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Reform a Credit Shelter Trust to make it a Grantor Trust?

An irrevocable trust, e.g.a credit shelter trust, can be reformed (modified) with probate court approval if the change doesn't alter the testator's intent and meets certain other criteria. If the surviving spouse can be given the non-fiduciary power to substitute trust assets for other assets of equal value--per Sec 675 (4) (c)-- would the trust become a grantor trust, with the surviving spouse the owner for income tax purposes? If not, is there any reformation that would result in grantor trust status? Or is it just impossible because the original grantor (testator) is deceased?

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Reply to
jba
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It depends on why you think you want it to be a grantor trust. The easiest thing to do is just to have all of the assets of the first spouse to die go into the survivor's (revocable) trust. It qualifies for the marital deduction, and it is added to a grantor trust.

It's unlikely that you could make the credit shelter (decedent's) trust a grantor trust with respect to the surviving spouse. But I can't think of a reason to do so.

What you can do is have the surviving spouse disclaim the right to receive income from the trust. Then it would not qualify as a QTIP trust, and none of the assets in the trust will, then, be taxed in her estate but will instead be taxed in the estate of the first spouse to die.

This is a pretty complex area of the law, so you should know just what you want to do and why, not simply, "make it a grantor trust," which is never an ultimate goal.

Stu

Reply to
Stuart Bronstein

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