"Brian Collie" <bc[at]sbcglobal.net> wrote:
- quote -

Yes.

I haven't researched this point in the immediate past, but I
believe that's correct.

Stu

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"Stuart O. Bronstein" <spamtrap[at]lexregia.com> wrote:
- quote -

So in your example it is an irrevocable grantor trust?

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"Brian Collie" <bc[at]sbcglobal.net> wrote:

- quote -

The definition of a grantor trust relates only to income
tax. Whether something is included in the estate is based on
different statutes. For the most part the same rules apply.
But not in every case.

For example, as I mentioned, if the trust allows income to
be used to pay premiums on life insurance for the grantor
(and probably whether or not there actually is income or
not), it is a grantor trust and any income is taxed to the
grantor. But there is no statute including the corpus of
that trust in the grantor's estate for estate tax purposes.

Stu

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- quote -

If it's a grantor trust, isn't it included in the estate?

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"Brian Collie" <bc[at]sbcglobal.net> wrote:
- quote -

Thanks. I hadn't noticed when they fixed it.

I noticed it when it first came out, and I phoned a senior
attorney at the IRS to ask about it. He said he didn't know
anything, and not to worry about it.

But what in the world does it mean? Transfers by trust are
generally gifts anyway, and taxable gifts at that if not by
way of a Crummey or minor's trust. If it's a grantor trust
it may or may not be a gift depending on the reason it's a
grantor trust.

Perhaps they're saying that a transfer in trust may not be
considered a gift if it's a grantor trust even though the
grantor retains no rights in the property.

For example say it's not a Crummey trust, but a grantor
trust because income from the trust could, possibly, be used
to pay insurance premiums on the life of the grantor. But
the trust won't have any income because principal will be
used for insurance premiums.

So the guy gets the property out of his estate without
making a gift? That would be great for people who want to
put a lot of money into, say, single premium life insurance.

Doesn't make any sense to me.

Stu

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"Stuart O. Bronstein" <spamtrap[at]lexregia.com> wrote:

- quote -

This error in the 2001 legislation was noted and corrected a
long time ago.

2511(c)now reads: "Notwithstanding any other provision of
this section and except as provided in the regulations, a
transfer in trust shall be treated as a transfer of property
by gift unless the trust is treated as wholly owned by the
donor... " (effective for gifts made after 12/31/2009).

My reading is that this section simply determines when a
transfer in trust is a gift. It has no bearing on the
availability of the annual exclusion or 2503(c) exclusion.

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- quote -

As far as the latter point is concerned, Section 2514(e)
says that a lapse of a general power of appointment (e.g.
failure to exercise an ability to withdraw money) is
considered a lapse, or a taxable gift, if it exceeds $5,000
or 5% of the value of trust assets, whichever is larger.
Since one cannot make a gift to himself, a lapse resulting
in him receiving all the benefits of his "gift" eventually
will not result in a taxable gift. But if there are other
beneficiaries who will or may receive any benefit from the
"gift" it may be considered a taxable gift of a future
interest to that extent.

As far as the former point, Public Law 107-16 (the Economic
Growth and Tax Relief Reconciliation Act), section 511(e)
says, "Notwithstanding any othe rprovision of this section
and except as provided inregulations, a transfer intrust
shall be treated as a taxable gift under section 2503,
unless the trust is treated as wholly owned by the donor or
the donor's spouse under subpart E of part I of subchapter J
of chapter 1."

Under Public Law 107-16, section 511(f)(3), that provision
"shall apply to gifts made after December 31, 2009."

Since all gifts in trust are taxable anyway other than
minors trust and Crummey trusts, that provision can only
apply to those situations.

Stu

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- quote -

Please provide more details (ie. code section, regs)?

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- quote -

Warning: under the current tax code any gift to a Crummey
Trust in the year 2010 may not qualify for the gift tax
exemption, unless the trust is treated as a grantor trust
for which the grantor, rather than the beneficiary, is taxed
on trust income.

Additionally, if the premiums exceed $5,000 per year per
beneficiary, the trust must be drafted so that the
withdrawing beneficiaries are the sole ultimate
beneficiaries. Otherwise some or all of the excess may be
treated as a gift by those beneficiaries that does not
qualify for the annual exemption.

- quote -

There are two things that are important in fuguring out when
and how to send the notice. First, the beneficiary must
have a reasonable time (generally at least 30 days) to make
the election. So notice should be sent at least that far in
advance before the premium is to be paid.

Next, it's probably best to have the withdrawal period not
extend past the end of the year. If it's determined that
the beneficiary didn't have sufficient time to withdraw the
funds before the end of the year, the exemption may not be
available for that year.

- quote -

That's why the money has to be left in until the expiration
of the withdrawal period. If not the gift tax exemption
will be denied.

What some people do is to give the beneficiaries notice
simultaneously while having them sign a waiver of their
withdrawal rights. That would cut short the withdrawal
period if you can pull it off.

Stu

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wexler <usenet[at]financialfora.com> wrote:

- quote -

Yes, assuming that each beneficiary has an immediate right
to withdraw a share of the money put into the trust.

**Dan Evans
**I post information, not advice.

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- quote -

One tax attorney I know well makes the point for the other
side that the money needs to be there long enough for the
person to have some realistic window to withdraw the sums he
or she is entitled to withdraw, but "realsitic" can be
short, just not zero. Safety would suggest 16 letters if
sums are paid in 4 times, and send the letters out before
the funds disappear out so there is some valid present
interest.

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I have a quick question regarding Crummey letters. I have
used a "multiple choice" format to illustrate what I have
been thinking thus far.

My client wants an Irrevocable Life Insurance Trust. There
are 4 beneficiaries. The insurance premiums are paid
quarterly and total less than $44,000 per year.

When must I send Crummey letters?

a) each time money is put into the trust with a letter to EACH
beneficiary (4 times a year and 16 total letters)

b) each time money is put into the trust with a letter to ONE
beneficiary (4 times a year and 4 total letters)

c) once per year (4 letters)

d) none of the above.

Also, if money is being transferred into the trust adn then
transferred out (to pay the insurance premiums), how can the
beneficiaries have a "present interest" in the funds. In
other words, if any of the beneficiaries choose to withdraw
the money (not likely) there is nothing to withdraw.

Thanks in advance for any insight on this.

--
Posted Via FinancialFora.Com
http://www.financialfora.com/

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