If the grantor's spouse holds the sprinkle power, the trust is a grantor trust
because IRC section 672(e) attributes powers held by the grantor's spouse to the grantor.
But because the trust is a grantor trust
, the grantor must include the trust's income in his or her income during the charitable term.
The income the trust receives is taxable to the transferor under the grantor trust
Therefore, an IDGT would not be included m the donor's estate upon his or her death, yet it would be considered a grantor trust
for income tax purposes.
Would it be feasible to have a spouse as a named beneficiary, or the grantor only receive distributions with the consent of an adverse party in order to avoid grantor trust
If the QPRT remains a grantor trust
after the initial trust term or distributes the residence to another trust that is a grantor trust
with respect to the QPRT donor, then the income tax issues are greatly simplified.
Thus, if distributions or certain powers must be effected with the approval of an adverse party, grantor trust
status can be avoided.
While there are a number of different types of grantor trusts
, the most common is the traditional estate planning revocable trust.
5) Additionally, attainment of grantor trust
status--given the current compressed marginal tax rates for trusts--has the effect of reducing the income tax paid on the assets placed in trust because the grantor, rather than the trust, will pay the income taxes.
For example, a revocable living trust is a grantor trust
(income taxed to the grantor) and included in the grantor's estate.
Note that the grantor trust
option is not available for transfers made at the donor's death (the donor must obviously be alive to pay income taxes for somebody else) and may not be available for lifetime gifts in the future, as the 2012 budget proposals seek to limit this kind of planning.
Proposals in President Obama's 2013 budget plan are targeting the grantor trust
, which is a widely used estate planning technique that can result in considerable tax savings for the grantor and the trust beneficiaries.
Retention of this right in a nonfiduciary capacity violates one of the grantor trust
The Tax Court cited Revenue Ruling 92-73, which holds that a traditional IRA is not a grantor trust
eligible to be considered an S corporation shareholder because, unlike a grantor trust
, its income is not currently taxed to the beneficiary.
The income of a grantor trust
is taxable to the creator of the trust, in this case, the beneficiary or special needs person.