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Posted by jba on October 9, 2007, 8:28 pm
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> jba wrote:
>> Thanks for the input and for helping to focus the issues. If
>> the surviving spouse can't be the "grantor" for tax purposes
>> because it is the decedent's trust---Then, are we sure the
>> beneficiary can't be the owner for tax purposes under 674?
> Only a grantor could be treated as a grantor under =A7674. A
> beneficiary, or other person, might be treated as a grantor
> under =A7 678, if the statute provides that the person is
> treated that way. Under that section a beneficiary can be
> taxed on trust income to the extent he (briefly) has or had
> the power, exercisable only by himself, to distribute
> principal to himself.
>> What if he had the power to add a class of
>> beneficiaries--like wives of descendants or charities? What
>> if he had the power of substitution?--see 675(4)(c)--675
>> also says "grantor". What if he can take a market-rate
>> interest loan from the trust without putting up "adequate"
>> security? See 675(3).
> You still haven't given all the information requested, and
> if it's a trust qualifying under =A72056 that could add a
> level of complication. But normally those rules apply only
> to grantors, not to anyone else, except as noted above.
>> If it is not a grantor trust, because 675 says "grantor" and
>> the grantor is deceased--then why not give the surviving
>> spouse the ability to substitute assets for equivalent
>> value.
> That's done frequently in =A72056 trusts. The trustee has the
> ability to allocate property to either the A trust or the B
> trust, as long as each trust is funded with assets with the
> proper values.
>> Finally, suppose also that I don't care if the bypass trust
>> gets included in the surviving spouses' estate, e.g. the
>> total would be less than the exemption. What powers or
>> actions would produce a grantor trust result in the meantime
>> without changing the basic purposes of the trust?
> It depends on what purposes you mean. There are two basic
> purposes of these trusts. One is to avoid probate. The
> other is to avoid unnecessary estate taxes.
>
> By definition it's not a "bypass" trust if it's included in
> the surviving spouse's estate, becase in that case it would
> not bypass that estate.
>
> Just tell us exactly what you are trying to accomplish, and
> you might get a useful answer. But so far vague questions
> really don't have any practical meaning.
Thanks again. What I want to accomplish is to make the
bypass trust a grantor trust. There are substantial income
and estate tax advantages. I'm still not convinced it isn't
already--i.e. that the beneficiary could be the "owner" for
income tax purposes under 674, 675, etc.
In addition, the surviving spouse is the trustee and the
trustee's power to appoint to the SS is subject to an
ascertainable standard to avoid 2041. Theoretically the
ss/trustee could appoint income and corpus to himself in any
amount and anytime he decided he needed $ for HEMS in his
sole discretion. There is no ascertainable standard in 678,
and already we know that lapse of 5 and 5 powers results in
partial grantor trust status.
If it truly is not already a grantor trust, then I would
like to take action to make it one. Suggestions would be
appreciated. Possibilities include (1) Beneficiary borrows
from the trust w/o adequate security--even though 675 says
"grantor" (2) Appoint a foreign, e.g. Canadian Bank,
trustee--679 says the "transferor" is the owner (3) reform
the trust (with court approval) to include one or more
powers that make it a grantor trust w/o making it subject to
estate tax (By your analysis, it would have to be a 678
power--Q. Is there a way to give a 678 power to achieve GT
status w/o 2041 concerns?) Obviously #2 and #3 are more
trouble, cost more, have additional reporting, etc.
Thoughts?
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