips sothat the inclusion ratio of the property is zero.IRC Sec. 2632(b).

To opt-out of the automatic allocation of GST taxexemption to direct skips, mark Column C of Part 2of Schedule A. An explanation must be attached tothe 709 clearly describing the transaction and theextent to which the automatic allocation of GST taxexemption should not apply.

73

Outright Gifts – Gifts of cash, stock, or otherproperty to a grandchild or other skip person.

Contributions to QTPs – A contribution to a QTPfor a grandchild or other skip person.

Skip Person Trusts – If a trust is a skip person,the GST occurs when the trust is established andfunded (i.e., it is a direct skip). There will be notaxable distributions when distributions aremade to trust beneficiaries, and there will be notaxable termination when the trust terminates.

Outright Gifts – Gifts of cash, stock, or otherproperty to a grandchild or other skip person.

Contributions to QTPs – A contribution to a QTPfor a grandchild or other skip person.

Skip Person Trusts – If a trust is a skip person,the GST occurs when the trust is established andfunded (i.e., it is a direct skip). There will be notaxable distributions when distributions aremade to trust beneficiaries, and there will be notaxable termination when the trust terminates.

74

2503(c) Trust for Grandchildren – If a taxpayercreates a 2503(c) trust for a grandchild or otherskip person, that trust should be reported on Part2.

Practice Pointer for Gifts to Skip Person Trusts –If the taxpayer creates a skip person trust simplyto contribute the annual exclusion amount to thetrust each year, the taxpayer should not opt outof automatic allocation of GST exemption. If amistake is made in the valuation or the valuationis challenged, the taxpayer would not owe GSTtax, interest and penalties.

2503(c) Trust for Grandchildren – If a taxpayercreates a 2503(c) trust for a grandchild or otherskip person, that trust should be reported on Part2.

Practice Pointer for Gifts to Skip Person Trusts –If the taxpayer creates a skip person trust simplyto contribute the annual exclusion amount to thetrust each year, the taxpayer should not opt outof automatic allocation of GST exemption. If amistake is made in the valuation or the valuationis challenged, the taxpayer would not owe GSTtax, interest and penalties.

75

Indirect Skips

76

A fair number of gifts made to trustsare subject only to gift tax at the timeof the transfer but later may be subjectto GST tax. The GST tax could applyeither at the time of a distribution fromthe trust, at the termination of thetrust, or both

In Part 3 list those gifts that areindirect skips as defined in section2632(c) or may later be subject to GSTtax in chronological order. Thisincludes indirect skips for which any2632(c) election will be made.

A fair number of gifts made to trustsare subject only to gift tax at the timeof the transfer but later may be subjectto GST tax. The GST tax could applyeither at the time of a distribution fromthe trust, at the termination of thetrust, or both

In Part 3 list those gifts that areindirect skips as defined in section2632(c) or may later be subject to GSTtax in chronological order. Thisincludes indirect skips for which any2632(c) election will be made.

77

How to Opt-Out - Any 2632(c) election can be made on theForm 709 by marking column C of Part 3 of Schedule A andattaching an explanation describing the desired election andthe transfers and trusts to which it will apply.

When to Opt-Out – The deadline for making any 2632(c)election is the due date (including extensions) of the Form709 for the year the original transfer occurs. Treas. Reg.26.2632-1(a).

Election-Out Statement – The taxpayer must attach an“election out statement” to a timely filed 709 (whether or nota 709 is otherwise required). The election out statementmust…

How to Opt-Out - Any 2632(c) election can be made on theForm 709 by marking column C of Part 3 of Schedule A andattaching an explanation describing the desired election andthe transfers and trusts to which it will apply.

When to Opt-Out – The deadline for making any 2632(c)election is the due date (including extensions) of the Form709 for the year the original transfer occurs. Treas. Reg.26.2632-1(a).

Election-Out Statement – The taxpayer must attach an“election out statement” to a timely filed 709 (whether or nota 709 is otherwise required). The election out statementmust…

78

Identify the trust by its name and tax ID number (unlessthe trust is not in existence at the time of the electionout);

Identify the transfers to which the election out shallapply;

State that the taxpayer is electing out of the automaticallocation rules with respect to the transfer(s) describedtherein.

Identify any prior year transfer subject to Section2642(f) of the Code (ETIPs). Treas. Reg. §26.2632-1(b)(2)(iii)(B).

Unless the election out is made for all transfers made tothe trust in the current year and/or in all futuretransfers to which the election out is to apply, thetransfers must be specifically described or otherwiseidentified in the election out statement.

Identify the trust by its name and tax ID number (unlessthe trust is not in existence at the time of the electionout);

Identify the transfers to which the election out shallapply;

State that the taxpayer is electing out of the automaticallocation rules with respect to the transfer(s) describedtherein.

Identify any prior year transfer subject to Section2642(f) of the Code (ETIPs). Treas. Reg. §26.2632-1(b)(2)(iii)(B).

Unless the election out is made for all transfers made tothe trust in the current year and/or in all futuretransfers to which the election out is to apply, thetransfers must be specifically described or otherwiseidentified in the election out statement.

79

To terminate an election to not have theautomatic allocation rules apply to any transfersmade to a specific trust, the termination may bedone on a timely filed 709 for the year in whichthe taxpayer wants the elections to terminate(whether or not a 709 is otherwise required to befiled for such year). Treas. Reg. §26.2632-1(b)(2)(iii)(E).◦ Termination Statement. A statement, referred to in the

Regulations as a “termination statement,” must beattached to the 709 identifying the trust, describing theprior election that is being terminated and specificallyproviding that such election out is being terminated, andeither describe the extent to which the prior election outis being terminated or describe any current-yeartransfers to which the prior election is not to apply.

To terminate an election to not have theautomatic allocation rules apply to any transfersmade to a specific trust, the termination may bedone on a timely filed 709 for the year in whichthe taxpayer wants the elections to terminate(whether or not a 709 is otherwise required to befiled for such year). Treas. Reg. §26.2632-1(b)(2)(iii)(E).◦ Termination Statement. A statement, referred to in the

Regulations as a “termination statement,” must beattached to the 709 identifying the trust, describing theprior election that is being terminated and specificallyproviding that such election out is being terminated, andeither describe the extent to which the prior election outis being terminated or describe any current-yeartransfers to which the prior election is not to apply.

80

If an election to permanently opt out of orpermanently opt-in to automatic allocation hasbeen made, there is no need to check column Cfor gifts to the same trust in subsequent years.

You should note that the prior election has beenmade in column B. For example, under thedescription of the gift and trust in column B,state:

“On Taxpayer’s 2012 Form 709, taxpayer made anelection under Treas. Reg. 26.2632-1(b)(2)(iii) to haveautomatic allocation rules not apply for all futuretransfers to this trust.”

If an election to permanently opt out of orpermanently opt-in to automatic allocation hasbeen made, there is no need to check column Cfor gifts to the same trust in subsequent years.

You should note that the prior election has beenmade in column B. For example, under thedescription of the gift and trust in column B,state:

“On Taxpayer’s 2012 Form 709, taxpayer made anelection under Treas. Reg. 26.2632-1(b)(2)(iii) to haveautomatic allocation rules not apply for all futuretransfers to this trust.”

81

Item Number 1, Column B of Schedule A lists the totalamount of cash gifted to the trust, the trust name, and tax IDnumber. If the total amount contributed exceeds theCrummey withdrawal rights, report that excess amount inColumn F of the same item.

Next, report the gifts to the Crummey withdrawal rightbeneficiaries, with a separate item number for eachbeneficiary. Example:◦ Item 1: Cash gift of $18,000 to the Doe a Deer Insurance Trust,

EIN: 19-2345678. A copy of the Trust is attached as Exhibit A.[report a gift of $4,000 in Column F. ]

◦ Notices of rights to withdrawal property from the Doe a DeerInsurance Trust were provided to the beneficiaries listed below.

◦ Item 2: Bambi DeerAddressSonCash [report a gift of $14,000 in Column F.]

Item Number 1, Column B of Schedule A lists the totalamount of cash gifted to the trust, the trust name, and tax IDnumber. If the total amount contributed exceeds theCrummey withdrawal rights, report that excess amount inColumn F of the same item.

Next, report the gifts to the Crummey withdrawal rightbeneficiaries, with a separate item number for eachbeneficiary. Example:◦ Item 1: Cash gift of $18,000 to the Doe a Deer Insurance Trust,

EIN: 19-2345678. A copy of the Trust is attached as Exhibit A.[report a gift of $4,000 in Column F. ]

◦ Notices of rights to withdrawal property from the Doe a DeerInsurance Trust were provided to the beneficiaries listed below.

◦ Item 2: Bambi DeerAddressSonCash [report a gift of $14,000 in Column F.]

82

Section 6694 could subject a preparer topenalties if they take a position on a returnwithout having substantial authority for thatposition. Treas. Reg. 1.6662-4(d) (3)determines substantial authority andgenerally means the weight of authoritysupporting the claimed treatment must besubstantial in relation to the weight ofauthority supporting contrary treatment.

Section 6694 could subject a preparer topenalties if they take a position on a returnwithout having substantial authority for thatposition. Treas. Reg. 1.6662-4(d) (3)determines substantial authority andgenerally means the weight of authoritysupporting the claimed treatment must besubstantial in relation to the weight ofauthority supporting contrary treatment.

83

When a taxpayer gifts or sells an asset that is difficult to value,an adjustment clause is often necessary. The purpose of thisclause is to prevent the imposition of additional gift tax if theIRS later revalues the assets transferred and determines thatsuch value exceeds the value reported on the 709.

******Cases Permitting Formula Clauses****** In Estate of Petter v. Commissioner, T.C. Memo 2009-280,

the Tax Court upheld gifts and sales to grantor trusts thatwere defined by dollar amounts “as finally determined forfederal gift tax purposes,” with the excess directed to twocharitable community foundations.

When a taxpayer gifts or sells an asset that is difficult to value,an adjustment clause is often necessary. The purpose of thisclause is to prevent the imposition of additional gift tax if theIRS later revalues the assets transferred and determines thatsuch value exceeds the value reported on the 709.

******Cases Permitting Formula Clauses****** In Estate of Petter v. Commissioner, T.C. Memo 2009-280,

the Tax Court upheld gifts and sales to grantor trusts thatwere defined by dollar amounts “as finally determined forfederal gift tax purposes,” with the excess directed to twocharitable community foundations.

84

For formula clauses make sure you file a gift taxreturn that reports the gift using the formula.Following is an example of a Wandry-typeformula that would be properly reported(assuming substantial authority exists):

Bambi Deer, 123 Forest Lane

That number of units having the value listedin column “F” of this Schedule A. Based on theappraisal attached as Exhibit __, the taxpayer hasallocated X units to recipient, but such number of

units will change if the value of a unit changes onaudit.

For formula clauses make sure you file a gift taxreturn that reports the gift using the formula.Following is an example of a Wandry-typeformula that would be properly reported(assuming substantial authority exists):

Bambi Deer, 123 Forest Lane

That number of units having the value listedin column “F” of this Schedule A. Based on theappraisal attached as Exhibit __, the taxpayer hasallocated X units to recipient, but such number of

units will change if the value of a unit changes onaudit.

85

Statements attached to 709: To use the rate in effectfor either of the two months preceding the transfer,the taxpayer must make an election as provided forin the Regulations. The taxpayer should attach astatement to the 709 stating that the election isbeing made. Further, such statement should describethe interest being valued, provide the valuation date,identify the beneficiaries, and the parties whose liveswere used to calculate the value of the discount.◦ If any of the measuring lives are terminally ill, the

taxpayer should disclose such fact on the statementand provide an explanation as to how the illnessimpacted the calculation of the remainder interests.Finally, a computation of the deduction should beincluded.

Statements attached to 709: To use the rate in effectfor either of the two months preceding the transfer,the taxpayer must make an election as provided forin the Regulations. The taxpayer should attach astatement to the 709 stating that the election isbeing made. Further, such statement should describethe interest being valued, provide the valuation date,identify the beneficiaries, and the parties whose liveswere used to calculate the value of the discount.◦ If any of the measuring lives are terminally ill, the

taxpayer should disclose such fact on the statementand provide an explanation as to how the illnessimpacted the calculation of the remainder interests.Finally, a computation of the deduction should beincluded.

86

Time period for the election: The election shouldbe made on the first return on which the taxpayertakes the charitable deduction (income or gift).Also, the taxpayer may file an amended 709 tomake the election, provided that the return is filedwithin 24 months after the later of the date theoriginal return for the year was filed or the duedate for filing the return. Treas. Reg. §25.7520-2(b)(1).

Revocability of election: The taxpayer may revokesuch election by filing an amended return within 24months after the later of the date the originalreturn was filed or the due date for filing thereturn. Treas. Reg. §24.7520-2(b)(3).

Time period for the election: The election shouldbe made on the first return on which the taxpayertakes the charitable deduction (income or gift).Also, the taxpayer may file an amended 709 tomake the election, provided that the return is filedwithin 24 months after the later of the date theoriginal return for the year was filed or the duedate for filing the return. Treas. Reg. §25.7520-2(b)(1).

Revocability of election: The taxpayer may revokesuch election by filing an amended return within 24months after the later of the date the originalreturn was filed or the due date for filing thereturn. Treas. Reg. §24.7520-2(b)(3).

87

Thank you.

Scott K. TippettThe Tippett Law Firm, PLLC

Greensboro, NCwww.tippettlawfirm.com

[email protected]

Thank you.

Scott K. TippettThe Tippett Law Firm, PLLC

Greensboro, NCwww.tippettlawfirm.com

[email protected]

88