In a taxable termination scenario, when is the GST exemption allocated?

In a taxable termination scenario, when is the GST exemption allocated?

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

Answer: (B)

GST exemption is allocated when property is transferred into the trust, by the donor or the donor’s estate in the year of funding. That allocation designates how much of the donor’s lifetime exemption is used to exempt that transfer from generation-skipping tax. Even if a taxable termination later occurs, the exemption that offsets any GST tax on that termination was already allocated at the time the trust was funded. The donee does not allocate the exemption, and waiting until termination would miss the proper allocation timing.

GST exemption is allocated when property is transferred into the trust, by the donor or the donor’s estate in the year of funding. That allocation designates how much of the donor’s lifetime exemption is used to exempt that transfer from generation-skipping tax. Even if a taxable termination later occurs, the exemption that offsets any GST tax on that termination was already allocated at the time the trust was funded. The donee does not allocate the exemption, and waiting until termination would miss the proper allocation timing.