Funding of Pecuniary GST Exemption Share Result in Recognition of Gain or Loss, Despite Court Order to Fund with Fractional Shares

In PLR 200848009 (Nov. 28, 2008), the IRS ruled that a revocable trust must recognize gain or loss on funding a GST trust that was to receive "an amount" equal to the decedent's GST exemption, even though a local probate court ordered that the trustees fund the exemption share as a fractional share. The trustees had to delay funding for several years, because the trust assets were illiquid, and the court had ordered that the GST exemption trust receive a fractional share, so that it would share in the appreciation during the trust administration. The IRS also stated that, if the GST exemption trust received as a fractional share more than it would have received as a pecuniary gift, it would not be entirely exempt from GST tax.

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