Will Non-Fiduciary Substitution Trigger Grantor Trust?

Steve Akers (Bessemer Trust) recently published his article entitled Non-Fiduciary Substitution Power as Grantor Trust Trigger and Helpful Guidance in Revenue Ruling 2008-22 which looks at the various tax rules and regulations concerning grantor trust treatment.

Here is a summary of his article:

Section 675 provides that the existence of various administrative powers will cause a trust to be a grantor trust for income tax purposes, including a “power to reacquire the trust corpus by substituting other property of an equivalent value,” if exercised in a non-fiduciary capacity.  Revenue Ruling 2008-22 gives helpful guidance in determining whether a grantor can retain a non-fiduciary power to substitute assets of equivalent value without causing inclusion in the grantor’s estate for estate tax purposes.  The ruling indicates that a grantor non-fiduciary substitution generally will not trigger estate inclusion, so long as certain requirements are met.