A trust may distribute income to the individual/settlor's spouse, or hold or accumulate it for future distribution to the settlor's spouse, all subject to the required consent of an adverse party, and not be characterized as a grantor trust
[Internal Revenue Code section 672(a)], An adverse party is a person having a substantial beneficial interest in the trust who would be adversely affected by the exercise or nonexercise of the power; this might include trust beneficiaries, such as an adult child.
A "simple" trust u one dial's not a grantor trust
and provisions of which require that all trust accounting income received during the year be distributed to its beneficiaries annually, In addition, the trust is prohibited from mailing any distribution of trust assets (corpus) or charitable contributions.
If the QPRT remains a grantor trust
after the initial trust term or distributes the residence to another trust that is a grantor trust
with respect to the QPRT donor, then the income tax issues are greatly simplified.
The grantor trust
rules under subchapter J rely, for the most part, upon powers retained by the grantor when approval is required of the grantor or a nonadverse party.
Unlike a "grantor trust
," the income of which is reported by the trust's creator for federal income tax purposes, a non-grantor trust is taxed as a separate entity for federal income tax purposes.
Moreover, if the new ILIT is a grantor trust
while the existing ILIT is not, the sale of a policy insuring the grantor's life to the new ILIT does not trigger the transfer-for-value rule because of the exception to that rule for transfers to the insured.
However, there are two exceptions to this rule: (1) with respect to any taxable year ending before the date that is 2 years after the decedent's death, trusts owned by the decedent (under the grantor trust
rules) and to which the residue of the decedent's estate will pass under his will need not file estimated tax (if no will is admitted to probate, this rule will apply to a trust which is primarily responsible for paying taxes, debts and administration expenses); and (2) charitable trusts (as defined in IRC Section 511) and private foundations are not required to file estimated tax.
Because the grantor has relinquished rights to the property, the transfer is subject to gift tax; income tax on the income from the trust property is paid either by the trustee for the trust or by the beneficiaries (unless the trust is a grantor trust
); and the property is not pulled back into the grantor's estate.
can also be used to hold stock in an S corporation.
A grantor trust
is so called because it is created during the grantor's lifetime.
* Qualified Subchapter S Trusts (QSSTs) which are allowable for a term of years or for the duration of one or more life estates.(10) A QSST is a grantor trust
with respect to the current income beneficiary via Section 678.
They also contacted the IRS without disclosing their names because they were concerned that the private annuity payments would be taxable to the Wylys if the trusts were, in fact, grantor trusts
and explored the possibility of voluntary disclosure of the transactions.