Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Friday, May 27, 2005

Income Tax Reimbursement Trust Provisions

William S. Forsberg (shareholder in Parsinen Kaplan Rosberg & Gotlieb P.A.) and James C. Worthington (Counsel of Stites & Harbison PLLC) analyze Income Tax Reimbursement Clauses in Irrevocable Grantor Trusts -- When to Use Them and When Not To, Prob. & Prop., May/June 2005, at 36.

The authors' conclusion reads as follows:

Giving the trustee of an IGIT the discretionary power to reimburse the grantor for income taxes incurred by the IGIT can be a valuable tool.  It provides the grantor with flexibility in his financial and estate planning and may help to avoid the "exploding IGIT phenomenon."  Certainly, Rev. Rul. 2004-64 is helpful in providing guidance on how an income tax reimbursement provision should be drafted.  The Ru7ling, however, does raise other issues that could produce adverse tax and creditor problems.  Caution is the key word.  Check the client's creditworthiness and state spendthrift laws before blindly incorporating such a provision in the IGIT.  The effect of state spendthrift laws may be yet another reason to set up trusts in "asset protection" states such as Alaska or Delaware.


Articles, Estate Tax, Gift Tax | Permalink

TrackBack URL for this entry:


Listed below are links to weblogs that reference Income Tax Reimbursement Trust Provisions: