In PLRs 201730017, 201730018, 201730012, the IRS ruled on conversion of three non grantor trusts to grantor trusts.
The rulings requested were generally as follows:
The information submitted states that on Date 1, Grantor, as settlor and initial trustee, created Trust pursuant to Agreement. Agreement provides that until the X anniversary of the initial contribution date, an amount equal to the annuity amount will be distributed to Charity. Trust represents that it was previously allowed income tax deductions pursuant to § 642(c)(1) for the amounts of gross income included in the annuity amount each year.
Trust is seeking to amend Agreement to delete and replace Article pursuant to the laws of State. The amended Article permits the Substitutor to have the power, exercisable at any time in a nonfiduciary capacity (within the meaning of § 675(4)), without the approval or consent of any person in a fiduciary capacity, to acquire or reacquire Trust principal by substituting other property of an equivalent value, determined as of the date of such substitution. Substitutor is not a trustee of Trust. Substitutor and Grantor are siblings.
In connection with the aforementioned amendment, Grantor seeks the following rulings: (1) The conversion of Trust from a nongrantor trust to a grantor trust (assuming the Substitutor is found to hold the substitution power in a nonfiduciary capacity) is not a taxable transfer of property held by Trust to Grantor as settlor for income tax purposes; (2) The conversion of Trust from a nongrantor trust to a grantor trust is not an act of self-dealing that would result in a tax under § 4941; and (3) The conversion of Trust from a nongrantor trust to a grantor trust would result in an income tax charitable deduction for Grantor in the year of conversion under § 170.
The IRS ruled that the conversion of a nongrantor to a grantor trust is not a taxable transfer of property, is not an act of self-dealing, and will not give the grantor a charitable deduction.
See full PLRs at following links:
Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.