New Requirement to File Gift Tax Returns
By Andrew M. Grumet
Although much attention has been given to the gift and estate tax provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001, important changes may have gone unnoticed. One such change is prompting many taxpayers that have never filed gift tax returns in prior years to do so this year. Many tax preparers may be unaware of the sudden need to file gift tax returns.
The Tax Act added section 2632(c) to Chapter 13 of the IRC, which provides that any gifts to a generation-skipping transfer (GST) trust will receive an automatic allocation of a donors GST tax exemption in an amount necessary to exempt the trust from the GST tax. The section defines a GST trust as any trust that could have a generation-skipping transfer with respect to the transferor unless one of six exceptions apply. Using this definition, for example, a trust established to own a life insurance policy for the benefit of an individuals wife and children would be treated as a GST trust. If the trust provides that a grandchild will receive benefits from the trust in the event that one of donors children died leaving children of their own. This kind of trust is common and unfortunately falls within the definition of a GST trust.
Although the new section 2632(c) provides for an automatic allocation of
GST tax exemption, it also provides a way to elect out of the automatic allocation
rule. To do so, a donor must file a timely gift tax return and make an affirmative
election out of the automatic allocation rule for each trust. The election
can be either permanent or annual, at the discretion of the donor. In either
case, the election is valid only if made on a timely filed gift tax return.
Because section 2632(c) applies to all gifts made after December 31, 2000, donors who wish to elect out of the automatic allocation rules needed to have done so on or before April 15, 2002, unless an extension has been obtained. Every individual who has made a transfer to a trust during 2001 must review the trust in order to determine whether section 2632(c) applies.
Unfortunately, many tax advisers may be unaware of a taxpayers estate
planning. Because insurance trustswhich may be most affected by this
new lawoften do not need to file fiduciary income tax returns, an adviser
may be unaware of the trusts existence until after the donor has died.
Lawrence M. Lipoff, CPA
Deloitte & Touche LLP
Susan R. Schoenfeld, JD, LLM, CPA
Bessemer Trust Company, N.A.
Jerome Landau, CPA
Debra M. Simon, MST, CPA
The Videre Group, LLP
Richard H. Sonet, JD, CPA
Marks Paneth & Shron LLP
Peter Brizard, CPA
Ellen G. Gordon, CPA
Margolin Winer & Evens LLP
Jeffrey S. Gold, CPA
Joseph R. Beyda & Company P.C.
Harriet B. Salupsky, CPA
Weinick Sanders Leventhal & Company LLP
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