2016 GST Exemption
The 2016 GST Exemption is $5,450,000.
Effective 2016-01-01Source: 2016 Instructions for Form 709 (IRS)Verified 2026-08-29
Who it applies to
Donors who make gifts subject to the generation-skipping transfer tax and file IRS Form 709 for 2016
What changed this year, and why
The lifetime generation-skipping transfer (GST) exemption for 2016 is $5,450,000. This is the total amount a donor may allocate over their lifetime to shield transfers from the GST tax. The exemption may be allocated to direct skips or to transfers in trust from which generation-skipping transfers may be made in the future. Each year's increase in the exemption may only be allocated to transfers made, or appreciation occurring, during or after that year.
Common questions
- What is the lifetime GST exemption?
- It is the amount a donor can shield from generation-skipping transfer tax over their lifetime.
- How is the GST exemption allocated?
- It is allocated on IRS Form 709, the United States Gift (and Generation-Skipping Transfer) Tax Return.
Which transfers the GST tax reaches
An inter vivos direct skip is a transfer made during the donor's lifetime that meets three requirements: it must be subject to the gift tax, it must involve an interest in property, and it must be made to a skip person. All three conditions must be satisfied for the transfer to be subject to the GST tax. A transfer is subject to the gift tax if it is required to be reported on Schedule A of Form 709 under the gift tax rules, including the split gift rules. The GST tax imposed on these inter vivos direct skips must be reported on Form 709.
An inter vivos direct skip is a transfer made during the donor's lifetime that is: Subject to the gift tax, Of an interest in property, and Made to a skip person. (See Gifts Subject to Both Gift and GST Taxes, later.) A transfer is subject to the gift tax if it is required to be reported on Schedule A of Form 709 under the rules contained in the gift tax portions of these instructions, including the split gift rules.
2016 Instructions for Form 709 (IRS)
The exemption allocates itself to direct skips unless you elect out
When a donor makes an inter vivos direct skip (a transfer during life to a skip person that is subject to gift tax), the IRS automatically applies a portion of the donor's unused GST exemption to that transferred property. The amount automatically allocated equals the exemption needed to make the inclusion ratio zero for the property. However, the donor can choose not to let this happen. To elect out of the automatic allocation, the donor must file Form 709 and attach a statement that clearly describes the transaction and specifies the extent to which the automatic allocation should not apply. Alternatively, simply reporting the direct skip on a timely filed Form 709 and paying the GST tax on that transfer will also prevent the automatic allocation from occurring.
In the case of inter vivos direct skips, a portion of the donor's unused exemption is automatically allocated to the transferred property unless the donor elects otherwise. To elect out of the automatic allocation of exemption, you must file Form 709 and attach a statement to it clearly describing the transaction and the extent to which the automatic allocation is not to apply.
2016 Instructions for Form 709 (IRS)
Allocating the exemption is a one-way decision
The donor can apply the GST exemption to inter vivos transfers during life on Form 709, and the executor can apply it on Form 706 to transfers taking effect at death. Once the exemption is allocated to a particular transfer or trust, that decision cannot be undone. This means the donor must carefully consider how much exemption to use and which transfers to allocate it to, because a mistake or change of mind cannot be corrected later. The irrevocability rule applies to both automatic allocations that were not elected out of and to allocations made affirmatively on the return or by notice.
The donor can apply this exemption to inter vivos transfers (that is, transfers made during the donor's life) on Form 709. The executor can apply the exemption on Form 706 to transfers taking effect at death. An allocation is irrevocable.
2016 Instructions for Form 709 (IRS)
Allocating to a transfer not reported on this return
A taxpayer may allocate GST exemption to transfers that are not reported on the current Form 709, such as when making a late allocation to a prior-year transfer. To do this, the taxpayer attaches a statement to Form 709 and entitles it "Notice of Allocation." The notice must include, for each trust or other transfer: clear identification of the trust (including its EIN if known); if it is a late allocation, the year the transfer was originally reported on Form 709; the value of the trust assets at the effective date of the allocation; the amount of GST exemption allocated to each gift (or a formula statement such as "an amount necessary to produce an inclusion ratio of zero"); and the inclusion ratio of the trust after the allocation. The total of all exemption allocations is entered on line 6 of the form.
Notice of allocation. You may wish to allocate GST exemption to transfers not reported on this return, such as a late allocation. To allocate your exemption to such transfers, attach a statement to this Form 709 and entitle it “Notice of Allocation.” The notice must contain the following for each trust (or other transfer). Clear identification of the trust, including the trust's EIN, if known. If this is a late allocation, the year the transfer was reported on Form 709. The value of the trust assets at the effective date of the allocation. The amount of your GST exemption allocated to each gift (or a statement that you are allocating exemption by means of a formula such as “an amount necessary to produce an inclusion ratio of zero”). The inclusion ratio of the trust after the allocation. Total the exemption allocations and enter this total on line 6.
2016 Instructions for Form 709 (IRS)
How each figure was verified
Each number below was read from a stored copy of the document named beside it, and checked to occur word for word in the quoted sentence. The digest is of that stored text.
2016 Instructions for Form 709 (IRS)
- Lifetime GST exemption
Every donor is allowed a lifetime GST exemption. The amount of the exemption for 2016 is $5,450,000.