Stuart Bronstein wrote:
jba wrote:
>> Husband is the primary beneficiary of the wife's
>> testamentary credit shelter trust.
>>
>> Since the trust allows the husband's inter vivos
>> distribution of corpus to one or more descendants without a
>> reasonably definite standard, it does not meet the
>> requirements for an exception under =A7674(b)(5). As a
>> result, I have concluded that (1) the trust is a grantor
>> trust for income tax purposes under =A7674(a), and (2) the
>> trust assets are not includable in the surviving spouse's
>> estate at death under =A72036 or =A72038 despite the
>> retained beneficial interest or powers.
> I think your problem is that the husband is not the
> "grantor" so §674 does not apply. Remember that a credit
> shelter trust is generally made up of assets belonging to
> the deceased spouse and not the surviving spouse.
>
> The income is taxed to the husband because income
> distributed from a complex trust is taxed to the recipient.
>
> Whether or not the assets are included in the surviving
> spouse's estate is determined under §2056, not 2036 or 2038.
>
> Of course I'd have to read the precise wording of the trust
> to be sure, but that's normally how credit shelter trusts
> are drafted.
Thanks for the input and for helping to focus the issues. If the surviving spouse can't be the "grantor" for tax purposes because it is the decedent's trust---Then, are we sure the beneficiary can't be the owner for tax purposes under 674? What if he had the power to add a class of beneficiaries--like wives of descendants or charities? What if he had the power of substitution?--see 675(4)(c)--675 also says "grantor". What if he can take a market-rate interest loan from the trust without putting up "adequate" security? See 675(3). I don't think any of these powers would cause the trust to be included in the surviving spouse's estate, yet they are rarely given. The power of substitution power would be a natural one to include. Think of it this way--if it were a grantor trust, the "owner" can exchange assets with the trust's assets without a sale occurring--for example high basis assets can be exchanged with low-basis trust assets, thereby getting a step-up on them at the owner's death. If it is not a grantor trust, because 675 says "grantor" and the grantor is deceased--then why not give the surviving spouse the ability to substitute assets for equivalent value. Even if there is no basis improvement, I'm sure that it would be a useful power to have in many situations. So, if it doesn't cause an estate tax problem-- and it doesn't--why doesn't anyone give the surviving spouse this power? One answer is because they're afraid it might make it a grantor trust, and that might somehow make it more likely to be included in the surviving spouse's estate--just a guess. It may me just a holdover--doing it the same old way bygone days when individual rates were significantly higher than trust tax rates. Finally, suppose also that I don't care if the bypass trust gets included in the surviving spouses' estate, e.g. the total would be less than the exemption. What powers or actions would produce a grantor trust result in the meantime without changing the basic purposes of the trust? Any additional thoughts would be appreciated.
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