Final Regs Clarify Estate Tax Treatment of Grantor Retained Interests


The IRS issued final regulations providing guidance on the portion of property (held in trust or otherwise) includible in the grantor’s gross estate if the grantor has retained the use of the property or the right to an annuity, unitrust, graduated retained interest, or other payment from the property for life, for any period not ascertainable without reference to the grantor’s death, or for a period that does not in fact end before the grantor’s death (T.D. 9555).

The regulations provide the method required to determine the portion of the trust corpus of a grantor retained annuity or unitrust trust (GRT) that is includible in the grantor’s gross estate under Sec. 2036 if the deceased grantor retains an interest that increases annually during the term of the trust (a graduated retained interest). This method applies to graduated retained interests in transferred property whether or not held in trust.

Regs. Sec. 20.2036-1(b)(1)(ii) provides the method required to compute the amount includible in the decedent’s gross estate under Sec. 2036 in a situation where the decedent is to receive a payment (or an increased payment) after the death of another beneficiary who is receiving an annuity or other payment at the time of the decedent’s death.

The regulations also address an issue that arises when all or a portion of the trust corpus is includible in the gross estate under Sec. 2036 as a result of the decedent’s retained annuity or other interest, where double inclusion of the same asset would result if any payment that becomes payable after the decedent’s date of death to the estate also is included in the decedent’s gross estate under Sec. 2033 as a separate item. Regs. Sec. 20.2036-1(c)(1)(i) provides that payments that become payable to the decedent’s estate after the decedent’s death (as opposed to payments that are payable to the decedent prior to the decedent’s death but are not paid until after the decedent’s death) are not subject to inclusion under Sec. 2033, if Sec. 2036 is applied to include all or a portion of the trust corpus in the gross estate.

The IRS cautions that such payments must be distinguished from annuity or other payments payable to the decedent prior to the decedent’s date of death, but that are not paid until after death. The IRS said such payments are includible in the decedent’s gross estate under Sec. 2033 as a separate receivable.

The final regulations are effective upon their publication in the Federal Register.

More from the JofA:

 Find us on Facebook  |   Follow us on Twitter  |   View JofA videos

SPONSORED REPORT

Post-busy season checklist

Now that tax season is over, pause for some introspection to guarantee that next year’s busy season is even better. Bonus: “Dirty dozen” scams list to share with your clients. Sponsored by Thomson Reuters, Bloomberg BNA, Bloomberg BNA // Software and Wolters Kluwer.

QUIZ

News quiz: Risks are top of mind in finance

Americans are worried about risks to their financial security. Accountants also see risks to their organizations and their careers. See how much you know about recent news and reports with this quiz.

CHECKLIST

Auditing risks in culture

Cultural flaws can seriously damage an organization. Here’s how internal auditors can reduce risks by embedding culture audits into existing audit programs.