The grantor trust rules were originally viewed as a restriction on the ability of taxpayers to take advantage of the graduation of income tax rates by creating multiple trusts that would function as separate taxpayers, while reserving interests in or powers over the trusts inconsistent with their tax independence. See, e.g., AOD (July 23, 1975) (deciding
not to seek certiorari in Swanson v. Comm’r, 518 F.2d 59 (8th Cir. 1975), the IRS describes Section 6742 as “a statute whose only function is to prevent tax avoidance”). Modern estate planners, however, are more likely to use a grantor trust to shift future appreciation in the value of assets from a transferor’s estate to other family members without concomitant capital gains taxes, or to generate a current income tax deduction for a charitable gift of an annuity that will enable the transfer of substantial family wealth without estate or gift taxes…
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Howard M. Zaritsky is an attorney who consults exclusively with other attorneys and estate planning professionals on estate tax and estate planning issues and serves as an expert witness on estate and trust administration and planning and related income, estate, gift and GST tax questions. He was for 20 years a partner in the Fairfax, Virginia law firm of Zaritsky & Zaritsky, where his practice was limited to estate planning and administration, and related tax matters.
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