Magazine article CMA - the Management Accounting Magazine

Election Time - the New Trust Rules

Magazine article CMA - the Management Accounting Magazine

Election Time - the New Trust Rules

Article excerpt

This is the second of a two-part article on the 21-year deemed disposition rule. Part one described the rule and when it applies to different types of trusts. This part describes the election.

Once you have established the type of trust (post-1971 spousal, pre-1972 spousal or other), you must determine if the trust has a Designated Contributor (DC). For a testamentary trust, the DC is the testator. For a spousal trust, the DC is the settlor. For other inter vivos trusts, six complex tests determine who qualifies as a DC. Such trusts may have no DC or, where more than one qualifies, one must be chosen. Generally speaking, the tests look to the person who transferred or loaned the most property to the trust. The DC must qualify as such throughout the period commencing one year after the trust was created and ending on the day when the deemed disposition would normally occur. This requires a detailed review of the trust's financial records and history from the date of its creation. Unfortunately, even if such records exist, they often do not identify who made contributions to the trust.

The third step is deciding if the trust has any exempt beneficiaries. An exempt beneficiary must be alive on the normal deemed disposition date and is a beneficiary of the trust who is the DC or who is a qualifying relative to the DC. The only related beneficiaries who can qualify are the DC's spouse or former spouse, the DC's parents, grandparents, siblings, nieces, nephews or children (and the spouses of such individuals).

It is common for a grandparent to settle a trust to avoid the attribution rules and so that preferred beneficiary elections can be made. A trust set up for a grandchild or great-grandchild will not qualify for the election to defer the deemed disposition because these are not exempt beneficiaries of the DC.

There are two twists for trusts created after February 11, 1991. The exempt beneficiary must be alive when the trust is created. And, if the interests of all exempt beneficiaries are discretionary, the trust is deemed not to have any exempt beneficiaries if such discretion could result in the interests of all such individuals, and any children of deceased exempt beneficiaries, terminating before the death of the last of them. Therefore, certain discretionary trusts created after February 11, 1991 cannot elect to defer the deemed disposition. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.