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IRS Publishes Final Trust Rule

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Internal Revenue Service officials have published final regulations concerning grantor-retained interest trusts.

The final regulations concern how the trusts interact with sections 2036 and 2039 of the Internal Revenue Code.

The regulations are a final version of a draft published in June 2007.

The regulations affect trust grantors who have retained the use of the property in the trust or the right to an annuity, unitrust or other payment from the property for life, or for some other period that does not end before the grantor’s death.

Under the regulations, the portion of the trust assets necessary to generate a dead grantor’s retained annuity, unitrust or other payment should be included in the dead grantor’s taxable estate.

Different provisions in the regulations have different effective dates.

The final regulations include 6 examples, including the following:

In 2003, D transferred $10,000 to a pooled income fund that conforms to Rev. Proc. 88-53, 1988-2 CB 712 (1988) in exchange for 1 unit in the fund. D is to receive all of the income from that 1 unit during D’s life. Upon D’s death, D’s child (C), is to receive D’s income interest for C’s life. In 2008, D dies. D’s executor does not elect to use the alternate valuation date. In this case, the fair market value of D’s 1 unit in the pooled income fund is includible in D’s gross estate under section 2036(a)(1) because D retained the right to receive all of the income from that unit for a period that did not in fact end before D’s death…


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