Anyone here familiar with a Grantor Retained Annuity Trust(GRAT)?

From what I have heard from my tax buddies, GRATs are something that wealthy people are currently utilizing in order to minimize (or completely eliminate) paying gift tax. Does the IRC touch on GRATs anywhere? I searched around and was not able to find anything. Additionally, I know that the IRS wants to get rid of the GRAT or to change it so that it does not provide such a big tax benefit to taxpayers. Have any of you read anything recently concerning that?

This question has big implications for a Grantor CLAT I created with highly appreciated stock.

If the CLAT pays (bulk of) the annuity by donating the appreciated stock to the Lead beneficiary DAF, will that trigger a taxable event for the Grantor (me)?

I hear conflicting information, one person who has a CLAT says they haven't been paying capital gains on these.

However by searching online I came across this article, which states that a 2009 IRS ruling that it does trigger a taxable event, but the article goes on to argue that this stance causes some logical fallacies and that this ruling should be appealed: https://www.thetaxadviser.com/issues/2010/feb/paymentofannuitywithappreciatedpropertybygrantorcharitableleadannuitytrust.html

My estate planning attorney, unfortunately can't give me a sure answer :(

I'm hoping someone here can shed some light on what's

It's difficult to get a mortgage when retired (having assets but no employment income).

Recent commenters (here and here) here were lifesavers. They showed how to get a mortgage with terms and for amounts much better than I could get with an asset depletion mortgage. However the comments lacked details and without a reference trust document, I had to do hours of research to get started. I thought I would save others this time by passing on what I learned and detail the process from start to end.

I started by creating a Trust Agreement. I am not a lawyer but I combined language from different boiler-plate trust documents to create an agreement written in an optimal way to qualify for a loan. Note that many brokerages require that the Grantor (creator of the trust), Trustee (administrator of trust), and Beneficiary (recipient of benefits from the trust) be the same person. However, note that some states, such as Texas, do not recognize trusts where all 3 are the same person. However, you can define the governing law of the trust to be any state you wish. By having the trustee have the same identity as the grantor, and by being a revocable trust, you can use the SSN of the grantor for the trust, and no additional filings are required when doing taxes, nor are any new tax IDs required so long as the grantor lives and administers the trust.

Here is the Trust Agreement I created and used. To edit it, you can go to File > Make a Copy, or alternatively, you may download it as a Word Document. Then you will have your own version, visible only to you, to edit. Simply modify the highlighted text with the details appropriate for you, and update the assets listed under Schedule A.

The most important section of this trust document for obtaining the loan is the language defining the payment schedule (the top of page 3). To be a conforming loan, your total debt to income ratio (including any existing mortgages (if you don’t sell prior to closing on the new property) and all taxes, insurance, etc.) must be less than 45%. So if your total monthly spend on properties and debts is $10,000/mo, divide $10,000 / 45% = $22,222. Your Trust must therefore define p

the grantor be carried out anyway?

The grantor in this case wants to change the distribution amount in the trust for some of the beneficiaries. He also wants to add a beneficiary. If he dies, can the Trustee carry out his wishes if there isn't a signed/witnessed amendment?

As the successor trustee to my late mother's living trust, I'm selling her house which has been rented out for about six years. Turns out that California wants me to file a capital gains tax withholding statement, with some distinction between a "grantor trust" and a "non grantor trust." I understand that my mom's revocable living trust became an irrevocable trust when she died, but this is the first I'm hearing of the terms grantor and non-grantor. Is there a simple answer on which this trust is?

Hope the title is clear. Let me know if I can clarify it at all. I know successor trustees are usually for primary trustee's death/resignation/whatever.

Does anyone know how to claim a refund of estimated taxes for a Grantor trust?

We have two trusts that we picked up as clients in August of 2020. The trust had been filing as Complex for years and we did the same for 2019. After a meeting with the client's attorney earlier this week, we discovered that the trust should have been filing as Grantor due to a modification to the trust document that we were not aware of.

The trusts receive a large amount of income from a passthrough, so the estimates we set up for 2020 are substantial and need to be refunded. So, we are proceeding with a Grantor return for 2020 and will be amending for 2018 and 2019 after fall busy season is over.

I am aware of 1041-T, but we have clearly missed the deadline on that since it was due March 5th. Beginning to think it's going to take a call with the IRS to explain the situation and have the payments moved to the beneficiary's SSN.

Any other potential solutions?

EDIT: Also, just thought about filing a Partial Grantor return for 2020. Would put all income and expenses on Grantor Letter to the beneficiary. Then would have page 1 of 1041 blank except to claim refund. Let me know if any of you have tried something like this.

I'm planning to find a buyer for my business at some point in the coming year. I was speaking with a local CPA here in Oregon and was advised to set up a NING now, before it gets too close to the sale. Outside of the legal benefits that a NING provides (compared to an Oregon Trust), he said it's an easy and legal way to avoid Oregon income tax. The only trick is to set it up well in advance of a sale so that it doesn't appear to be set up strictly for the tax benefit reasons.

I spoke with another CPA and he said "eeeh, you can do it, but you are rolling the dice a bit. It's a little fishy".

I've been on this sub for awhile (despite this anonymous account) and I know there are mixed feelings on paying our fair share of taxes vs taking what you can get. I think both perspectives are valid, but I'd prefer to avoid a political debate and hear more about whether these NINGs actually hold up, are worth the hassle, and anything else interesting that can be shared around the topic.

Thanks!

My wife and I are in the middle of setting up a non-grantor trust for our 2yr old son and maybe other future kids.

I have a trust document in front of me that our lawyers prepared. It seems like there are a lot of edge cases to consider. Although it might be futile, I am trying to anticipate all the ways in which this irrevocable trust could go wrong for us in the future, so as to create a better trust document now.

A primary tension seems to be between giving the trustee enough powers to adapt to future circumstances while at the same time protecting the trust assets from a "rogue" trustee (either a bad corporate trustee or if our kid grows up to be a deadbeat).

There are also some other scary clauses about the trustee being able to dip into trust assets for legal defense.

These things are setup for such long time frames maybe none of them have had the opportunity to go bad yet, but I would be interested in hearing about personal experiences with non-grantor trusts where maybe the beneficiaries wish their parents had done something smarter/differently.

TLDR - Has anyone ever gotten into a legal dispute with their trustee? And could it have been prevented?

Hi all!

Disclaimer: I've read through the Inheritance link in the Wiki, and hoping for more unbiased advice from Redditors. I'm *hopeful* this isn't as complicated as I think it is. Thank you for reading!

Back in the 90s, my dad set up an Irrevocable Trust for my brother and I to inherit 50/50. I vaguely knew it existed and it was briefly mentioned to me during college, and it was hinted that we'd receive something by the time I turned 30-years-old. However, this has changed.

Within the last few months, my dad has reached out to my uncle, the Trustee, to dissolve the trust -- which I've now been informed sits at ~$220K (excluding attorney fees and taxes). He's asking my brother and I to gift him $120K to pay off his debts, essentially leaving us $100K total or $50K each (which would be less to due to fees and taxes). He explained to me that the trust will need to be brought to court to dissolve, and, due to COVID-19, a decision needs to be quickly as the courts are delayed. He wants this completed before the end of 2020. Once it's done, he would like my sibling and I to gift him and my step-mom the $120K over the next two years.

I love my father. He financially supported me through college and have never asked me for something of this gravity before -- let alone money. I'm grateful to have no student loans and be completely debt free in addition to being financially independent (I work with an annual income of $42K that includes all the bells and whistles corporate America offers). I plan to talk to the my uncle, the Trustee, later this week, and I want to do what's best for my brother, my dad, and I.

Are there any resources that could help me understand more about what's being asked of me and my brother? What kinds of questions should I be prepared to ask the my uncle (he's worked for a top accounting firm for decades as a senior accountant)?

Lastly, when I decide to accept only the $50K for myself and help my dad, what's the best way to make it grow for long-term benefits? Would it be wise to save ~$10K for an emergency fund and place the rest in a retirement account?

Thank you so much if you've made it to this point, and I look forward to your insight!

US Married Filing Jointly. A few years ago we set-up an irrevocable grantor special needs trust for our 18YO, who became eligible for SSI. The trust has its own TIN #. We are the trustees. I am the grantor. No trust distributions planned (until we are both gone), so it is just used for sheltered investments to help our disabled child in the far future.

Last tax year was first time to file taxes for this trust, but it had zero loss/gains. I filed a 1041 and form 8453-FE (per Turbo Tax Business guidance). For this year the Trust has $20k capital loss to report (brokerage 1099 reports using trust TIN#).

I read online that as this is a granter trust, for simplicity i have the option to file trust’s gains/losses along with my own tax return (as granter). But if i stop filing the 1041 how will the IRS know the trust is now being included in my own personal tax filings? Also can i really combine the $20k trust capital loss with my own personal tax capital gains and benefit from this? I though trust tax rates differ from personal tax rates?

I’m trying to make tax-time simple each year going forward since this trust will only be reporting investment interest and gains/losses going forward for a long time (and avoid needing both Turbotax personal & business products). However, granter trust tax filing in our situation seems to be confusing, and IRS guidelines not easy to understand. Just reporting the trust gains/losses as if my own personal taxes seems too simple to be true.....Any advice much appreciated.

How is the sale of a rental property owned by a irrevocable grantor trust with one beneficiary taxed? All of the proceeds from the sale went to the beneficiary for personal expenses.

I am the first-time executor of a Trust and also a beneficiary along with 2 other family members. I have worked with a lawyer for some questions but not a CPA. All funds were in the living trust so no probate was needed. There is no language in the living trust when distributions should be made only a percentage of allocation so I believe it is a complex trust. The trust became irrevocable upon death.

I believe that I need to file form 1041 this year along with a final 1040 tax return. I plan to do it myself (maybe foolishly) and use the H&R block premium and Business software. I'm a auditor and been doing my own taxes for over 20 years. There was over $2800 worth of income and capital gains in the taxable brokerage account in 2019. Most income was generated after the February 2019 date of death. An EIN was requested for the trust but the accounts were not converted until December 2019 to using the EIN due to my grief. In other words, the income was reported to grantors SSN instead of the EIN. I’ve read that I am supposed to report all income after the date of death to the 1041 return. However, the IRS will receive notification of the income reported to the SSN.

How do I report?

I want to pay the correct amount but eliminate inquiries from the IRS.

a. Do I report all income based on whether it was generated before date of death to final tax return ? And all income after death to form 1041.

Or

b. Report based on how the income will be reported to IRS and on the year end forms from the bank and brokerage accounts. They will use the SSN. This will place most income on the final tax return. The amount reported to EIN will be less than $600. I provided the date of death but doubt they will correct past distributions.

I planned to use the 65 day election to distribute this income to the beneficiaries using a K-1. But I am confused if this is necessary since it is being reported under the SSN. Can anyone provide any help? There are no disagreements among beneficiaries. IRAs have been distributed to beneficiaries. Property will be sold in 2020 and remaining funds will be distributed after all taxes and fees are paid.

This is an unusual case and it's been tough to find answers. I am a trustee on a buddy's trust but he's looking forward to moving to a restricted state for a career. He wants to hand over all the items to me and we agree I should be the grantor to modify the trust as I want in future.

Can I generate an amendment to change him to a trustee(among others) and myself into the grantor? Is that legally accepted and would the ATF accept my future applications? Has anyone made this change? Thanks in advance.

So I have an interesting question for you guys. A buddy of mine recently had the grantor of his gun trust become a felon. As a result, all of his firearms and related items were confiscated by the police. This included several SBRs and suppressors. All of the NFA items are on the trust.

So, my friend is a trustee. He is concerned this may cause the loss of his NFA stuff that is also on the trust. The convicted person did try to give the NFA stuff to his friend, but the court denied his request. They have not mentioned taking the other stuff named on the trust that was not possessed by this individual.

So what's the deal in this type of situation? I understand why the other person cannot possess the stuff, but what about the stuff where he is the grantor? Is there a likely chance my friend could lose his stuff? Is there an argument that he could take possession of the confiscated NFA items since the convicted person does not technically own them by name?

He is seeking legal counseling on this matter, but I figured someone may have gone through a similar situation. Professional curiosity has me interested in how this would play out.

Hypo:

Taxpayer sold a 49% FLP interest to a standard GST trust (irrevocable, taxed as a grantor trust to taxpayer/grantor), as a seller-financed transaction (cash down payment and a large promissory note).

The note is interest only and the unpaid principal balance is due on the 10th anniversary of the Note. Assume only interest payments have been made.

The FLP interest sold was discounted for the usual reasons (lack of marketability, lack of control, etc.

For whatever reason, the trust is going to cease to be a "grantor trust" before any principal payments are made.

Question: What are the income tax consequences when these principal payments are made at a time when the trust is not a grantor trust?

Normally, no gain recognition since trust is a grantor trust. But, if trust is no longer taxed as a grantor trust when principal payments are made, then I believe potential for gain recognition. But but, what if due to the discounts that were taken, the payments (combined with the down payment) will be less than the tax basis of the FLP interest that was sold? Any guidance here greatly appreciated.

My parents have a living trust with some money in it that they want to invest. According to my parents this money is for their children to have and they do not need any of this money for their retirement. Me and my siblings were recently set up as trustees so we have to sign off on all paperwork for the trust. Our parents have asked us to sign paperwork to put the money into an annuity but we told them we wanted to do some research before we sign anything.

About us: 3 siblings with 10, 20, 25 years to retirement. The two youngest want to put the money into vanguard funds (target retirement date) and forget about it. The oldest does not trust the stock market (like my parents) and thinks that the annuity is a ‘safe’ investment that cannot lose money.

The annuity: a ‘modified single premium deferred annuity, non-qualified contract’. Two-year point to point based off of an index with 190% participation rate. Strategy fee is 1.5% with an additional 0.6% enhanced liquidity benefit.

The paperwork the insurance agent sent us seems to be intentionally vague with brief descriptions of technical terms and multiple pages of pretty graphs showing how awesome this product is. We spent the past couple of nights researching some of the terms in the paperwork but we still do not know if this is a product that meets the needs of the trust. According to the agent the enhanced liquidity benefit allows us to cash out the policy after three years so it’s a safe way to grow money. We would really like to hear some opinions on what we should do or questions that we should ask the insurance agent.

My dad has several NFA items. Would I have to create a new trust and pay $200 transfer Tax per item once he dies? I am on his trust as a Successor Trustee.

There is a piece of property that was moved into an irrevocable trust about over 10 years ago. The grantor has a life estate (whatever that means?) but otherwise they are not a beneficiary and are not the trustee. When the grantor dies, is this property considered to be part of their estate for estate tax purposes or is it outside the estate? What are the considerations? Thanks.

Location: Maine

see original related post here: https://www.reddit.com/r/JUSTNOFAMILY/comments/9iocyt/message_i_29f_received_from_my_cousin_33f_as_i/

My father passed away this April.

He was the 52% beneficiary of a property trust in upstate NY and my grandmother is the grantor. My grandmother is still alive.

His 3 sisters are the beneficiary of the other 48% split equally among them.

One of his sisters has POA over my grandmother because she has dementia -- this sister has stated that they will simply remove my dad's name from the beneficiary list and split 100% of the trust among the 3 sisters.

Is this how a trust works?

I have called several lawyers and am waiting for a call back, but am still unsure if I called the right people. (I have been calling attorneys in CO since that is where my dad lived, but the property is in NY).

Hypo:

Taxpayer sold a 49% FLP interest to a standard GST trust (irrevocable, taxed as a grantor trust to taxpayer/grantor), as a seller-financed transaction (cash down payment and a large promissory note).

The note is interest only and the unpaid principal balance is due on the 10th anniversary of the Note. Assume only interest payments have been made.

Assume the FLP interest sold was discounted for the usual reasons (lack of marketability, lack of control, etc.).

Assume that for whatever reason, the trust is going to cease to be a "grantor trust" before any principal payments are made.

Question: What are the income tax consequences when these principal payments are made at a time when the trust is not a grantor trust?

Normally, no gain recognition since trust is a grantor trust. But, if trust is no longer taxed as a grantor trust when principal payments are made, then I believe potential for gain recognition. But but, what if due to the discounts that were taken, the payments (combined with the down payment) will be less than the tax basis of the FLP interest that was sold? Any guidance here greatly appreciated.

So I have an interesting question for you guys. A buddy of mine in New Hampshire (USA) recently had the grantor of his gun trust become a felon. As a result, all of his firearms and related items were confiscated by the police. This included several SBRs and suppressors. All of the NFA items are on the trust.

So, my friend is a trustee. He is concerned this may cause the loss of his NFA stuff that is also on the trust. The convicted person did try to give the NFA stuff to his friend, but the court denied his request. They have not mentioned taking the other stuff named on the trust that was not possessed by this individual.

So what's the deal in this type of situation? I understand why the other person cannot possess the stuff, but what about the stuff where he is the grantor? Is there a likely chance my friend could lose his stuff? Is there an argument that he could take possession of the confiscated NFA items since the convicted person does not technically own them by name?

He is seeking legal counseling on this matter, but I figured someone may have gone through a similar situation. Professional curiosity has me interested in how this would play out.