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<p class="MsoNormal"><span style="color:#1F497D">I agree with the article and suggest that, generally, portion by value is appropriate if the assets are commingled.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D">If the trust agreement or applicable state law allows pick-and-choose fractional funding, then trust division is generally nontaxable. Reg. § 1.1001-1(h); see also Rev. Rul. 69-486.<o:p></o:p></span></p>
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<p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto"><span style="font-size:10.0pt;font-family:"Arial",sans-serif;color:#002060">Steve</span><span style="font-size:10.0pt;font-family:"Times New Roman",serif;color:#002060">
</span><span style="font-size:10.0pt;color:#002060"><o:p></o:p></span></p>
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</span><b><span style="font-size:10.0pt;font-family:"Arial",sans-serif;color:#780000">Steven B. Gorin</span></b><span style="font-size:10.0pt;font-family:"Arial",sans-serif;color:#1F497D"><br>
</span><span style="color:#1F497D"><a href="mailto:sgorin@thompsoncoburn.com"><span style="font-size:10.0pt;font-family:"Arial",sans-serif;color:#002060">sgorin@thompsoncoburn.com</span></a></span><span style="font-size:10.0pt;font-family:"Arial",sans-serif;color:#002060"><br>
Phone: 314.552.6151<br>
Fax: 314.552.7151</span><span style="font-size:10.0pt;color:#002060"><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:10.0pt;font-family:"Arial",sans-serif;color:#002060">Mobile: 314.602.6151 (when I’m not in the office)<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D"><a href="https://www.actec.org/directory/profile/Gorin-Steven/5ba22dbd-b79e-484b-ab45-8a4ead92af92/"><span style="font-size:10.0pt;font-family:"Arial",sans-serif;color:#002060">Fellow, The American College of
Trust and Estate Counsel (ACTEC)</span></a></span><span style="font-size:10.0pt;font-family:"Arial",sans-serif;color:#002060"><o:p></o:p></span></p>
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<p class="MsoNormal"><b>From:</b> estgift-bounces@actec.org <estgift-bounces@actec.org>
<b>On Behalf Of </b>Day, Eileen<br>
<b>Sent:</b> Thursday, July 30, 2020 8:45 AM<br>
<b>To:</b> 'McCaffrey, Carlyn' <Cmccaffrey@mwe.com>; 'EstGift@actec.org' <EstGift@actec.org><br>
<b>Cc:</b> Litman, Stephen <stephen.litman@stinson.com><br>
<b>Subject:</b> Re: [EstGift] Spouses as Joint Grantors<o:p></o:p></p>
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<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal"><span style="color:#1F497D">This article discusses FAQs of Grantor Trust Reporting:<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D">Estate Planning Journal 2012 Volume 39, Number 08, August 2012<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D">Frequently Asked Questions on Grantor Trust Tax Reporting, Estate Planning Journal, Aug 2012<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D">The authors make this statement:<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D">As noted above in FAQ 1, one of the challenges when a husband and wife are the joint settlors of a trust<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D">is determining whether one or both are treated as owners of the trust. When only one spouse is the<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D">owner of the trust, no additional issues need to be considered merely because the owner is married. The<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D">items of income, deduction, and credit are attributable to that individual and are subject to standard<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D">reporting obligations, conditioned on whether the couple lives in a community property or common law<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D">state and whether the couple files jointly or separately. When both spouses are treated as owners of the<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D">trust, the filing of a joint return facilitates the reporting of attributed items of income, deduction, and<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D">credit.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D">For purposes of determining the number of grantors when selecting an alternative method of grantor<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D">trust reporting, a trust that is treated as being wholly owned by a married couple that files jointly is<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D">treated as being owned by a single grantor. 15
<span style="background:yellow;mso-highlight:yellow">If the couple files separately, it is necessary to determine<o:p></o:p></span></span></p>
<p class="MsoNormal"><span style="color:#1F497D;background:yellow;mso-highlight:yellow">in what proportion each spouse is treated as the owner of the trust. This will be a function of the value of<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D;background:yellow;mso-highlight:yellow">the assets that each has transferred to the trust, which may need to be determined on a year-to-year<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D;background:yellow;mso-highlight:yellow">basis as additional assets are transferred. The items of income, deduction, and credit can then be<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D;background:yellow;mso-highlight:yellow">allocated to each spouse in proportion to the ownership of the trust.</span><span style="color:#1F497D"><o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D">FN 15: <b><u>See Reg. 1.671-4(b)(8)</u></b> which provides:<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D">“(8) Husband and wife who make a single return jointly. A trust all of which is treated as owned by a husband and wife who make a single return jointly of income taxes for the taxable year under section 6013
is considered to be owned by one grantor for purposes of this paragraph (b).”<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D"><o:p> </o:p></span></p>
<p class="MsoNormal"><b><u><span style="color:#1F497D">Reg. 1.671-4(b)(3)</span></u></b><span style="color:#1F497D"> provides direction on how to report out income to multiple grantors:<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D">(3) A trust all of which is treated as owned by two or more grantors or other persons -<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D">(i) In general. In the case of a trust all of which is treated as owned by two or more grantors or other persons, the trustee must furnish the name, TIN, and address of the trust to all payors for the taxable
year, and comply with the additional requirements described in paragraph (b)(3)(ii) of this section.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D">(ii) Additional obligations of trustee -<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D">(A) Obligation to file Forms 1099. The trustee must file with the Internal Revenue Service the appropriate Forms 1099, reporting the items of income paid to the trust by all payors during the taxable year
<span style="background:yellow;mso-highlight:yellow">attributable to the portion of the trust treated as owned by each grantor or other person</span>, and showing the trust as the payor and each grantor or other person treated as an owner of the trust as the
payee. The trustee has the same obligations for filing the appropriate Forms 1099 as would a payor making reportable payments, except that the trustee must report each type of income in the aggregate, and each item of gross proceeds separately. See paragraph
(b)(5) of this section regarding the amounts required to be included on any Forms 1099 filed by the trustee.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D">(B) Obligation to furnish statement.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D">(1) The trustee must also furnish to each grantor or other person treated as an owner of the trust a statement that -<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D">(i) Shows all items of income, deduction, and credit of the trust for the taxable year
<span style="background:yellow;mso-highlight:yellow">attributable to the portion of the trust treated as owned by the grantor or other person</span>;<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D">(ii) Provides the grantor or other person treated as an owner of the trust with the information necessary to take the items into account in computing the grantor's or other person's taxable income; and<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D">(iii) Informs the grantor or other person treated as the owner of the trust that the items of income, deduction and credit and other information shown on the statement must be included in computing the taxable
income and credits of the grantor or other person on the income tax return of the grantor or other person.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D">(2) Except for the requirements pursuant to section 3406 and the regulations thereunder, by furnishing the statement, the trustee satisfies the obligation to furnish statements to recipients with respect to the
Forms 1099 filed by the trustee.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D"><o:p> </o:p></span></p>
<p class="MsoNormal"><b><u><span style="color:#1F497D">COMMENTS:<o:p></o:p></span></u></b></p>
<p class="MsoNormal"><span style="color:#1F497D">It seems that Treasury contemplates that you can look at a trust and determine which PORTION is treated as owned by which grantor, so it seems to make sense that you can physically divide the trust to respect
such portions and have a wholly grantor trust as to each grantor. The question is what does “PORTION” mean. Is that tracing specific assets, or it is simply portion by value?<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D">If the above is true (that you can divide and have wholly grantor trusts as to each), then my question is if you do the physical division after one grantor dies, and use a non-prorata allocation of trust assets
but respect the PORTION by value, is the risk that you are treated as “trading assets” between the two trusts and could have a recognition event on the division as if you did a completely pro-rata allocation of assets and debt, and then traded assets/debt
between the two trusts. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D">-Eileen<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D"><o:p> </o:p></span></p>
<p class="imprintuniqueid"><b><span style="font-size:11.0pt;font-family:"Arial",sans-serif;color:black">Eileen M.</span></b> <b><span style="font-size:11.0pt;font-family:"Arial",sans-serif;color:black">Day</span></b><br>
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</span><span style="font-size:9.0pt;font-family:"Arial",sans-serif;color:black">Direct: 612.335.7026</span><b><span style="font-size:9.0pt;font-family:"Arial",sans-serif;color:#F04E23"> \ </span></b><span style="font-size:9.0pt;font-family:"Arial",sans-serif;color:black">Mobile:
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<p class="MsoNormal"><b>From:</b> McCaffrey, Carlyn <<a href="mailto:Cmccaffrey@mwe.com">Cmccaffrey@mwe.com</a>>
<br>
<b>Sent:</b> Wednesday, July 29, 2020 5:09 PM<br>
<b>To:</b> Day, Eileen <<a href="mailto:eileen.day@stinson.com">eileen.day@stinson.com</a>>; 'EstGift@actec.org' <<a href="mailto:EstGift@actec.org">EstGift@actec.org</a>><br>
<b>Subject:</b> RE: Spouses as Joint Grantors<o:p></o:p></p>
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<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal" style="margin-bottom:12.0pt"><strong><span style="font-size:12.0pt;font-family:"Calibri",sans-serif;color:red">External Email – Use Caution</span></strong><span style="font-size:12.0pt;font-family:"Times New Roman",serif"><o:p></o:p></span></p>
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<p class="MsoNormal"><span style="color:#1F497D">I’d be interested in knowing whether you have found any authority that supports the idea that if you split a trust into shares based on the relative values that each of two grantors contributed to the trust,
each of the divided trusts will be treated as if created by only one of the grantors.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D"><o:p> </o:p></span></p>
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<p class="MsoNormal" style="line-height:11.25pt"><span style="font-size:9.0pt;font-family:"Arial",sans-serif;color:black">CARLYN MCCAFFREY
</span><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:#1F497D"><br>
</span><span style="font-size:9.0pt;font-family:"Arial",sans-serif;color:black">Partner
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<p class="MsoNormal" style="line-height:11.25pt"><b><span style="font-size:9.0pt;font-family:"Arial",sans-serif;color:#00A68E">McDermott Will & Emery LLP</span></b><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:#1F497D"> </span><span style="font-size:9.0pt;font-family:"Arial",sans-serif;color:black">340
Madison Avenue, New York, NY 10173-1922</span><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:#1F497D"><o:p></o:p></span></p>
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<p class="MsoNormal" style="line-height:11.25pt"><span style="font-size:9.0pt;font-family:"Arial",sans-serif;color:black">Ellen Schwartzman, Assistant to Carlyn McCaffrey<br>
<b>Tel</b> 212-547-5437 </span><span style="font-size:7.5pt;font-family:"Arial",sans-serif;color:white"> |
</span><span style="font-size:9.0pt;font-family:"Arial",sans-serif;color:black"> <b>Email</b> <a href="mailto:eschwartzman@mwe.com"><span style="color:black;text-decoration:none">eschwartzman@mwe.com</span></a></span><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:#1F497D"><o:p></o:p></span></p>
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<p class="MsoNormal"><span style="color:#1F497D"><o:p> </o:p></span></p>
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<p class="MsoNormal"><b>From:</b> <a href="mailto:estgift-bounces@actec.org">estgift-bounces@actec.org</a> <<a href="mailto:estgift-bounces@actec.org">estgift-bounces@actec.org</a>>
<b>On Behalf Of </b>Day, Eileen<br>
<b>Sent:</b> Wednesday, July 29, 2020 5:51 PM<br>
<b>To:</b> 'EstGift@actec.org' <<a href="mailto:EstGift@actec.org">EstGift@actec.org</a>><br>
<b>Subject:</b> [EstGift] Spouses as Joint Grantors<o:p></o:p></p>
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<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal" style="margin-bottom:12.0pt"><b><span style="font-size:12.0pt;background:deepskyblue">[ External Email ]</span></b><span style="font-size:12.0pt;font-family:"Arial",sans-serif"> </span><span style="font-size:12.0pt;font-family:"Times New Roman",serif"><o:p></o:p></span></p>
<p class="MsoNormal">Question for you all regarding grantor trust status. <o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">We are considering an irrevocable grantor trust where both spouses are grantors by gifts to the trust. Further assets would be sold to the trust by one or both spouses on a promissory note. For a number of years there may be little liquidity
in the trust and payments on the promissory note may be made by return of the asset sold. So long as the trust is a grantor trust, no gain/loss is recognized on the interest or return of the asset sold in payment of the note.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">If one spouse dies, we likely then have a non-grantor trust as to the proportion of the trust represented by the deceased spouse’s contributions, and a grantor trust as to the proportion of the trust represented by the surviving spouse’s
contributions.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">The idea we are considering is whether at the time of the first death we can bifurcate the trust, making a non-pro-rata allocation of assets and debt so that the non-grantor portion receives assets and no debt, equal to 50% of the trust
value and the grantor portion receives the note payable and assets with a net value equal to 50% of the trust value (obviously, more of the assets than the non-grantor portion to offset the debt).<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">If we make this a GST Trust, I believe we can do a qualified severance of the trust and do a non-prorata allocation of assets so long as the values are equivalent.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Any concerns with that approach that you can see?<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Thank you for your thoughts,<o:p></o:p></p>
<p class="MsoNormal">Eileen<o:p></o:p></p>
<p class="imprintuniqueid"><b><span style="font-size:11.0pt;font-family:"Arial",sans-serif;color:black">Eileen M.</span></b> <b><span style="font-size:11.0pt;font-family:"Arial",sans-serif;color:black">Day</span></b><br>
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</span><span style="font-size:9.0pt;font-family:"Arial",sans-serif;color:black">Minneapolis, MN 55402</span><span style="font-size:9.0pt;font-family:"Arial",sans-serif;color:#FF4D00"><br>
</span><span style="font-size:9.0pt;font-family:"Arial",sans-serif;color:black">Direct: 612.335.7026</span><b><span style="font-size:9.0pt;font-family:"Arial",sans-serif;color:#F04E23"> \ </span></b><span style="font-size:9.0pt;font-family:"Arial",sans-serif;color:black">Mobile:
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