Treasury Department Seeks to Clarify the GRAT Confusion in the Estate Tax Context

David A. Herpe and Jeanette Suarez Hunter (Attorneys at Law, McDermott Will & Emery LLP) have recently published their article entitled Proposed Regulations Clarify Includability of Grantor Retained Annuity Trust in Grantor’s Gross Estate, 33 ACTEC J. 131 (2007).

Here is the introduction to their article:

Estate planners have long wondered about the proper estate tax treatment of grantor retained annuity trusts (“GRATs”) when the grantor dies during the trust term. There has been concern—and often confusion— as to whether IRC § 2036 will cause the trust property to be included in the grantor’s gross estate or whether IRC § 2039 instead might apply, or both. Recently the Treasury Department published proposed regulations (the “Proposed Regulations”) that seek to clarify the confusion. Specifically, the Proposed Regulations incorporate the guidance provided in two revenue rulings related to IRC § 2036 treatment of charitable remainder trusts and provide a rule for determining when IRC § 2036 and IRC § 2039 will apply at a grantor’s death. The Proposed Regulations, however, give rise to some estate planning uncertainty.