February 22, 2012
Obama's Proposal on Intentionally Defective Grantor Trusts
Obama proposed changes involving Intentionally defective grantor trusts (IDGTs) in his budget proposal. He wants to coordinate income and transfer tax rules that apply to grantor trusts. The proposal suggests that when a transfer is made to a grantor trust, if a distribution is made from the grantor trust or the trust ceases to be a grantor trust, the gift tax should apply. Then, at the time of the grantor’s death, any amounts not distributed would be subject to the estate tax, which would eliminate transfer tax benefits of sales to IDGTs.
The change would also apply to nongrantors who are deemed to be owners of the trust and then engage in a sale, exchange, or comparable transaction with the trust that would have been subject to capital gains if the person were not the deemed owner of the trust.
Obama’s proposal would be effective for trusts created on or after the date of the enactment. The treatment of trusts already includible in the grantor’s gross estate under existing provisions would not change.
See Eileen Reichenberg Sherr, Budget Proposal Includes Change to Treatment of Intentionally Defective Trusts, Journal of Accountancy, Feb. 21, 2012.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.
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