Graduated Retained Interests in Property Includible in Grantor's Estate

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IRS clarifies in final rules (T.D. 9555) the interaction of several sections of the tax code relating to trusts for portions of property includible in a grantor's gross estate, if the grantor has retained use of the property or another interest. In particular, IRS says in situations where a decedent establishes a grantor retained trust and the retained interest is paid for a specific term—so that if the decedent dies prior to the expiration of that term, the retained annuity or other payment would be paid to the decedent's estate for the balance of the term—then those payments do not have to be included in the value of the gross estate under tax code Section 2033 if they are included under Section 2036. IRS and the Treasury Department agree with a commenter who said that including payments as a separate item under both tax code sections would result in double inclusion of the same asset.