Passive Loss Rules and Their Effect on Trust Planning

Martin M. Shenkman, (Attorney at Law, Martin M. Shenkman, P.C.) has recently published his article entitled Trusts and Passive Loss Rules, Prob. & Prop., March/April 2008, at 8.

Here is the conclusion to his article:

The material participation test and the application of the passive loss rules can have substantial effect on trust planning, real estate structures, and estate planning. The law remains uncertain, and the limited authorities seem to imply a conceptually flawed framework that will likely lead to fact-specific cases that will not provide simplicity or bright-line tests. In the end, to be consistent with the purposes for which the passive loss rules were enacted, the approach to resolving this issue should consider the activities of all fiduciaries as well as who is taxable on trust income or loss in making the determination.