SEE - Special Enrollment Exam Quiz: Gift And Generation Skipping Tax
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Gift And Generation Skipping TaxQuestion 1 of 15

In 2025, a single client contributes $80,000 to a qualified tuition program (529 plan) for her adult daughter, names herself as the account owner, and files a timely Form 709 to make the election under § 529(c)(2)(B). She makes no other gifts in 2025.

Which of the following is correct regarding the 2025 gift tax treatment of the contribution?

The contribution is a completed gift of a present interest and, with the five-year election, is treated as a $16,000 gift in each of 2025 through 2029, so no taxable gift results for 2025.
Even with the § 529(c)(2)(B) election, the contribution is a gift of a future interest because the daughter will not receive the funds until she pays qualified education expenses, so the annual exclusion is unavailable.
The contribution is not a completed gift because the client, as the account owner, may change the designated beneficiary or withdraw the funds at any time, so the contribution is not subject to gift tax.
Even with the § 529(c)(2)(B) election, the contribution is a taxable gift of $61,000, because the § 2503(e) exclusion applies only to payments made directly to an educational institution, not to a 529 plan.
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SEE - Special Enrollment Exam Quiz

SEE - Special Enrollment Exam Quiz: Gift And Generation Skipping Tax

Practice Gift And Generation Skipping Tax in SEE - Special Enrollment Exam with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

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This quiz focuses on Gift And Generation Skipping Tax, giving you a quick way to practice the rules, question types, and explanations that matter most for SEE - Special Enrollment Exam.

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Question 1

In 2025, a single client contributes $80,000 to a qualified tuition program (529 plan) for her adult daughter, names herself as the account owner, and files a timely Form 709 to make the election under § 529(c)(2)(B). She makes no other gifts in 2025.

Which of the following is correct regarding the 2025 gift tax treatment of the contribution?

  1. The contribution is a completed gift of a present interest and, with the five-year election, is treated as a $16,000 gift in each of 2025 through 2029, so no taxable gift results for 2025. (correct answer)
  2. Even with the § 529(c)(2)(B) election, the contribution is a gift of a future interest because the daughter will not receive the funds until she pays qualified education expenses, so the annual exclusion is unavailable.
  3. The contribution is not a completed gift because the client, as the account owner, may change the designated beneficiary or withdraw the funds at any time, so the contribution is not subject to gift tax.
  4. Even with the § 529(c)(2)(B) election, the contribution is a taxable gift of $61,000, because the § 2503(e) exclusion applies only to payments made directly to an educational institution, not to a 529 plan.
Explanation: Choice A is correct. IRC § 529(c)(2)(A) treats a contribution to a qualified tuition program as a completed gift of a present interest to the designated beneficiary. Under § 529(c)(2)(B), the $80,000 contribution may be spread over the five-year period beginning in 2025, which is $16,000 per year, below the $19,000 annual exclusion. Because the client made the election, there is no taxable gift for 2025. Choice B misreads § 529(c)(2)(A), which expressly treats the contribution as a present interest despite deferred receipt of the funds. Choice C confuses the account owner's power to change the beneficiary or withdraw funds with an incomplete gift; § 529(c)(2)(A) makes the contribution a completed gift for gift tax purposes. Choice D ignores the effect of the § 529(c)(2)(B) election and computes the $61,000 excess that would be a taxable gift without it; because the election was made, that result is not correct.

Question 2

In 2025, a U.S. citizen who is married gives his wife, who is not a U.S. citizen, a gift of $200,000 cash. They are both residents of the United States. He has no prior taxable gifts.

What is the correct federal gift tax treatment of the transfer?

  1. The transfer qualifies for the unlimited gift tax marital deduction because the donee is the donor's spouse, so there is no taxable gift and no Form 709 is required.
  2. The first $190,000 is excluded from taxable gifts, and the remaining $10,000 is a taxable gift for which a Form 709 must be filed; no gift tax is due because of the basic exclusion amount. (correct answer)
  3. The entire $200,000 is a taxable gift because the gift tax marital deduction is disallowed for a noncitizen spouse, and no annual exclusion applies to such a gift.
  4. The first $190,000 is a taxable gift because it exceeds the regular $19,000 annual exclusion, and the remaining $10,000 is excluded under the marital deduction.
Explanation: IRC § 2523(i); Rev. Proc. 2024-40. The gift tax marital deduction is not allowed for a transfer to a spouse who is not a U.S. citizen. In its place, an annual exclusion of $190,000 for 2025 applies to present-interest gifts to a noncitizen spouse that would have qualified for the marital deduction if the spouse were a citizen. The $200,000 cash gift is a present interest, so $190,000 is excluded and $200,000 − $190,000 = $10,000 is a taxable gift. Form 709 must be filed because the gift exceeds the exclusion, but no gift tax is due because the $10,000 taxable gift is absorbed by the 2025 basic exclusion amount of $13,990,000. Choice B is correct. Choice A is wrong because IRC § 2523(i) denies the unlimited marital deduction when the donee spouse is not a U.S. citizen, so the gift is not fully deductible and a return is required. Choice C is wrong because, although the marital deduction is denied, the special $190,000 annual exclusion still applies, so only $10,000 is a taxable gift. Choice D is wrong because neither of the rules it uses applies: the regular $19,000 exclusion is replaced by the $190,000 exclusion for gifts to a noncitizen spouse, and no marital deduction is available for any part of the gift.

Question 3

In 2025, a single client creates an irrevocable trust for her 25-year-old son and transfers $50,000 to it. The trust directs the trustee to accumulate all income until the son reaches age 40, and then to distribute the entire trust property to him. The son has no right to withdraw any contribution. The client has no prior taxable gifts.

Which of the following is correct regarding the transfer for federal gift tax purposes?

  1. It is a completed gift of a future interest. No annual exclusion is allowed, so the taxable gift is $50,000, a Form 709 is required, and no gift tax is due because of the basic exclusion amount. (correct answer)
  2. It is a completed gift of a present interest because the son's right to receive the trust corpus is vested, so the annual exclusion reduces the taxable gift to $31,000.
  3. The transfer is not a completed gift until the son reaches age 40, because the trustee must accumulate the income in the meantime, so no Form 709 is due in 2025.
  4. It is a completed gift of a future interest, but the $19,000 annual exclusion still applies because the trust is irrevocable and the son is the sole beneficiary.
Explanation: Choice A is correct. IRC § 2503(b) allows the annual exclusion only for gifts of present interests, and Treas. Reg. § 25.2503-3 defines a future interest as one whose use, possession, or enjoyment begins in the future. The son has no present right to income or principal, so the entire $50,000 is a taxable gift. The transfer is completed when the trust is irrevocably funded; delayed enjoyment does not make it incomplete. Form 709 is required for the future-interest gift, but no gift tax is due because the 2025 basic exclusion amount is $13,990,000 and the client has no prior taxable gifts. Choice B treats a vested remainder as a present interest; Choice C incorrectly treats the gift as incomplete; Choice D applies the annual exclusion to a future interest.

Question 4

In 2025, an unmarried grandmother gives $100,000 in cash outright to her adult granddaughter. The granddaughter's father—the grandmother's son—died in 2019. The grandmother has made no prior taxable gifts and has never allocated any GST exemption.

Which of the following is correct regarding the gift and generation-skipping transfer (GST) treatment of this 2025 transfer?

  1. For gift tax purposes, $100,000 is taxable because an outright gift to a grandchild is a future interest. The predeceased-parent rule does not affect gift tax.
  2. For gift tax purposes, $81,000 is taxable. The granddaughter is a skip person, so the transfer is a direct skip and GST exemption is automatically allocated.
  3. For gift tax purposes, $81,000 is taxable. The predeceased-parent rule makes the granddaughter a non-skip person, so no direct skip occurs. (correct answer)
  4. For gift tax purposes, $100,000 is taxable because the predeceased-parent rule applies only at death, and this transfer remains a direct skip.
Explanation: Governing authority: IRC § 2503(b); IRC § 2651(e); IRC § 2613; IRC § 2632(b). Choice C is correct. The outright cash gift is a present interest, so the $19,000 annual exclusion applies: $100,000 − $19,000 = $81,000 taxable gift. Under IRC § 2651(e), a grandchild whose parent—a lineal descendant of the transferor—died before the transfer is treated as being in the parent's generation. Because the granddaughter's father died in 2019, she is treated as a child of the grandmother, not as a skip person under IRC § 2613. Therefore, the transfer is not a direct skip, and the IRC § 2632(b) automatic allocation rule for direct skips does not apply. Form 709 is required because the taxable gift exceeds the annual exclusion, but no gift tax is due because the gift is within the $13,990,000 basic exclusion, and no GST tax applies to this transfer. Choice B is incorrect because it applies the automatic allocation rule without applying the deceased-parent exception; that treatment would be correct only if the parent were alive. Choice A is incorrect because an outright cash gift is a present interest, not a future interest, so the annual exclusion applies. Choice D is incorrect because the deceased-parent rule is not limited to transfers at death; it applies to lifetime transfers, and here the granddaughter is not a skip person, so the transfer is not a direct skip.

Question 5

In 2025, a single client pays a hospital $24,000 directly for her father's surgery. The same year she gives her father an additional $20,000 cash for general support. She has no other gifts and no prior taxable gifts.

What is the correct treatment of these transfers for federal gift tax purposes?

  1. The $24,000 hospital payment is not a gift, and the $20,000 cash gift is within the annual exclusion, so no taxable gift is reported and no Form 709 is required.
  2. The $24,000 hospital payment is excluded from taxable gifts, and the cash gift exceeds the $19,000 annual exclusion by $1,000, so a Form 709 reporting a $1,000 taxable gift is required. (correct answer)
  3. Both transfers are gifts to the same donee, so the annual exclusion applies to their $44,000 total, and the taxable gift is $25,000.
  4. The hospital payment is a taxable gift of $24,000 because it was made to a provider rather than to the father, and the $20,000 cash gift is excluded from tax.
Explanation: Choice B is correct. Under IRC § 2503(e)(1), a transfer made directly to a person who provides medical care for another individual is not treated as a transfer by gift; IRC § 2503(e)(2)(B) incorporates the § 213(d) definition of medical care. The $24,000 hospital payment is therefore excluded and does not consume the annual exclusion. The $20,000 cash gift is a present-interest gift, so under IRC § 2503(b) the first $19,000 is excluded for 2025 and the remaining $1,000 is a taxable gift. Because the cash gifts to the father exceeded the $19,000 annual exclusion, IRC § 6019 requires Form 709, even though the unified credit would offset any gift tax. Choice A ignores the $1,000 taxable excess; Choice C incorrectly treats the excluded medical payment as a gift and computes a $25,000 taxable gift; Choice D reverses the treatment of the two transfers.

Question 6

In 2025, a U.S. citizen makes an outright cash gift of $250,000 to the citizen's spouse, who is a resident alien and not a U.S. citizen. No qualified domestic trust is used, and the donor makes no other gifts in 2025.

What is the amount of the donor's taxable gift for federal gift tax purposes?

  1. $0
  2. $41,000
  3. $60,000 (correct answer)
  4. $231,000
Explanation: IRC § 2523(i) denies the unlimited gift tax marital deduction for a transfer to a spouse who is not a U.S. citizen. Instead, IRC § 2523(i)(2) allows a special $190,000 annual exclusion for 2025 for such gifts. Because the gift is an outright cash gift, it is a present interest. The special exclusion is in lieu of the regular $19,000 annual exclusion under IRC § 2503(b), so the taxable gift is $250,000 - $190,000 = 60,000.ChoiceA(60,000. Choice A (0) would be correct only if the unlimited marital deduction applied, which § 2523(i) denies for a noncitizen spouse. Choice B ($41,000) incorrectly adds the regular $19,000 annual exclusion to the 190,000specialexclusion.ChoiceD(190,000 special exclusion. Choice D (231,000) applies only the regular $19,000 annual exclusion and ignores the special noncitizen-spouse exclusion.

Question 7

Harris and Wren, both U.S. citizens, are married and elect to split gifts for 2025. During 2025, Harris gives $50,000 cash to Maya, their granddaughter. Wren makes no other gifts. On their timely Forms 709, each spouse elects to have no GST exemption allocated to the transfer. Neither spouse has made any prior taxable gifts.

What amount of the transfer is subject to GST tax as a direct skip after applying the GST annual exclusion?

  1. $6,000
  2. $12,000 (correct answer)
  3. $31,000
  4. $50,000
Explanation: IRC § 2513(a) treats each spouse as making one-half of the gift, and IRC § 2652(a)(2) applies that split for GST purposes. Harris and Wren are therefore each the transferor of a $25,000 direct skip to Maya, their granddaughter, a skip person. Under IRC § 2503(b), the annual exclusion for 2025 is $19,000 per donee per donor. For a direct skip, the portion that is a nontaxable gift by reason of the annual exclusion has a zero inclusion ratio under IRC § 2642(c). Each spouse's $19,000 annual exclusion leaves $6,000 of that spouse's deemed half, so the total subject to GST tax is 12,000.ChoiceA(12,000. Choice A (6,000) counts only Harris's deemed half and ignores Wren's status as a transferor for GST purposes. Choice C ($31,000) applies only one $19,000 annual exclusion instead of the two available once gift splitting is elected; Harris and Wren are each transferors of a 25,000directskipandeachhasanannualexclusion.ChoiceD(25,000 direct skip and each has an annual exclusion. Choice D (50,000) applies gift splitting but ignores both spouses' annual exclusions.

Question 8

In 2025, a husband gives $38,000 cash to his adult son. His wife makes no gifts during the year. Neither spouse has any prior taxable gifts. Both spouses are U.S. citizens. The couple wants to make the gift-splitting election.

Which of the following is correct?

  1. If the election is made, each spouse is treated as making a $19,000 gift to the son, each gift is within the annual exclusion, and no Form 709 is required.
  2. If the election is made, the husband has a $19,000 taxable gift and the wife has a $19,000 taxable gift, because each spouse's annual exclusion may be applied only to gifts that spouse actually made.
  3. The election is not available because the husband made the gift from his separate property and the wife did not personally transfer any property to the son.
  4. If the election is made, each spouse is treated as making a $19,000 gift to the son; the election must be signified on a timely filed Form 709, so a return must be filed even though there are no taxable gifts. (correct answer)
Explanation: IRC § 2513(a) permits a married couple to treat a gift made by one spouse as made one-half by each spouse. The $38,000 gift is therefore treated as a $19,000 gift from each spouse, and each is within the $19,000 annual exclusion, so there are no taxable gifts. However, the gift-splitting election is signified on Form 709, so a timely filed Form 709 is required even when the split amounts produce no taxable gifts. Thus, Choice D is correct. Choice A is incorrect because, although the split gifts are excluded, the election cannot be made without filing Form 709; Choice C is incorrect because the consenting spouse need not have personally transferred property; Choice B is incorrect because the consenting spouse may use the annual exclusion for the half deemed made by her.

Question 9

A decedent dies in 2025. Under the decedent's will, $2 million is placed in an irrevocable trust. The trustee must pay all net income to the decedent's child, C, for life. C has no power to appoint, withdraw, or alter principal. On C's death, the trust principal is to be paid outright to the decedent's then-living grandchildren. The estate does not allocate any GST exemption to this trust.

Which of the following is correct regarding the generation-skipping transfer tax on this transfer?

  1. The transfer to the trust is a direct skip because the remainder beneficiaries are skip persons, so GST tax is due with the decedent's estate tax return.
  2. The transfer is not a direct skip because C has an income interest; a taxable termination occurs at C's death, and because no exemption was allocated, the inclusion ratio is one. (correct answer)
  3. The distribution to the grandchildren on C's death is a taxable distribution from the trust, taxed on the principal then paid to the skip persons.
  4. The trust is exempt from GST tax because the trust property was included in the decedent's gross estate and the estate tax has been paid.
Explanation: IRC § 2612(c) defines a direct skip, and IRC § 2612(a) defines a taxable termination. The trust is not a direct skip at the decedent's death because C, a non-skip person, holds an income interest in the trust. When C's income interest ends and the principal is distributable to the grandchildren, who are skip persons, a taxable termination occurs. Because the estate allocated no GST exemption to the trust, its inclusion ratio is 1 under IRC § 2642(a), and the termination is subject to GST tax. Choice A is wrong because a non-skip person's income interest prevents the trust from being a direct skip. Choice C is wrong because the distribution occurs on the termination of C's interest, making it a taxable termination rather than a taxable distribution. Choice D is wrong because inclusion in the gross estate and payment of estate tax do not exempt the transfer from the separate GST tax.

Question 10

In 2025, Martin, a U.S. citizen, gave $60,000 in cash to his son. His wife, Elena, a U.S. resident who is not a U.S. citizen, made no gifts during 2025. Martin and Elena were married all year and want to elect to split Martin's gift.

Which of the following is correct regarding the election to split Martin's 2025 gift?

  1. Martin and Elena must each file a separate Form 709 for 2025, even though only Martin made a gift. (correct answer)
  2. Elena's consent may be signified on a Form 709 filed at any time, even after the IRS has sent either spouse a notice of deficiency for 2025.
  3. The election is not available, because gift splitting requires both spouses to be U.S. citizens at the time of the gift.
  4. Only Martin must file Form 709, and Elena's consent may be stated on Martin's return.
Explanation: IRC § 2513 and the Form 709 instructions govern gift splitting. Under § 2513(a), a gift by one spouse to a third person may be treated as made one-half by each spouse if both spouses consent and each was a U.S. citizen or resident at the time of the gift. Splitting Martin's $60,000 gift makes each spouse the donor of $30,000 to the son, which exceeds the 19,000annualexclusionfor2025,sotheForm709instructionsrequireeachspousetofileaseparateForm709.ChoiceAiscorrect.ChoiceBmisstatesthetiming:under§2513(b)(2),theconsentmaybesignifiedonalatereturnonlyifneitherspousehasfiledareturnfortheyearbyApril15ofthefollowingyear,andneverafteranoticeofdeficiencyhasbeensenttoeitherspouse.ChoiceCmisstatestheeligibilityrule:eachspousemustbeaU.S.citizenorresident,soElena′sresidenceisenough.ChoiceDappliestheone−returnexceptionwhereitdoesnotfit:onlythedonorfiles,withtheconsentshownonthatreturn,whenthesplitgiftstoeachdoneetotalnomorethantwicetheannualexclusion(19,000 annual exclusion for 2025, so the Form 709 instructions require each spouse to file a separate Form 709. Choice A is correct. Choice B misstates the timing: under § 2513(b)(2), the consent may be signified on a late return only if neither spouse has filed a return for the year by April 15 of the following year, and never after a notice of deficiency has been sent to either spouse. Choice C misstates the eligibility rule: each spouse must be a U.S. citizen or resident, so Elena's residence is enough. Choice D applies the one-return exception where it does not fit: only the donor files, with the consent shown on that return, when the split gifts to each donee total no more than twice the annual exclusion (38,000) and are all present interests, and Martin's $60,000 gift exceeds that amount.

Question 11

For a lifetime transfer made in 2025, which of the following is correct regarding whether a transfer to a grandchild is a direct skip for generation-skipping transfer (GST) tax purposes?

  1. A transfer to a grandchild is a direct skip regardless of whether the grandchild's parent, who is a lineal descendant of the transferor, is dead at the time of the transfer.
  2. A transfer to a grandchild is not a direct skip if the grandchild's parent, who is a lineal descendant of the transferor, is dead at the time of the transfer. (correct answer)
  3. A transfer to a grandchild is a direct skip only if the amount transferred to the grandchild during the calendar year exceeds the $19,000 annual exclusion.
  4. A transfer to a grandchild is a direct skip only if the property is transferred outright to the grandchild rather than to a trust for the grandchild's benefit.
Explanation: IRC § 2612(c)(1) defines a direct skip as a transfer to a skip person, and a grandchild is ordinarily a skip person because the grandchild is assigned to a generation two levels below the transferor. IRC § 2651(e) provides the predeceased-parent rule: if the grandchild's parent who is a lineal descendant of the transferor is dead at the time of the transfer, the grandchild is treated as one generation below the transferor, so the transfer is not a direct skip. Choice A states the general rule but drops the predeceased-parent exception. Choice C misstates the rule by making direct-skip status depend on the amount transferred; a gift within the annual exclusion to a skip person is still a direct skip, though it is a non-taxable gift with an inclusion ratio of zero. Choice D misstates the rule by limiting direct skips to outright transfers; a transfer to a trust can be a direct skip when the trust is a skip person.

Question 12

In 2022, a woman created an irrevocable trust for the benefit of her daughter and her granddaughter and funded the trust with $400,000. She filed a timely Form 709 for the 2022 transfer and elected out of the automatic allocation of GST exemption with respect to the trust, allocating no GST exemption to it. In 2025, when the trust's assets are worth $800,000, she files a Form 709 making a late allocation of $300,000 of GST exemption to the trust. No taxable distribution or termination has occurred. Which of the following is correct regarding the trust's inclusion ratio after the allocation?

  1. The inclusion ratio is 0.25, because the $300,000 allocation is applied against the trust's $400,000 value at the time of the original 2022 transfer.
  2. The inclusion ratio is 0.375, because a late allocation equal to 37.5% of the trust's current value produces an inclusion ratio equal to that percentage.
  3. The inclusion ratio is 0.625, because the late allocation is effective when filed and is measured against the trust's $800,000 value on that date. (correct answer)
  4. The inclusion ratio is 1.00, because GST exemption cannot be allocated to a trust in which a non-skip person (the daughter) still has an interest.
Explanation: Under Treas. Reg. § 26.2632-1(b), an allocation of GST exemption to a trust made after the due date of the return for the year of the transfer is effective as of the date the Form 709 is filed, and the trust is valued as of that effective date. Under IRC § 2642(a), the applicable fraction is the allocated exemption divided by the trust's value on that date: $300,000 / $800,000 = 0.375, and the inclusion ratio is 1 - 0.375 = 0.625. The 2022 transfer was an indirect skip, and because the woman elected out of the automatic allocation on a timely filed return, no exemption was deemed allocated to the trust. Choice A uses the 2022 value of $400,000, which is proper only for a timely allocation made by the due date of the return. Choice B mistakes the applicable fraction (0.375) for the inclusion ratio. Choice D misstates the rule: GST exemption may be allocated to a trust that is not currently a skip person; that allocation is what produces a low inclusion ratio when the non-skip person's interest ends.

Question 13

In 2025, a single individual contributes $90,000 to a qualified tuition program (a 529 plan) established for the benefit of the individual's grandchild. The individual makes no other gifts to the grandchild in 2025. Which of the following is correct regarding the contribution for federal gift tax purposes?

  1. The contribution is entirely excluded from gift tax under the unlimited education exclusion for tuition, because it is paid directly to a qualified tuition program for the grandchild's education.
  2. The individual may elect to treat the contribution as made over five years, so that $18,000 is treated as a gift in each year, and no part of the contribution is included in the gross estate if the individual dies within the five-year period.
  3. The individual may elect to treat the contribution as made over five years, so that $18,000 is treated as a gift in each year, and if the individual dies within the five-year period, the unused portion is included in the gross estate. (correct answer)
  4. The contribution is a taxable gift of $71,000 because the annual exclusion for 2025 is $19,000, and the five-year election is available only for contributions of $50,000 or less.
Explanation: Under IRC § 529(c)(2)(A), a contribution to a qualified tuition program is a completed gift of a present interest, and under IRC § 529(c)(2)(B) the donor may elect to treat the contribution as made ratably over five years for amounts up to five times the annual exclusion (5 x $19,000 = $95,000 for 2025). A $90,000 contribution is within that limit, so with the election 18,000istreatedasagifteachyearandnotaxablegiftarises.IRC§529(c)(4)(C)providesthatifthedonordieswithinthefive−yearperiod,theportionofthecontributionnotyettakenintoaccountisincludedinthedonor′sgrossestate.ChoiceAmisstatesIRC§2503(e):theunlimitededucationexclusionappliesonlytotuitionpaiddirectlytoaneducationalorganization,notto529plancontributions.ChoiceBdropsthedeath−inclusionrule.ChoiceDmisstatestheelectionlimit(18,000 is treated as a gift each year and no taxable gift arises. IRC § 529(c)(4)(C) provides that if the donor dies within the five-year period, the portion of the contribution not yet taken into account is included in the donor's gross estate. Choice A misstates IRC § 2503(e): the unlimited education exclusion applies only to tuition paid directly to an educational organization, not to 529 plan contributions. Choice B drops the death-inclusion rule. Choice D misstates the election limit (95,000, not $50,000) and therefore treats $71,000 as a taxable gift.

Question 14

In 2025, a U.S. citizen gives $200,000 outright to the donor's spouse, who is a lawful permanent resident of the United States and not a U.S. citizen. The donor makes no other gifts during 2025. Which of the following is correct regarding the gift for federal gift tax purposes?

  1. The entire $200,000 is a taxable gift and Form 709 must be filed, because the unlimited marital deduction is available only when the donee spouse is a U.S. citizen.
  2. The gift is a taxable gift of $10,000 and Form 709 must be filed, because the annual exclusion for gifts to a non-citizen spouse is $190,000 for 2025. (correct answer)
  3. The entire $200,000 is excluded from gift tax and no Form 709 is required, because the unlimited marital deduction applies to transfers between spouses regardless of the donee spouse's citizenship.
  4. The gift is a taxable gift of $181,000 and Form 709 must be filed, because the $19,000 annual exclusion for gifts to other donees applies to gifts to a non-citizen spouse.
Explanation: IRC § 2523(a) allows an unlimited marital deduction only for gifts to a spouse who is a U.S. citizen. IRC § 2523(i)(2) instead provides a $190,000 annual exclusion for 2025 for gifts to a spouse who is not a U.S. citizen. The $200,000 gift therefore results in a taxable gift of $10,000, and IRC § 6019 requires a donor who makes taxable gifts to file Form 709. Choice A misstates the rule by ignoring the $190,000 exclusion and taxing the entire transfer. Choice C misstates the rule by extending the unlimited marital deduction to a non-citizen spouse. Choice D uses the $19,000 general annual exclusion that applies to other donees - the wrong threshold.

Question 15

In 2025, a single client gives $100,000 cash outright to her 22-year-old grandson. The grandson's father, the client's son, is alive. The client has no prior taxable gifts and has never used any GST exemption. She does not make any GST allocation election.

Which of the following is correct regarding the transfer for gift and generation-skipping transfer tax purposes?

  1. The transfer is a taxable gift of $81,000, but the entire $100,000 is subject to GST tax because the annual exclusion is unavailable for any direct skip that is made outright to a grandchild, so the donor must allocate GST exemption.
  2. The transfer is not a direct skip because the GST tax applies only to transfers in trust or transfers taking effect at death, and it never applies to outright lifetime transfers made directly to an individual grandchild.
  3. The transfer is a direct skip. The $19,000 annual exclusion applies for gift tax, leaving an $81,000 taxable gift; the same portion is not subject to GST, and the unused GST exemption is automatically allocated to the remaining transfer. (correct answer)
  4. The transfer is a taxable gift of $100,000 because a gift to a grandchild whose parent is alive is a future interest, and neither the annual exclusion nor the GST exemption can be applied to the transfer for 2025.
Explanation: IRC §§ 2612(c)(1), 2642(c)(1) and (3), and 2632(b)(1). Because the grandson's parent is alive, the grandson is a skip person, and an outright gift to him is a direct skip. For gift tax, the $19,000 annual exclusion applies, leaving a taxable gift of $100,000 − $19,000 = $81,000. For GST tax, the portion of an outright direct skip that is a nontaxable gift because of the annual exclusion has an inclusion ratio of zero, so the first $19,000 is not subject to GST tax. Unused GST exemption is allocated automatically to a lifetime direct skip unless the transferor elects out, so the remaining $81,000 is sheltered by her GST exemption. Choice C is correct. Choice A is wrong because IRC § 2642(c) gives an outright direct skip to an individual the benefit of the annual exclusion for GST purposes, and the donor need not allocate exemption because allocation to a direct skip is automatic. Choice B is wrong because a direct skip includes an outright lifetime gift to a skip person; the GST tax is not limited to transfers in trust or at death. Choice D is wrong because an outright gift of cash is a present interest, whether or not the grandchild's parent is alive, so both the annual exclusion and the GST exemption apply.