Reformation of Irrevocable Trust Creates a Grantor Trust

In PLR 200848017 (Nov. 28, 2008), the IRS ruled that a nonjudicial reformation of a trust to give the grantor the nonfiduciary power to reacquire trust assets by substituting assets of equivalent value could create a grantor trust for income tax purposes. The IRS did state that all relevant facts and circumstances would need to be considered to determine whether the gran Rev Rul 2004-64 tor really held the power in a nonfiduciary capacity.

Note. This is an extremely useful way to turn any trust into a grantor trust, which may be desirable for several reasons. Generally, the modification should usually include a direction that all the income taxes on the trust will be paid by the grantor, without reimbursement or payment by the trustee, to avoid having the payment of these taxes constitute a taxable gift to the beneficiaries. See Rev Rul 2004-64, 2004-1 CB 7 .

For More Information Contact The Atlanta, Georgia Law Offices Of AttorneyBritt:

AttorneyBritt
Gary L. Britt, CPA, J.D.
1200 Abernathy Road, Suite 1700
Atlanta, Georgia 30328

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