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Important Follow Up on Recent Proposals

We had written to our valued clients and colleagues a few days ago summarizing the sweeping tax provisions proposed by the House Ways and Means Committee. As we had mentioned, the proposal includes a significant overhaul of existing grantor trust rules applying to any trust created or transfer made after the date of enactment, including:

  • Assets of a grantor trust would be included in the grantor’s gross estate.

  • Distributions from a grantor trust during the grantor’s lifetime (other than to the grantor or the grantor’s spouse) would be treated as gifts.

  • Toggling off grantor trust status during the grantor’s lifetime would be treated as a gift.

  • Sales and other transfers between a grantor and an irrevocable grantor trust would no longer be disregarded for income tax purposes.

We want to stress that the overhaul of the grantor trust rules introduced by the proposal could eliminate the benefits of valuable estate planning techniques such as spousal lifetime access trusts (SLATs) , grantor retained annuity trusts (GRATs) , qualified personal residence trusts (QPRTs), qualified subchapter S trusts (QSSTs), life insurance trusts (ILITs) and sales to defective grantor trusts (IDGTs) . Taxpayers should focus on creating and funding some of the aforementioned vehicles, utilizing valuation discounts and using their gift and generation-skipping transfer (GST) tax exemptions before they lose them.

The proposal could have a detrimental effect even on life insurance trusts that were created before the date of enactment if they will be funded following the date of enactment in order to cover premium payments. Specifically, such gifts to the trust could cause the death benefit and other trust assets to be includible in the grantor's estate at death. To address this issue, to the extent possible, taxpayers may want to consider funding the trust now with an amount equal to anticipated future premium payments. If that is not feasible, taxpayers should consult counsel before making any additions to the trust following the date of enactment.

Given the proposal, we strongly encourage existing and prospective clients to speak with us as soon as possible to take advantage of the current rules before they change. We will give first priority to clients who contact us without delay and have plans in place or in progress. Please email us at

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