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Posted by jba on September 24, 2007, 8:48 pm
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Husband is the primary beneficiary of the wife's
testamentary credit shelter trust. Husband is Trustee
unless he resigns, then sons become Co-Trustees. Trustee
may distribute income and principal for health, support,
education and maintenance to husband and descendants.
Husband has special power of appointment--during his life or
in his will; no standard mentioned or required; income
and/or principal; to any one or more descendants; outright,
in trust or otherwise; any or all of the trust; not to
himself, his creditors, etc.
Since the trust allows the husband's inter vivos
distribution of corpus to one or more descendants without a
reasonably definite standard, it does not meet the
requirements for an exception under =A7674(b)(5). As a
result, I have concluded that (1) the trust is a grantor
trust for income tax purposes under =A7674(a), and (2) the
trust assets are not includable in the surviving spouse's
estate at death under =A72036 or =A72038 despite the
retained beneficial interest or powers.
CPA is "uncomfortable" with filing a "blank" 1041 with
attachments and reporting income on Husband's return. Any
support, examples, references, comments, and questions would
be appreciated.
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Posted by Stuart Bronstein on September 25, 2007, 11:41 pm
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> Husband is the primary beneficiary of the wife's
> testamentary credit shelter trust.
>
> Since the trust allows the husband's inter vivos
> distribution of corpus to one or more descendants without a
> reasonably definite standard, it does not meet the
> requirements for an exception under =A7674(b)(5). As a
> result, I have concluded that (1) the trust is a grantor
> trust for income tax purposes under =A7674(a), and (2) the
> trust assets are not includable in the surviving spouse's
> estate at death under =A72036 or =A72038 despite the
> retained beneficial interest or powers.
I think your problem is that the husband is not the
"grantor" so §674 does not apply. Remember that a credit
shelter trust is generally made up of assets belonging to
the deceased spouse and not the surviving spouse.
The income is taxed to the husband because income
distributed from a complex trust is taxed to the recipient.
Whether or not the assets are included in the surviving
spouse's estate is determined under §2056, not 2036 or 2038.
Of course I'd have to read the precise wording of the trust
to be sure, but that's normally how credit shelter trusts
are drafted.
Stu
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<< The foregoing was not intended or written to be used, >>
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<< that may be imposed upon the taxpayer. >>
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Posted by cballard@tyyni.net on September 25, 2007, 11:41 pm
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> Husband is the primary beneficiary of the wife's
> testamentary credit shelter trust. Husband is Trustee
> unless he resigns, then sons become Co-Trustees. Trustee
> may distribute income and principal for health, support,
> education and maintenance to husband and descendants.
> Husband has special power of appointment--during his life or
> in his will; no standard mentioned or required; income
> and/or principal; to any one or more descendants; outright,
> in trust or otherwise; any or all of the trust; not to
> himself, his creditors, etc.
>
> Since the trust allows the husband's inter vivos
> distribution of corpus to one or more descendants without a
> reasonably definite standard, it does not meet the
> requirements for an exception under =A7674(b)(5). As a
> result, I have concluded that (1) the trust is a grantor
> trust for income tax purposes under =A7674(a), and (2) the
> trust assets are not includable in the surviving spouse's
> estate at death under =A72036 or =A72038 despite the
> retained beneficial interest or powers.
Code section 674 says that the *grantor* has to treat a
trust as a grantor trust if the *grantor* or a nonadverse
party has the power to control the beneficial enjoyment of
the trust assets. If its the wife's trust, the wife is the
grantor, not the surviving husband. The husband is a
beneficiary and trustee, but is not the grantor. The trust
was a grantor trust under section 674 while she was alive.
With the wife being deceased, section 674 no longer applies.
The section you want to look at is Code section 678 ("Person
other than grantor treated as substantial owner"). Under
that section, the trust is treated as a grantor trust if the
a person other than the grantor has the power to vest the
trust property in himself. This is why (well, one of the
reasons why) the power of appointment given to the husband
only permits him to appoint the trust property to his
descendants, and not to himself or to his creditors.
The vast majority of credit shelter trusts are set up to
become non- grantor trusts upon the death of the first
spouse. The trust must file its own tax return, reporting
all of the income the trust received. Either the trust or
the beneficiaries will pay the tax on that income, depending
on the terms of the trust and whether the income was
distributed to the beneficiaries.
If the trust was properly drafted, the special power of
appointment will not cause the trust to be included in the
husband's estate. (This is the other big reason for not
giving the huband the power to distribute assets to himself
or to his creditors).
> CPA is "uncomfortable" with filing a "blank" 1041 with
> attachments and reporting income on Husband's return. Any
> support, examples, references, comments, and questions would
> be appreciated.
In this case, I agree with your CPA. This does not appear
to be a grantor trust. The trust should file a 1041
reporting all of the trust's income, and should provide a
K-1 to the husband showing the income distributed.
--Chris
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
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Posted by Stuart Bronstein on September 27, 2007, 2:37 am
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> Code section 674 says that the *grantor* has to treat a
> trust as a grantor trust if the *grantor* or a nonadverse
> party has the power to control the beneficial enjoyment of
> the trust assets. If its the wife's trust, the wife is the
> grantor, not the surviving husband. The husband is a
> beneficiary and trustee, but is not the grantor. The trust
> was a grantor trust under section 674 while she was alive.
> With the wife being deceased, section 674 no longer applies.
To be fair, the code does say that a spouse of a grantor is
treated as a grantor as well. But I seriously doubt that
applies after the actual grantor dies, because they are no
longer spouses.
In addition, §2056 basically provides for marital trusts.
In general the surviving spouse receives all the income from
the "B" trust, so it's taxed to her in any case,
irrespective of grantor trust rules.
>> CPA is "uncomfortable" with filing a "blank" 1041 with
>> attachments and reporting income on Husband's return. Any
>> support, examples, references, comments, and questions would
>> be appreciated.
> In this case, I agree with your CPA. This does not appear
> to be a grantor trust. The trust should file a 1041
> reporting all of the trust's income, and should provide a
> K-1 to the husband showing the income distributed.
Agreed.
Stu
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Benjamin Yazersky CPA on September 27, 2007, 2:37 am
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> Husband is the primary beneficiary of the wife's
> testamentary credit shelter trust. Husband is Trustee
> unless he resigns, then sons become Co-Trustees. Trustee
> may distribute income and principal for health, support,
> education and maintenance to husband and descendants.
> Husband has special power of appointment--during his life or
> in his will; no standard mentioned or required; income
> and/or principal; to any one or more descendants; outright,
> in trust or otherwise; any or all of the trust; not to
> himself, his creditors, etc.
>
> Since the trust allows the husband's inter vivos
> distribution of corpus to one or more descendants without a
> reasonably definite standard, it does not meet the
> requirements for an exception under =A7674(b)(5). As a
> result, I have concluded that (1) the trust is a grantor
> trust for income tax purposes under =A7674(a), and (2) the
> trust assets are not includable in the surviving spouse's
> estate at death under =A72036 or =A72038 despite the
> retained beneficial interest or powers.
>
> CPA is "uncomfortable" with filing a "blank" 1041 with
> attachments and reporting income on Husband's return. Any
> support, examples, references, comments, and questions would
> be appreciated.
I think that theoretically a credit shelter trust could be a
grantor trust. But they're usually not structured this way.
You have to carefully read the will/trust documents.
___________________________________
<<< Benjamin Yazersky, CPA [NJ & NY] >>>
-----> real address on hobokeni or hobokenx <-----
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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| Similar Threads | Posted | | Reform a Credit Shelter Trust to make it a Grantor Trust? | November 19, 2007, 6:10 pm |
| Re: Is the Credit Shelter Trust a Grantor Trust? | September 28, 2007, 3:59 pm |
| Re: Is the Credit Shelter Trust a Grantor Trust? | October 8, 2007, 6:43 pm |
| Re: Is the Credit Shelter Trust a Grantor Trust? | October 9, 2007, 8:28 pm |
| Re: Is the Credit Shelter Trust a Grantor Trust? | October 9, 2007, 8:28 pm |
| Re: Is the Credit Shelter Trust a Grantor Trust? | October 11, 2007, 12:41 am |
| Re: Is the Credit Shelter Trust a Grantor Trust? | October 11, 2007, 12:41 am |
| Re: Is the Credit Shelter Trust a Grantor Trust? | October 11, 2007, 10:19 pm |
| Re: Is the Credit Shelter Trust a Grantor Trust? | October 13, 2007, 11:06 pm |
| Re: Is the Credit Shelter Trust a Grantor Trust? | October 16, 2007, 1:19 am |
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