Big Changes to Trust Taxation Could be Coming

Big Changes to Trust Taxation Could be Coming. Are You Prepared?

Dear Clients, Colleagues and Friends,

One Democratic estate tax policy proposal must be carefully watched when debate on the Biden tax plan begins: the potential changes to the grantor trust rules embedded in the Sanders ‘For the 99.8 Percent Act.’ This proposal would add new Section 2901 to the Code and would change grantor trust taxation in four important ways.

  1.  If you, as grantor, formed an irrevocable trust to remove these assets from your gross estate, all of the assets held in a grantor trust would now be included in the grantor’s gross estate upon your death.
  2.  Any distributions from a grantor trust to a third party during the grantor’s life would be treated as a gift from the grantor to the beneficiary.
  3.  Toggling the trust’s status from grantor to non-grantor would result in a deemed gift from the grantor to the trust’s beneficiaries.
  4.  Sale transactions for a promissory note would no longer remove assets from the grantor’s estate, and a note sale to the popular  Beneficiary Defective Inheritor’s Trust (BDIT) would no longer remove asset appreciation from the beneficiary’s estate.

Plan for Section 2901

The enactment of Section 2901 would clearly turn traditional Irrevocable Life Insurance Trust (ILIT) planning on its head, and would force advisors to seek alternative ownership structures for wealth transfer/estate planning life insurance.

Those with an older ILIT may wish to contact us in order to take preemptive steps to get out ahead of these potential changes.

Jeffrey M. Verdon, Esq.

For morJeffrey M. Verdon, Attorney at Lawe information about any of the information discussed in this Client Alert, or any other income or estate tax planning or asset protection planning assistance, please contact the: Jeffrey M. Verdon Law Group, LLP at or 949-333-8143.

Posted in Client Alert, Estate Planning, Taxes / Laws.