<html xmlns:v="urn:schemas-microsoft-com:vml" xmlns:o="urn:schemas-microsoft-com:office:office" xmlns:w="urn:schemas-microsoft-com:office:word" xmlns:m="http://schemas.microsoft.com/office/2004/12/omml" xmlns="http://www.w3.org/TR/REC-html40">
<head>
<meta http-equiv="Content-Type" content="text/html; charset=utf-8">
<meta name="Generator" content="Microsoft Word 15 (filtered medium)">
<style><!--
/* Font Definitions */
@font-face
{font-family:"Cambria Math";
panose-1:2 4 5 3 5 4 6 3 2 4;}
@font-face
{font-family:Calibri;
panose-1:2 15 5 2 2 2 4 3 2 4;}
/* Style Definitions */
p.MsoNormal, li.MsoNormal, div.MsoNormal
{margin:0in;
margin-bottom:.0001pt;
font-size:11.0pt;
font-family:"Calibri",sans-serif;}
a:link, span.MsoHyperlink
{mso-style-priority:99;
color:#0563C1;
text-decoration:underline;}
p.imprintuniqueid, li.imprintuniqueid, div.imprintuniqueid
{mso-style-name:imprintuniqueid;
margin:0in;
margin-bottom:.0001pt;
font-size:11.0pt;
font-family:"Calibri",sans-serif;}
span.EmailStyle22
{mso-style-type:personal-reply;
font-family:"Calibri",sans-serif;
color:windowtext;}
.MsoChpDefault
{mso-style-type:export-only;
font-size:10.0pt;}
@page WordSection1
{size:8.5in 11.0in;
margin:1.0in 1.0in 1.0in 1.0in;}
div.WordSection1
{page:WordSection1;}
--></style><!--[if gte mso 9]><xml>
<o:shapedefaults v:ext="edit" spidmax="1026" />
</xml><![endif]--><!--[if gte mso 9]><xml>
<o:shapelayout v:ext="edit">
<o:idmap v:ext="edit" data="1" />
</o:shapelayout></xml><![endif]-->
</head>
<body lang="EN-US" link="#0563C1" vlink="#954F72">
<div class="WordSection1">
<p class="MsoNormal">Eileen,<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Much as we might think we know the tax consequences of decanting, nowhere are they spelled out with complete certainty. ACTEC has made formal comments to the IRS about this issue acknowledging this uncertainty – see
<a href="https://www.actec.org/resources/comments-on-transfers-by-a-trustee">https://www.actec.org/resources/comments-on-transfers-by-a-trustee</a>.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">So, to address Reg. § 1.1377-1(b)(4) that you cited below, I believe that distributing all of the assets to another trust would be better. Such a distribution may be characterized as a decanting, but I would stay as far away from decanting
terminology as possible. (You underlined “other disposition,” but for fiduciary income tax purposes a distribution in kind is more akin to a gift than something similar to an exchange; either way, the regulation should provide the intended result.)<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">My personal belief is that a decanting that does not change beneficial interests generally should be treated as a mere continuation of the trust, and a decanting that does change beneficial interests is a distribution to a new trust. So,
the more you change beneficial interests, the higher the likelihood that the transferee will be considered a new taxpayer. The corollary is that it also increases the possibility of transfer tax issues. So, pick your poison.<o:p></o:p></p>
<div>
<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>
<p class="MsoNormal"><span style="font-size:10.0pt;font-family:"Arial",sans-serif;color:#002060">======================</span><span style="font-size:10.0pt;font-family:"Arial",sans-serif;color:#1F497D">
</span><span style="font-size:10.0pt;color:#1F497D"><br>
<br>
</span><b><span style="font-size:10.0pt;font-family:"Arial",sans-serif;color:#780000">Steven B. Gorin<o:p></o:p></span></b></p>
<p class="MsoNormal"><span style="font-size:8.5pt;font-family:"Arial",sans-serif">(he/him/his)</span><span style="font-size:10.0pt;font-family:"Arial",sans-serif;color:#1F497D"><br>
</span><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 style="font-size:10.0pt;font-family:"Arial",sans-serif;color:#002060"><br>
Phone: 314.552.6151 (good for longer voice mails during pandemic)<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 (primary number during pandemic)<o:p></o:p></span></p>
<p class="MsoNormal"><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 style="font-size:10.0pt;font-family:"Arial",sans-serif;color:#002060"><o:p></o:p></span></p>
<p class="MsoNormal"><a href="https://www.thompsoncoburn.com/insights/blogs/business-succession-solutions/about"><span style="font-size:10.0pt;font-family:"Arial",sans-serif;color:#0F243E">https://www.thompsoncoburn.com/insights/blogs/business-succession-solutions/about</span></a><span style="color:#1F497D"><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:10.0pt;font-family:"Arial",sans-serif;color:#1F497D"><br>
</span><b><span style="font-size:10.0pt;font-family:"Arial",sans-serif;color:#780000">Thompson Coburn LLP</span></b><span style="font-size:10.0pt;font-family:"Arial",sans-serif;color:#1F497D">
<br>
</span><span style="font-size:10.0pt;font-family:"Arial",sans-serif;color:#002060">505 N. 7<sup>th</sup> St.</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">One US Bank Plaza<br>
St. Louis, Missouri 63101<br>
</span><a href="http://www.thompsoncoburn.com/"><span style="font-size:10.0pt;font-family:"Arial",sans-serif;color:#002060">www.thompsoncoburn.com</span></a><span style="font-size:10.0pt;color:#002060"><o:p></o:p></span></p>
<p class="MsoNormal"><a href="http://thompsoncoburn.com/people/steve-gorin"><span style="font-size:10.0pt;font-family:"Arial",sans-serif;color:#002060">http://thompsoncoburn.com/people/steve-gorin</span></a><span style="font-size:10.0pt;font-family:"Arial",sans-serif;color:#0F243E"><o:p></o:p></span></p>
<p class="MsoNormal"><a href="http://www.thompsoncoburn.com/insights/blogs/business-succession-solutions"><span style="font-size:10.0pt;font-family:"Arial",sans-serif;color:#002060">http://www.thompsoncoburn.com/insights/blogs/business-succession-solutions</span></a><o:p></o:p></p>
</div>
<p class="MsoNormal"><o:p> </o:p></p>
<div>
<div style="border:none;border-top:solid #E1E1E1 1.0pt;padding:3.0pt 0in 0in 0in">
<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> Wednesday, April 21, 2021 6:44 PM<br>
<b>To:</b> 'EstGift@actec.org' <EstGift@actec.org><br>
<b>Subject:</b> [EstGift] S corp - closing the books mid-year<o:p></o:p></p>
</div>
</div>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Hi all.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">We have a grantor trust that we would like to toggle to a non-grantor trust. In addition, we would like to elect to close the books of an S corporation mid-year under 1377(a)(2) for the grantor trust, based on a complete termination of
shareholder interest. There will be a significant capital gain event later in the year which we wish to isolate in a non-grantor trust, not taxable to the grantor.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">The regulations say that simply converting from one type of eligible S corp shareholder to another type of eligible S corp shareholder is not a termination of the trust shareholder’s interest. So simply turning off grantor trust status
will not allow us to close the books mid-year.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">The only feasible way to achieve a complete termination of the trust’s interest seems to be to transfer the stock to a non-grantor trust. The regulation says a complete termination can be achieved through:<o:p></o:p></p>
<p class="MsoNormal" style="margin-left:.5in">the occurrence of any event through which a shareholder's entire stock ownership in the S corporation ceases, including a sale, exchange, or
<b><u>other disposition of all of the stock held by the shareholder</u></b>; a gift under section 102(a) of all the shareholder's stock; a spousal transfer under section 1041(a) of all the shareholder's stock; a redemption, as defined in section 317(b), of
all the shareholder's stock, regardless of the tax treatment of the redemption under section 302; and the death of the shareholder.”<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">The trust specifically permits a transfer from the trust to any other trust, so long as the transferee trust is for the benefit of one or more of a specified class of people. The Trustee could create such a trust and transfer, by way of
distribution, to such new trust, designed to be a non-grantor trust. <o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Any experience in using such a technique to enable closing the books of the S corporation upon transfer to the new trust? A similar approach would be to use a state decanting statute to decant to a non-grantor trust. Any experience using
decanting to achieve a complete termination of a shareholder trust’s interest and close the books early?<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Thank you for any thoughts.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Eileen<o:p></o:p></p>
<p class="imprintuniqueid"><b><span style="font-family:"Arial",sans-serif;color:black">Eileen M.</span></b> <b><span style="font-family:"Arial",sans-serif;color:black">Day</span></b><br>
<span style="font-size:9.0pt;font-family:"Arial",sans-serif;color:black">Partner</span><br>
<span style="font-size:7.5pt;font-family:"Arial",sans-serif;color:#F04E23"><br>
</span><span style="font-size:9.0pt;font-family:"Arial",sans-serif;color:#F04E23">STINSON LLP</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">50 South Sixth Street, Suite 2600</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">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:
612.669.0299</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:#0563C1"><a href="https://www.stinson.com/people-EileenDay">Bio</a></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"><br>
Assistant: </span><span style="font-size:9.0pt;font-family:"Arial",sans-serif;color:#0563C1"><a href="mailto:MPL.LAATeam4@stinson.com">MPL.LAATeam4@stinson.com</a></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">612.335.1702</span><span style="font-size:9.0pt;font-family:"Arial",sans-serif;color:#FF4D00"><br>
<br>
</span><b><span style="font-size:9.0pt;font-family:"Arial",sans-serif;color:#32465F"><a href="http://www.stinson.com"><span style="color:#32465F">STINSON.COM</span></a></span></b><o:p></o:p></p>
<p class="imprintuniqueid"><span style="font-size:10.0pt">This communication (including any attachments) is from a law firm and may contain confidential and/or privileged information. If it has been sent to you in error, please contact the sender for instructions
concerning return or destruction, and do not use or disclose the contents to others.</span><o:p></o:p></p>
</div>
<br>
<hr>
<font face="Arial" color="Gray" size="1"><br>
CONFIDENTIALITY NOTE: This message and any attachments are from a law firm. They are solely for the use of the intended recipient and may contain privileged, confidential or other legally protected information. If you are not the intended recipient, please
destroy all copies without reading or disclosing their contents and notify the sender of the error by reply e-mail.<br>
<br>
</font>
</body>
</html>