884 / How is the GST tax applied to nontaxable gifts?

In the case of any direct skip which is a nontaxable gift, the inclusion ratio is zero. For this purpose, a nontaxable gift means any transfer of property to the extent the transfer is not treated as a taxable gift by reason of the gift tax annual exclusion (taking into account the split gift provision for married couples–see Q 905) or the “qualified transfer” exclusion (see Q 905). In other words, there is no GST tax imposed on direct skip gifts that come within the gift tax annual exclusion or that are “qualified transfers.” However, with respect to transfers after March 31, 1988, a nontaxable gift which is a direct skip to a trust for the benefit of an individual has an inclusion ratio of zero only if (1) during the life of such individual no portion of the trust corpus or income may be distributed to or for the benefit of any other person, and (2) the trust would be included in such individual’s estate if the trust did not terminate before such individual
died.¹

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1.    IRC § 2642(c).

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