Problem 6

6(5)Grantor created a revocable trust several years ago providing for income to Children and a remainder to Grandchildren. Within three years of Grantor's death, Grantor relinquished the power to revoke the trust. a. Is the corpus of the trust included in Grantor's gross estate?

Anytime you hear someone conveys anything within 3 years of death it implicates §2035. The trust was a revocable trust treated as owned by Grantor under §676; §2035(e) which overrides § 2035 and § 2038 states: that any transfer from any portion of a trust during any period that such portion was treated under section 676 as owned by the decedent by reason of a power in the grantor (determined without regard to section 672(e)) shall be treated as a transfer made directly by the decedent.

6(5)Grantor created a revocable trust several years ago providing for income to Children and a remainder to Grandchildren. Within three years of Grantor's death, Grantor relinquished the power to revoke the trust. b. What is the result if, instead, the trust provided income to Grantor for life and a remainder to Children and Grantor relinquished both the income interest and the power to revoke the trust within three years of Grantor's death?

Grantor's retained life estate does not alter the above result. On these facts, no gift occurs until the relinquishment of the power to revoke and the full value of the corpus is gifted at the time of relinquishment. Since §2035(e) applies here and since it overrides §2035(a), §2035(a) would not apply here. Because if Grantor had never created the revocable trust but had merely held the property in the trust outright (Grantor still would have retained the income from such property) and gifted the property within 3 years of Grantor's death, there would have been no §2035 nor §2036 inclusion.

6(1) Grantor creates a trust with income to X or X's estate for Grantor's life, and a remainder to Y or Y's estate. What is the result for Grantor under Section 2038 when Grantor predeceases all other parties in the following situations? This problem is similar to question (6) in Problem 4, relating to Section 2036. Consider the results under Section 2036, as well as Section 2038. c. Grantor, as trustee, retains a power to invade the corpus of the trust for X.

Not included

6(1) Grantor creates a trust with income to X or X's estate for Grantor's life, and a remainder to Y or Y's estate. What is the result for Grantor under Section 2038 when Grantor predeceases all other parties in the following situations? This problem is similar to question (6) in Problem 4, relating to Section 2036. Consider the results under Section 2036, as well as Section 2038. k. Grantor retains a power subject to X's and Y's approval to require the third-party trustee to return the trust corpus to Grantor.

Not included

6(1) Grantor creates a trust with income to X or X's estate for Grantor's life, and a remainder to Y or Y's estate. What is the result for Grantor under Section 2038 when Grantor predeceases all other parties in the following situations? This problem is similar to question (6) in Problem 4, relating to Section 2036. Consider the results under Section 2036, as well as Section 2038. h. Grantor retains a power to order the third-party trustee to return all-of-the trust corpus to Grantor.

The entire trust comes back in all instances.

6(1) Grantor creates a trust with income to X or X's estate for Grantor's life, and a remainder to Y or Y's estate. What is the result for Grantor under Section 2038 when Grantor predeceases all other parties in the following situations? This problem is similar to question (6) in Problem 4, relating to Section 2036. Consider the results under Section 2036, as well as Section 2038. b. Grantor, as trustee, retains a power to give the remainder to Z.

all included

6(1) Grantor creates a trust with income to X or X's estate for Grantor's life, and a remainder to Y or Y's estate. What is the result for Grantor under Section 2038 when Grantor predeceases all other parties in the following situations? This problem is similar to question (6) in Problem 4, relating to Section 2036. Consider the results under Section 2036, as well as Section 2038. a. Grantor, as trustee, retains a power to invade corpus for Z.

included

6(1) Grantor creates a trust with income to X or X's estate for Grantor's life, and a remainder to Y or Y's estate. What is the result for Grantor under Section 2038 when Grantor predeceases all other parties in the following situations? This problem is similar to question (6) in Problem 4, relating to Section 2036. Consider the results under Section 2036, as well as Section 2038. d. Grantor provides that the trustee shall have power to give corpus to Z and names friend E trustee.

included

6(1) Grantor creates a trust with income to X or X's estate for Grantor's life, and a remainder to Y or Y's estate. What is the result for Grantor under Section 2038 when Grantor predeceases all other parties in the following situations? This problem is similar to question (6) in Problem 4, relating to Section 2036. Consider the results under Section 2036, as well as Section 2038. f. Grantor creates the trust in question (l)(d), above, but Grantor names a corporate trustee and retains the right to remove the trustee without cause and to appoint another corporate trustee.

included

6(1) Grantor creates a trust with income to X or X's estate for Grantor's life, and a remainder to Y or Y's estate. What is the result for Grantor under Section 2038 when Grantor predeceases all other parties in the following situations? This problem is similar to question (6) in Problem 4, relating to Section 2036. Consider the results under Section 2036, as well as Section 2038. g. Grantor names Grantor trustee, and, as the trustee, Grantor is required to give unrelated Z as much income as is needed each year for Z's support and maintenance, with any excess income to go to X. What results if Z is Grantor's minor child?

included

6(1) Grantor creates a trust with income to X or X's estate for Grantor's life, and a remainder to Y or Y's estate. What is the result for Grantor under Section 2038 when Grantor predeceases all other parties in the following situations? This problem is similar to question (6) in Problem 4, relating to Section 2036. Consider the results under Section 2036, as well as Section 2038. e. Grantor creates the trust in question (l)(d), above, but Grantor retains a power to remove E as trustee at any time and name Grantor as trustee.

not included

6(3) Settlor transfers some IBM stock to a trust and provides for the payment of income to A for A's life, and a remainder to B or B's estate. Settlor is trustee and, as trustee, holds the power to vote the stock, to sell the stock and reinvest in other stock, even if it is speculative or unproductive of income, and to allocate receipts other than cash dividends either to income or to principal. What are the estate tax consequences upon the death of Settlor under Sections 2036(a)(2) and 2038?

§ 2038 does apply because the transferred interest is subject to decedent's power at the time of death. The grantor has uncontrolled power over the trust investments, thus the remainderperson's interest is threatened if the grantor invests in speculative stocks; Therefore in these circumstances, the interest may be subject to change through the investment power. Cf. Commonwealth Trust Co. of Pittsburg v. Driscoll, 50 F. Supp. 949

6(1) Grantor creates a trust with income to X or X's estate for Grantor's life, and a remainder to Y or Y's estate. What is the result for Grantor under Section 2038 when Grantor predeceases all other parties in the following situations? This problem is similar to question (6) in Problem 4, relating to Section 2036. Consider the results under Section 2036, as well as Section 2038. i. Grantor retains the power in question (l)(h), above, but provides that it shall not become effective until six months after Grantor's notice that Grantor intends to exercise it.

§2036(a)(2) this is a power to designate enjoyment, retained for a period that does not in fact end before the decedent's death. Reg. § 20.2036-1(b)(3) - the time trilogy; Marks v. Higgins. 213 F2d 884 The inclusion should be reduced by the value of the six months' income interest. §2038(b) requires the inclusion of the entire corpus because the power to alter, amend, revoke, or terminate shall be considered to exist on the date of the decedent's death even though the exercise of the power is subject to a precedent giving of notice..., whether or not on or before the date of the decedent's death notice has been given or the power has been exercised. There will be an adjustment for the six month period.

6(4) Grantor makes an inter vivos outright gift of some rental property to Grantor's Spouse. Spouse dies and devises the rental property to a trust that provides income to whichever of their Children the trustee decides for Children's lives, and a remainder to Grandchildren. The trustee may also invade the corpus for any of the Children. Spouse names Grantor as trustee of the trust. Grantor predeceases all of the beneficiaries. What are the estate tax consequences to Grantor?

§2038 requires a transfer and that you retain something. He's not transferring something the spouse is transferring something. The property is not included in Grantor's gross estate because, even though Grantor held a §2038 power at death, there is no "linkage" between Grantor's transfer and the power. § 2038 should not apply where the decedent makes a complete, absolute transfer, and by a totally unrelated reconveyance, Grantor holds a fiduciary power to control at death. Reed Estate v. United States 1975-1 USTC ¶13,073; Estate of Skifter v. US 468 F2d 699. P. 4-266

6(1) Grantor creates a trust with income to X or X's estate for Grantor's life, and a remainder to Y or Y's estate. What is the result for Grantor under Section 2038 when Grantor predeceases all other parties in the following situations? This problem is similar to question (6) in Problem 4, relating to Section 2036. Consider the results under Section 2036, as well as Section 2038. j. Grantor names X trustee and retains a power in conjunction with X to direct that all-of-the trust corpus be returned to Grantor.

§2038(a)(1) would included the entire corpus in Grantor's gross estate because the powers in the decedent whether exercisable alone or in conjunction with another person requires inclusion in the Grantor's gross estate. The fact that exercise of the power is adverse to X's interest is irrelevant under the sections. Reg. § 20.2038-1(a)(3).