Revocable Grantor Trusts and IDGTs After the Death of the Trustor: Avoiding Gain Triggers, Navigating Basis Calculations

The tax treatment of grantor trust assets at the death of the grantor often presents estate planners with specific challenges, particularly if the trustor dies prematurely or unexpectedly. Common techniques utilized in structuring intentionally defective grantor trusts (IDGTs) can result in gain recognition and inclusion of assets in the decedent’s gross estate. Planners must ensure their clients are aware of the potential tax consequences that can occur upon a trustor’s premature death.

The general rule is that a revocable grantor trust becomes an irrevocable trust upon the death of the trustor. In cases where the trustor has transferred assets into a revocable grantor trust, the transfer is disregarded for income tax purposes. Upon the death of the grantor, once the transaction is deemed completed to the irrevocable trust, there is uncertainty in some cases as to whether the trust can take a step-up in basis on the transferred assets, or whether the trust takes a carry-over basis from the trustor.

Set up correctly and based on current law, sales or gifts to these trusts can exclude the assets from the grantor’s estate. However, trust powers must be carefully selected and understood in order to avoid an incomplete gift and unintentional inclusion of income in the grantor’s estate.

Listen as our experienced panel of estate planning advisers provides a practical guide to navigating the challenges of defective and grantor trusts after the death of the trustor.

1. Structuring asset transfer transactions to defective trusts and revocable grantor trusts
2. Basis of assets transferred to revocable and defective grantor trusts
3. Impact of grantor’s death on basis of assets transferred to grantor trusts
4. Drafting trust documents to ensure powers don’t trigger inclusion of trust assets in gross estate

The panel will review these and other key issues:

• Gain recognition risks on assets transferred to grantor trust in event of premature death of grantor
• Acceleration provisions on death of trustor
• Structuring trust documents to ensure trustor powers don’t trigger unforeseen gain
• Basis questions on assets transferred to grantor trusts

Learning Objectives

After completing this course, you will be able to:

• Identify basis issues on assets transferred to grantor trusts in scenarios involving installment sales and promissory notes
• Recognize powers provisions in trust documents that may result in the transaction being recharacterized as incomplete gift and assets being included in grantor’s gross estate
• Discern income allocation issues between grantor and post-mortem irrevocable trust

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience at mid-level within the organization, preparing complex tax forms and schedules; supervisory authority over other preparers/accountants. Knowledge and understanding of estate and trust planning and structure. Familiarity with estate planning and trust issues specifically including gain recognition, acceleration and other trust provisions, and asset basis.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).