IRS Rules that Trust Will Not Lose GST Tax Exempt Status Because of Court Orders

The IRS recently ruled on two court orders that addressed the settlement of litigation involving trust principal distributions. The Wealth Strategies Journal’s synopsis of the ruling is below:

In PLR 201123014, the IRS ruled that two court orders approving settlement of litigation over distributions of trust principal would not result in the loss of GST tax exempt status. With negotiations and litigation having persisted for more than 50 years, the court issued two orders: first, an order determining the identity of trust beneficiaries entitled to request a distribution of corpus under the trust agreement; and second, an order substituting distributions of cash or notes rather than parcels of land (as originally contemplated by the trust document). The IRS determined that these court orders settled bona fide issues regarding the administration of the trust, were the product of arm’s length negotiations, and represented a compromise between the parties.

Justin Trent, PLR 201123014: Court’s Orders Won’t Cause Trust to Lose GSTT Exempt Status, Wealth Strategies Journal, Jun. 13, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.