New Grantor Trust Proposal Would Rid Tax Benefits for Grantor Trusts

The Treasury Departments “Greenbook” (full of explanations of the revenue proposals for 2014) has restricted purported changes to the estate tax treatment of grantor trusts, but does not address all of its issues. Last years proposal charged an estate tax to all grantor trusts upon the grantor’s death. Moreover, a gift tax is charged for any trust property distributions. Estate planners were confused about the broad language in the proposal and concluded the proposals intent required more narrow tailoring.

This years Greenbook more narrowly tailored the proposal. It applied the taxes only to the “portion of the trust attributable to the property received by the trust”  in ” a sale, exchange, or comparable transaction that is disregarded for income tax purposes by reason of the person’s treatment as a deemed owner of the trust.” The property received by the trust portion of the proposal includes the rise in asset value, income gained from the property, and any reinvestment cash. The implication of the new proposal would rid all normal estate tax breaks of installment sales to grantor trusts. 

See Ronald D. Aucutt, The Administration’s Fiscal 2014 Budget Proposals, American College of Trust and Estate Counsel, Apr.12, 2013.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.