![]() ![]() To any portion of a trust established before the date of enactment “which is attributable to a contribution made on or after such date.”.To trusts created on or after the date of enactment (the date the Bill, having been passed by both houses, is signed into law) and.Under the Bill, these two new rules would apply: New § 1062 would treat any sale or exchange between the grantor and his or her irrevocable grantor trust as a taxable event for income tax purposes.If grantor trust status ends during the grantor’s lifetime, the trust assets will be treated as transferred by gift by the grantor.Any trust distribution during the grantor’s lifetime to anyone other than the grantor or the grantor’s spouse would be treated as a gift by the grantor.The value of the trust assets would be included in the grantor’s estate for federal estate tax purposes.New § 2901 would negate the estate tax benefits of irrevocable grantor trusts in the following ways:.The Bill would add two new sections to the Internal Revenue Code that would undermine the use of irrevocable grantor trusts in estate planning: Accordingly, a grantor may sell assets to an irrevocable grantor trust without realizing gain (or swap assets with the trust), and may pay income taxes on trust income without making a gift to the trust. For income tax purposes, however, the trust property continues to be treated as owned by the grantor. Under current law, an irrevocable grantor trust is a trust that has received a completed gift from an individual (the “grantor”) and is not includable in the grantor’s estate for estate tax purposes. Loss of Benefits of Irrevocable Grantor Trusts We covered the use of the disappearing exclusion amount in detail in our October 2020 Alert, which anticipated some of the changes discussed here. Note, though, that one must transfer in excess of $6,000,000 to make use of any of the disappearing exclusion amount. In anticipation of this change, individuals should consider making gifts to use the higher exclusion amount before it disappears. The Bill would return the base amount to $5,000,000 (or $6,020,000 after the inflation adjustment) in 2022 rather than 2026. Under the Tax Cuts and Jobs Act of 2017, the base amount was temporarily doubled from $5,000,000 to $10,000,000 for the years 2018-2025. From 2011 to 2017, the basic exclusion amount was $5,000,000 adjusted annually for inflation. This is the threshold amount below which individuals may make gifts during life and transfers at death without incurring tax. Perhaps the least surprising estate planning change introduced by the Bill is the reduction of the basic exclusion amount available for estate and gift tax purposes (which is also the measure of the GST exemption). Eliminate estate and gift tax valuation discounts on interests in nonbusiness entities.ġ.End the estate planning benefits of irrevocable grantor trusts and.Cut in half the basic exclusion amount, reducing the estate, gift and GST tax exemptions from $11,700,000 to approximately $6,020,000 in 2022.If enacted, the Bill would, among other things: 5376 (the “Bill”), proposes sweeping changes to tax rules that apply to individuals and trusts, with far-reaching implications for estate planning. The House budget reconciliation bill, H.R. ![]()
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