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nderstanding the inclusion ratio of a trust is crucial for effective estate planning. The inclusion ratio determines the portion of a trust’s assets that will be subject to generation-skipping transfer tax (GSTT) upon a triggering event. Generally, a trust is subject to GSTT when there is a taxable termination under section 2612(a) or a taxable distribution under section 2612(b). A taxable termination occurs when there is a termination of a non–skip person’s interest in the trust resulting in only skip persons remaining as beneficiaries. This may occur at death or due to lapse of time, exercise or release of power, disclaimer, or termination of a trust. A taxable distribution
occurs when there is a distribution of property to a skip person or termination of a trust. A trust’s inclusion ratio can change over time, as it is affected by the allocation of the transferor’s generation-skipping tax (GST) exemption, the timing of transfers to the trust, and the timing of certain triggering events such as the death of a beneficiary. To fully understand the inclusion ratio of a Carol Warley is RSM’s Washington National Tax private client services tax practice leader. Abbie M.B. Everist and Amber Waldman are members of RSM’s Washington National Tax practice. Tandilyn Cain is a CPA and CFP®.
A Guide to Reconstructing GST Exemption Allocations and Calculating the Inclusion Ratio of a Trust By Carol Warley, Abbie M.B. Everist, Amber Waldman, and Tandilyn Cain
Published in Probate & Property, Volume 37, No 6 © 2023 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
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