Gerald has two children, Ellen and Evan. Ellen has one son, Frank, and Evan has one daughter, Fran. Gerald makes the following transfers to or for the benefit of his grandchildren:

On February 1, Year 1, Gerald transfers 1,000 shares of stock in X Corp. to Fran. On the date of the transfer, the X Corp. stock is valued at $80 per share.

On August 1, Year 1, Gerald pays $45,000 to the college where Fran is enrolled to cover that years tuition.

On September 1, Year 1, Gerald transfers 3,000 shares of stock in Y Corp. to Frank. On the date of the transfer, the Y Corp. stock is valued at $40 per share. On October 1, Year 1, Gerald pays $25,000 to Franks orthopaedic surgeon, representing charges stemming from Franks knee surgery.

On January 15, Year 2, X Corp. announces that one of its promising pharmaceutical drugs has passed FDA approval. Following the announcement, the stock trades for around $200 per share for the remainder of the year.

On May 1, Year 2, the Y Corp. stock plummets to $10 per share after the corporation disclosed past irregularities in its financial statement reporting. The stock hovers near this level for the remainder of the year.

1. Assuming that Gerald has never heard of the GST tax and therefore takes no steps to allocate GST exemption, discuss the default GST tax consequences of the above transfers. Further assume that Gerald has not made any prior generation-skipping transfers.
2. If you could have provided Gerald with timely advice to improve his use of the GST exemption, what would you have suggested?