Reevaluating the grantor trust status of GRATs and QPRTs

Article Abstract:

The IRS has issued two rulings that will provide additional challenges to estate planners drafting grantor trusts that are intentionally defective for income tax purposes. Drafting defective grantor trusts can provide transfer tax benefits while avoiding the compacted income tax brackets for estates and trusts. Grantor retained annuity trusts and qualified personal residence trusts are drafted to be defective by including the power to substitute assets. Recent IRS rulings found that income tax payments by the grantor were deemed gifts, and IRS policy is limiting rulings on power to substitute clauses.

United States, Planning, Grantor trusts

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General powers of appointment may cause unexpected tax

Article Abstract:

The general power of appointment must be used cautiously since it can generate transfer tax liabilities. Estate instruments must be drafted in a way that will not grant such a power and its consequent tax liability unintentionally. A general power of appointments allows its holder to find out the beneficial interests in property to which the holder lacks legal title. Only the general power, and not the nongeneral power, can result in liability. The unintended taxation can affect both the donor and the donee of the property.

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Adult adoption may qualify one as a beneficiary

Article Abstract:

Estate planners need to understand the varying ways in which the states deal with the appointment of adult adoptees as beneficiaries under class gifts. Adult adoptions cannot alter testamentary schemes even if the adoption was not abusive. Some states, such as Kansas, permit adult adoption to change the beneficiaries under class gifts while other states, such as Kentucky, do not. Estate planners must also bear in mind that states often change the statutory scheme regulating adoption, especially adult adoption.

Interpretation and construction, Gifts, Adoption, Remainders (Estates), Wills

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