The Internal Revenue Service has published a final rule and a proposed rule of interest to estate planners and other advisors who deal with generation-skipping trusts.
The final rule, based on a draft published in August 2004, describes the rules that the IRS will apply when taxpayers “sever,” or divide, trusts that are designed to last for more than one generation.
The final rule, which takes effect today, implements a provision of the Economic Growth and Tax Relief Reconciliation Act of 2001. The provision permits taxpayers who divide trusts through a “qualified severance” to treat the trusts as separate trusts for generation-skipping trust tax purposes.
In many cases, using a qualified severance of a trust will help transferors get the most out of their GST tax exemptions, IRS officials write in a preamble to the new final rule, which appears today in the Federal Register.
In the proposed rule, IRS officials suggested that the EGTRRA GST provision should replace old trust severance rules.