Allocation of GST exemption for an irrevocable trust subject to a taxable termination is made by which of the following?

Allocation of GST exemption for an irrevocable trust subject to a taxable termination is made by which of the following?

• A. Donor or donor's estate at termination.
• B. Donee at the time the donee receives the property.
• C. Donor or donor's estate at the time the trust is funded.
• D. Donee at the time the trust is funded.

Answer: (C)

GST exemption is allocated to transfers to a trust at the moment the property is funded into the irrevocable trust. The person who creates the trust—the donor—or the donor’s estate when the donor dies has the authority to make that allocation. This is because the exemption attaches to the transfer event itself, not to later events like termination or distributions to the beneficiaries. Allocating at funding ensures the trust’s future skip-generation transfers are sheltered up to the allocated amount, even if the trust later experiences a taxable termination. The donee or beneficiary does not control this allocation, and waiting until termination or funding by the donee would not properly address the initial transfer’s GST exposure. That’s why the correct approach is that the donor or the donor’s estate allocates GST exemption at the time of funding.

GST exemption is allocated to transfers to a trust at the moment the property is funded into the irrevocable trust. The person who creates the trust—the donor—or the donor’s estate when the donor dies has the authority to make that allocation. This is because the exemption attaches to the transfer event itself, not to later events like termination or distributions to the beneficiaries.

Allocating at funding ensures the trust’s future skip-generation transfers are sheltered up to the allocated amount, even if the trust later experiences a taxable termination. The donee or beneficiary does not control this allocation, and waiting until termination or funding by the donee would not properly address the initial transfer’s GST exposure. That’s why the correct approach is that the donor or the donor’s estate allocates GST exemption at the time of funding.