Trust As Beneficiary Of IRA Accounts — Generation Skipping Exemption

I am an 82-year-old, the beneficiary of my IRAs (between $1 million and $5 million) is an IRA trust that is an accumulating (also called discretionary), spendthrift, see-through trust for non-eligible designated beneficiaries. I want to make sure that my generation skipping exemption is applied to this trust. Since some of the beneficiaries are skip people and some are not skipped persons, I do not think this application of GST exemption is automatic. It is my understanding that I (the trustee) need to declare my intention to use my GST exemption for this trust on an estate tax form 706.

Question 1: Am I correct that a form 706 (or is 709) needs to be filed even though no estate tax is due? If not, how is the GST exemption applied and what documentation needs to be kept of this application?

Question 2: I assume that the act of retitling the IRAs as inherited IRAs with the tax ID number of the trust is what triggers the transfer of the assets (completes the gift) to the trust — not when the funds are actually distributed from the IRA account to the trust. Am I correct?



If you don’t have enough GST exemption available to fully exempt all of your GST transfers, your executors would file an estate tax return to allocate your availble GST exemption.  This could happen even if your estate is under the exclusion amount if, for example, you used more GST exemption than estate and gift tax exclusion amount during lifetime.  For example, suppose someone dies this year with a $10 million estate and without having made any taxable gifts, but gave $2 million to trusts where there was no taxable gift by reason of the annual exclusion, but they allocated $2 million of GST exemption to the gifts.
The default allocation rules are complicated.  For avoidance of doubt, where a decedent doesn’t have enough GST exemption to cover all of the possible GST transfers, we’ll show on the estate tax return where we’re allocating the decedent’s available GST exemption.
The transfer would occur when the IRA owner dies.  
Given the amount involved, you may want to consult with competent counsel.
Bruce Steiner

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