IRS Guidance on Grantor Retained Annuity Interests

The IRS recently gave guidance on the following inquiry: What portion of property should be included in a grantor’s gross estate when the grantor has “retained the use of the property or the right to an annuity, unitrust, graduated retained interest or other payment from the property for life, for any period not ascertainable without reference to the grantor’s death or for a period that does not in fact end before the grantor’s death?“

Regs. Sec. 20.2036-1(b)(1)(ii) provides a method to compute how much is includible in a decedent’s gross estate where the decedent is supposed to receive a payment after another beneficiary who is receiving an annuity dies.

The regulations also address when double inclusion of the same asset would occur from all or some of the trust corpus  being included in the gross estate as a result of the decedent’s retained annuity or other interest. Payments payable to the decedent’s estate after the decedent’s death do not have to be included under Sec. 2033 if Sec. 2036 applies to include all or a portion of the trust corpus in the gross estate.

The IRS makes a point to distinguish these payments from annuity or other payments payable to the decedent prior to the decedent’s death but that are not paid until after death. The latter payments are includible in the decedent’s gross estate as a separate receivable.

Grantor Retained Interests Clarified, Journal of Accounting, Feb. 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.