Private Letter Ruling 2010207001

In Private Letter Ruling 2010207001, the Service found that proposed modifications and a change in situs were administrative only.  Grantor created an irrevocable trust that allows the trustees to distribute, at their discretion, as much of the trust’s income and principal to Child 1 during his life. The primary trust assets are common stock in Company. Child 1 has the ability, at death, to exercise a limited power of appointment to distribute the trust assets to his issues, but if Child 1 does not exercise this power, the trustees may distribute income and/or principal to the surviving spouse and/or issues.

If no living issues exists at Child 1’s death, the trustees may distribute assets to the surviving spouse and/or the issue of the Grantor, and if there is no surviving issue of the Grantor, the benefit passes to Grantor’s sister. The trust will terminate 21 years after the last survivor of Grantor, Grantor’s wife, Child 1, Child 2, Child 3, and 11 other named contingent beneficiaries, at which point the trust will be divided among Child’s 1’s grandchildren or their issues. If no issues of Child 1 exist at the trust’s termination, the trust will be divided among Child 2 and Child 3’s grandchildren. The trustee must give Company a 30-day option to purchase the stock prior to any other sale.

Child 1 petitioned State 2 court to accept jurisdiction of the trust, switching the situs from State 1. Child 1 also asked for the nine following modifications:

1. Name a distribution advisor to make all distribution decisions for the trust. 2. Name an investment advisor to make all investment decisions for the trust. 3. Name a “trust protector” to make certain administrative changes to the trust. The trust advisor would have power to amend provisions relating to identity, qualifications, succession, removal and appoint of any fiduciary of the trust. 4. Amend the trust to replace “issue” with “descendants.” 5. While the trust situs will now be State 2, amend the trust to require at least one trustee from State 1. 6. Neither the Grantor nor the Grantor’s wife may hold any office under the trust. 7. State 2 will govern the administration of the trust while State 1 will govern the validity, construction and duration. 8. For purposes of determining the purchase price of Company stock, the definition of “book value” is clarified to be the value of the stock as of the end of the month before the notice of the offer to purchase the stock is given to Company. 9. Child 1, or if he fails to act, those persons in the oldest generation of living descendants of Child 1 who have reached age 25, or if none, or if they fail to act, those persons in the oldest generation of living descendants of the Grantor who have reached age 25, may appoint an individual or trust company to act in any vacant office of the trust.

The Service ruled that under Sec. 26.2601-1(b)(4)(i)(D)(1), neither the modifications nor the changed situs will cause the trust to lose its GSTT exemption because the changes are only administrative in nature and do not change or shift beneficial interest and because the modifications do not extend to the time for vesting for any interest.