Agenda
The use of installment sales to grantor trusts, installment sales to non-grantor trusts, and private annuity sales to grantor trusts are popular estate planning techniques, simultaneously involving three separate tax regimes: the income tax, the gift tax and the estate tax.
An irrevocable grantor trust is treated as a separate entity for the Federal gift and estates taxes, while at the same time the irrevocable grantor trust is the practical equivalent of a disregarded entity for the Federal income tax purposes. The income tax issues relating to these techniques are complex because the separate tax regimes have inevitable overlap, such as the step-up in basis at death under Section 1014, the treatment of income in respect of a decedent under Section 691 and the treatment of gifts under Section 102. The speakers will address the income tax issues that arise when a grantor trust becomes a non-grantor trust, and when a non-grantor trust becomes a grantor trust, starting with the income tax treatment when a grantor dies while the grantor trust’s installment note remains outstanding. The proper resolution of the income tax, gift tax and estate tax issues has received considerable attention with the issuance last year of CCA 200923024 and the misinterpretation of the CCA by commentators in their attempts to resolve these income tax issues.
The speakers begin by identifying the income tax issues that arise when liabilities, including seller-provided financing, are part of a transaction and the fundamental income tax principles used to resolve these issues. The speakers describe why a transaction treated as a sale for adequate consideration for gift and estate tax purposes is not a sale for the income tax and the income tax consequences when the grantor trust sale becomes an income tax realization event, either while the grantor is alive or upon the grantor’s death.
In 60-90 minutes, the speakers offer practical advice on:
- Whether the termination of grantor trust status by reason of the grantor’s death, where all of part of the installment note remains outstanding, requires the realization and recognition of gain. And, in the unlikely event that gain is reported, identifying the person responsible for reporting that gain.
- Whether the conversion of a non-grantor trust to a grantor trust while the grantor is alive is treated as an income tax termination of the deferred payment obligation, resulting in gain recognition for the gain previously deferred under the installment method.
- Whether the grantor’s lifetime transfer of an installment note issued by a grantor trust to a person who is not the grantor of the trust is treated as an income tax disposition that requires the reporting of gain.
- When grantor trust status terminates by reason of death, whether the trust’s income tax basis in the asset purchased from the grantor of a grantor trust is (i) a carryover basis; (ii) a tax-free step-up in basis under Section 1014; (iii) a cost basis for an asset acquired by purchase; or (iv) something else.
- Whether there is there income in respect of a decedent when the grantor dies.
- The surprising income tax exposure if the grantor’s liability to pay the income taxes on the grantor trust’s income is toggled off while the grantor is living.
The application of these income tax principles to the termination of private annuities and SCINs upon the grantor’s death. Upon completion of the program, participants will be able to:
• Understand the income tax results when grantor trust status is “turned off.”
• Advise clients on how to avoid income tax realization events when there is a change in grantor trust status.
• Minimize the tax risks when making sales to grantor trusts.
Speakers
Jonathan Blattmachr, Jerome Hesch, Mitchell Gans, Elliott Manning
Jonathan G. Blattmachr is a former partner at Milbank, Tweed, Hadley & McCloy LLP in New York. He is recognized as one of the most creative trust and estates lawyers in the country and has written and lectured extensively on estate and trust taxation and charitable giving. He has taught at both the Columbia University and NYU Law Schools, is a Fellow and former Regent of the American College of Trust and Estate Counsel, and is the author or co-author of four books and more than 100 articles on estate and trust topics.
Mitchell Gans is Professor of Law at the Hofstra University School of Law in Hempstead, New York. He is a leading scholar in the estate and gift tax area, has written extensively on trust and estate taxation, and is a frequent lecturer for ALI-ABA, NYU, the American College of Trust and Estate Counsel, the ABA, and other groups.
Jerome M. Hesch is an estate planner and advisor who practices in Miami. He is an Adjunct Professor at the University of Miami’s Graduate Programs in Estate Planning and Taxation, and has appeared in CLE programs throughout the country. He was previously with the Miami office of Greenberg Traurig P.A. and the IRS Office of Chief Counsel in Washington, D.C.
Elliott Manning is Professor of Law at the University of Miami School of Law, where he is Chair of the Graduate Program in Taxation. He is a fellow of the American College of Tax Counsel and has written several book and numerous articles on federal income tax subjects. Before joining the School of Law, he was a partner with Cleary, Gottlieb, Steen & Hamilton in New York.