Apportionment of GSTT

In the case of In re Estate of Denman, 270 S.W.3d 639 (Tex. App.—San Antonio 2008, pet. denied), a dispute arose regarding whether generation-skipping transfer taxes should be allocated against the residuary estate or against the generation-skipping transfer.  Both the trial and appellate courts agreed that the GSTT should be charged against the transfer itself.

GST Beneficiary claimed that a will provision which provided that “taxes shall be paid out of my residuary estate” clearly expressed the testator’s intent that the gift pass without reduction for the GSTT triggered by the gift.  However, the Residuary Beneficiary pointed to I.R.C. § 2603(b) which mandates that a GST bears the burden of the tax unless otherwise directed by a “specific reference to the [GSTT]” in the will.  The will’s reference to “transfer, estate, inheritance, succession and other death taxes” was not a specific reference to the GSTT and thus the tax was allocated against the GST.

Moral:  A person who wants to shift the GSTT burden from the beneficiary of the GST must make a clear and unambiguous reference to the GSTT and how it is to be allocated in the will or trust.