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<p class="MsoNormal">Dear Fellows.<o:p></o:p></p>
<p class="MsoNormal">Question on income taxation of ILIT with additional funding:
<o:p></o:p></p>
<p class="MsoNormal">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.<o:p></o:p></p>
<p class="MsoNormal">Thanks.<o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal"><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:#1F497D"><img width="280" height="53" id="Picture_x0020_46" src="cid:image003.jpg@01D3F810.93785B60" alt="tblogo"></span><span style="color:#5F497A"><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family:"Arial",sans-serif;color:#3B3838">David L. Case | Shareholder | 602.255.6097<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:8.0pt;font-family:"Arial",sans-serif;color:#3B3838">Seventh Floor Camelback Esplanade II |</span><b><span style="font-size:8.0pt;color:#3B3838">
</span></b><span style="font-size:8.0pt;font-family:"Arial",sans-serif;color:#3B3838">2525 E Camelback Road | Phoenix, AZ 85016</span><span style="font-size:8.0pt;color:#3B3838"><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:8.0pt;font-family:"Arial",sans-serif;color:#3B3838">P 602.255.6000 | F 602.452.2717<o:p></o:p></span></p>
<p class="MsoNormal"><a href="mailto:dlc@tblaw.com"><span style="font-size:8.0pt;font-family:"Arial",sans-serif;color:#96285A">dlc@tblaw.com</span></a><span style="font-size:8.0pt;font-family:"Arial",sans-serif;color:#96285A"> |
</span><a href="http://www.tblaw.com/attorneys/David-Case"><span style="font-size:8.0pt;font-family:"Arial",sans-serif;color:#96285A">Bio</span></a><span style="font-size:8.0pt;font-family:"Arial",sans-serif;color:#96285A"> |
</span><a href="http://www.tblaw.com/attorneys/David-Case/vcard"><span style="font-size:8.0pt;font-family:"Arial",sans-serif;color:#96285A">vCard</span></a><span style="font-size:8.0pt;font-family:"Arial",sans-serif;color:#96285A"> |
</span><a href="http://www.tblaw.com/"><span style="font-size:8.0pt;font-family:"Arial",sans-serif;color:#96285A">Website</span></a><span style="font-size:8.0pt;font-family:"Arial",sans-serif;color:#96285A"> |
</span><a href="http://www.tblaw.com/attorneys/David-Case"><span style="font-size:8.0pt;font-family:"Arial",sans-serif;color:#96285A">Practice Areas</span></a><u><span style="color:#96285A"><o:p></o:p></span></u></p>
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<p class="MsoNormal"><span style="font-size:8.0pt;font-family:"Arial",sans-serif;color:#3B3838">Offices: Arizona | California | Nevada</span><span style="color:#3B3838"><o:p></o:p></span></p>
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