Article on Irrevocable Pure Grantor Trusts
This article will describe how the Irrevocable Pure Grantor Trust can be used to help clients who are not subject to estate tax, but want to maintain control and protect what they have, for their needs and their family. It will provide an objective analysis of several areas of law and include statistics, legal citations and other scholarly writings that demonstrate how the legal strategies or features used in the Irrevocable Pure Grantor Trust make it uniquely different from other irrevocable trusts. Experts have different opinions on the impact of these features when used in an irrevocable trust where the grantor retains a benefit (“self-settled trusts”), but the analysis will confirm universal agreement and well established law on the applicability of each legal feature and its result when used in the Irrevocable Pure Grantor Trust. It is easy for attorneys to become confused and disagree on the impact of a feature when a different outcome can occur when it is used in different legal contexts. For example, retaining a “power of appointment” to a grantor produces a different result when used in a trust intended for tax, asset protection, Medicaid, or general estate planning purposes. In addition, variations of a feature, such as a “general,” “non-general,” or “limited” power of appointment, when used in each area of planning, can have a significantly different impact. What makes it confusing is that a negative impact created by using a feature in one planning area, may cause a positive impact in another.
Section I will analyze the tax law treatment of trusts and identify commonly used terms to distinguish the tax treatment when different legal features are included in a trust. Section II will identify the features used in the Irrevocable Pure Grantor Trust and show how they are different from what has traditionally been used in irrevocable trusts, but utilize well settled principles of law to avoid being subject to the grantor’s creditors. Section III will outline the primary uses of Irrevocable Pure Grantor Trusts to meet current client needs and distinguish the different types available to accomplish different client objectives. Finally, Section IV will differentiate the Domestic Asset Protection Trust (DAPT) from the Irrevocable Pure Grantor Trust and show why the Irrevocable Pure Grantor Trust is not subject to the legal scrutiny and controversy of the DAPT. This Article will demonstrate how the tax, asset protection, estate planning, and control features of the Irrevocable Pure Grantor Trust provide the answer to Mr. and Mrs. Richards’ goals as well as the goals of business owners, professionals and other Americans not subject to estate tax, but desirous to maintain control, protect their assets, and ensure their assets get to their loved ones with as much flexibility and protection as possible, but minimizing complexity.