Give this little gem a whirl! Test yourself.
I always (well . . . often) like a challenge. Try this one on for size from a recent letter ruling. Someone was willing to pay the IRS a $28,300 user fee for this little gem. And that doesn’t count attorney fees and expenses.
In any event, the facts are a great way for you to test yourself. If you are a BaseCamp subscriber and have gotten through Module Two, see how much stuck, because we covered all of this. If you are not a BaseCamper, but feel you ‘know your stuff’ then wrap your head around this.
Facts
Gerald Grantor established an irrevocable trust. The identity of the trustee is irrelevant (and was not discussed in the ruling). The beneficiaries are Gerald, Gerald’s spouse Wilma, Gerald’s mother Mom, and Gerald’s two children Camilla and Charles.
Gerald’s stated intent in the trust agreement is to insure the trust is included in his estate but to AVOID grantor trust status. (By the way, in the elder law context it isn’t topo unusual to want to avoid grantor trust status yet insure basis step-up through estate inclusion.)
Gerald has also retained a testamentary general power of appointment.
The trust agreement also identifies a Distribution Committee consisting of Gerald, Mom, Camilla, and Charles.
Distributions of principal and income may be made to any beneficiary under the following circumstances:
- As directed by a majority of the Distribution Committee with Gerald’s consent.
- As directed by all Distribution Committee members other than Gerald.
- As directed by Gerald (in a nonfiduciary capacity) to a beneficiary other than himself and for the health, education, maintenance, and support of that beneficiary.
So here’s the $28,300 question: Is this trust a grantor trust or not?
If you’re brave, sort through this and come up with an answer. BaseCampers: Cheating is allowed, go look at Module Two.
What IS cheating is to go find the letter ruling. I’ll get back to you in a few days with an answer and some discussion.
Have fun! Stay tuned.
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