Inclusion ratio
Certified Financial Planner glossary · Certified Financial Planner
Definition
The fraction of a generation-skipping transfer not sheltered by allocated exemption.
Inclusion ratio in plain English
A grandparent allocates some GST exemption to a skip trust but not enough to cover the whole transfer. Inclusion ratio is the fraction of a generation-skipping transfer not sheltered by allocated exemption, which drives how much of later distributions face GST tax. An inclusion ratio of zero means fully exempt; one means fully exposed. Do not confuse it with the estate tax marital deduction fraction. Partial GST exemption allocation leaves an inclusion ratio: the leftover taxable slice of the transfer.
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