[EstGift] IRC 678 vs. IRC 675/677

[McCaffrey, Carlyn]

Additional observation - Even if the beneficiaries were treated as owners under section 678 on account of their withdrawal rights, they should not be treated as owners of any portion added to the trust at the end of a GRAT unless the trust purchased the GRAT remainders.  As to those additions, they never had any withdrawal rights.

Carlyn McCaffrey
Partner

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From: estgift-bounces at actec.org [mailto:estgift-bounces at actec.org] On Behalf Of Jonathan Blattmachr
Sent: Wednesday, May 30, 2018 3:40 PM
To: David L. Case; EstGift at actec.org
Subject: Re: [EstGift] IRC 678 vs. IRC 675/677


The statute expressly provides that normal grantor trust rules trump 678.  When the original grantor trust status ends, whether 678 can then be triggered, please see the article entitled "Decoding Section 678" by Mitchell Gans, Alvina Lo and me in ACTEC Journal, Vol. 35, No. 2, Fall 2009.  Jonathan


________________________________
From: estgift-bounces at actec.org<mailto:estgift-bounces at actec.org> <estgift-bounces at actec.org<mailto:estgift-bounces at actec.org>> on behalf of David L. Case <dlc at tblaw.com<mailto:dlc at tblaw.com>>
Sent: Wednesday, May 30, 2018 3:20 PM
To: EstGift at actec.org<mailto:EstGift at actec.org>
Subject: [EstGift] [filtered] IRC 678 vs. IRC 675/677


Dear Fellows.

Question on income taxation of ILIT with additional funding:

As typical, ILIT allows Trustee to pay premiums with income (IRC 677(a)(3) applies), and has substitution of assets power for Trustor (IRC 675(4)(C) applies), and thus would have grantor trust status.  ILIT also has typical Crummey powers (IRC 678 issue).  Though recent PLRs indicate that grantor trust status controls over IRC 678, and consensus seems to be that is a correct result, is there any more definitive current authority that beneficiaries who have lapsed withdrawal powers are not taxed on income?  Issue is more critical here due to substantial additional funding of ILITs through receipt of residuary GRAT distributions, possible substantial dividends and capital gain in ILIT.

Thanks.



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