The Internal Revenue Service issued Private Letter Ruling 129846-16, confirming that the earlier modification of the generation-skipping transfer (GST) trust won’t alter its tax-exempt status. “In general, under Treasury Regulations Section 26.2601-1(b)(4), a modification that’s valid under that state’s law where it’s administered will not cause loss of exemption unless the change (a) results in a beneficial interest in the trust being shifted to a lower generation than that of the person who held the interest prior to the modification, or (b) extends the time for vesting of a beneficial interest beyond the period initially permitted by the trust.”
Certain administrative changes won’t result in a beneficial interest being shifted to a lower generation. The IRS stated that the administration of a trust in accordance with local law permitting the trustee to take certain liberties with the determination of principal and income won’t cause an interest to be shifted to a lower generation.
See Kelsey A. Brock, Changing Unitrust Payment Rates in Trust, Wealth Management, July 24, 2018.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.) for bringing this article to my attention.
