Possible Changes to Estate and Gift Tax Law

Sheppard Mullin Richter & Hampton LLP

Last week the House Ways and Means Committee released a draft of proposed tax law changes to include in a reconciliation bill. While it is uncertain whether any of these proposals will be adopted – and if so in what form – several of the proposals would dramatically change common estate planning techniques and may require immediate attention.

Grantor Trust Changes. The most far-reaching proposal is to change the tax treatment of “grantor trusts.” A grantor trust is a trust for which the grantor remains liable for tax on all of the trust’s income, even if the grantor has no ownership or control over the trust assets so that the trust assets are not included in the grantor’s estate. Common examples of a grantor trust used in estate planning are a Grantor Retained Annuity Trust (GRAT), a Qualified Personal Residence Trust (QPRT), a Spousal Lifetime Access Trust (SLAT), many life insurance trusts (ILITs), intentionally defective grantor trusts used for gifting and sales of assets to children or other beneficiaries (IDGTs) and many other trusts intentionally structured for the grantor to make a completed gift while remaining liable for the income tax on the trust’s earnings.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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