Grandma created a trust for the benefit of her grandchildren. The trust was to pay for their college education. Grandma funded the trust through a series of transfers over a period of years, but she did not file gift tax returns and therefore did not allocate any of her generation-skipping transfer (GST) tax exemption to the transfers.

The IRS ruled that regardless of the fact that no gift tax returns were filed and no GST exemptions were claimed, any unused portion of Grandma's GST tax exemption of $1,000,000 will automatically be allocated to trust for every transfer to the trust.