Tax News

CCH (cch.taxgroup.com) reports:

  Amendments to Regs. §26.2642-6 and 26.2654-1, relating to the severance of a trust for generation-skipping transfer (GST) tax purposes, have been adopted. The final regulations under Code Sec. 2642 permit the trusts resulting from a qualified severance to be funded on a non-pro rata basis. However, if the funding is done on a non-pro rata basis, each asset received by a resulting trust must be valued by multiplying the fair market value of the asset held in the original trust as of the date of the severance by the fraction or percentage of that asset received by that resulting trust. Accordingly, the assets are valued without taking into account any discount or premium arising from the severance.

  The final regulations also permit a qualified severance of a trust with an inclusion ratio between zero and one into more than two resulting trusts, provided that certain requirements are satisfied. Trusts resulting from a severance that does not meet the requirements of a qualified severance will be treated as separate trusts for purposes of the GST tax, provided that the resulting trusts are recognized as separate trusts under applicable state law. However, each such resulting trust will have the same inclusion ratio as that of the original trust. In the case of a mandatory severance, the final regulations under Code Sec. 2654 provide that each resulting trust will be treated as a separate trust for GST tax purposes if the resulting trust is recognized as a separate trust under applicable state law. Each trust resulting from such a mandatory severance will have the same inclusion ratio as that of the original trust. The final regulations are effective July 31, 2008.

T.D. 9421, FINH ¶43,122

  [Document will be available on August 1, 2008. --CCH.]

Other References:

 
Code Sec. 2642

  CCH Reference - FINH ¶12,860

 
Code Sec. 2654

  CCH Reference - FINH ¶13,115

  Tax Research Consultant

  CCH Reference - TRC ESTGIFT: 57,054.05
CCH Reference - TRC ESTGIFT: 57,054.20