IRS grants estate late opt-out from automatic GST allocation on GRATs

The IRS granted an estate more time to elect out of the automatic allocation of GST exemption in Private Letter Ruling 202633002, dated Aug. 14, 2026. WealthManagement.com reported the ruling on Oct. 21.

The taxpayer had created a series of GRATs over many years: 2-, 3- and 4-year trusts in Year 1, 2-year trusts in Years 6 and 7, and another 2-year trust in Year 9. Each trust's remainder, if any, passed to an irrevocable trust. More than one trust received those remainders, and all were classified as GST trusts under Internal Revenue Code Section 2632, with potential distributions to a skip person.

Gift tax returns were filed for some years but not all, and the returns that were filed did not opt out of the automatic GST exemption allocation. According to the ruling as the coverage describes it, the drafting lawyers, the family office and the accounting firm did not fully advise the taxpayer to make the election. The omission surfaced at the taxpayer's death.

For a GRAT, the opt-out is due on the gift tax return for the year the final annuity is paid. GST exemption is allocated automatically to indirect skips, and where a transfer is subject to inclusion in the estate for a period—the estate tax inclusion period, or ETIP—the taxpayer may elect out on or before the due date of the return for the year the ETIP closes. Once that return goes in without the election, the allocation stands unless the IRS grants relief.

Treas. Regs. Section 26.2642-7 sets out the procedure for requesting an extension, and Section 26.2642-7(d)(1) supplies the test: relief is granted to the extent the transferor or the executor provides evidence establishing that the transferor acted reasonably and in good faith and that relief will not prejudice the government's interests.

The estate cleared both. The IRS found sufficient evidence that the taxpayer had acted in good faith and reasonably relied on advisors. Reliance on the drafting lawyers, the family office and the accounting firm helped the estate here rather than counting against it.

For a client whose GRAT has ended and whose return for the final annuity year was filed without an opt-out, Section 26.2642-7 is the procedural route. The petition depends on records that show what the client intended and whom the client consulted, and those records are easiest to assemble before the client dies, not after.