Grantor Trusts in South Dakota: Preserving a Planning Tool to Maintain the State's Trust Friendly Status

By Barrett, Beau C. T. | South Dakota Law Review, Spring 2013 | Go to article overview

Grantor Trusts in South Dakota: Preserving a Planning Tool to Maintain the State's Trust Friendly Status


Barrett, Beau C. T., South Dakota Law Review


Grantor trusts are a valuable estate planning tool for South Dakota legal practitioners. The rules that govern the types of and parameters for grantor trusts consist of a combination of federal statutes, regulations, and common law. Deciding where to create a grantor trust--the trust's situs--is influenced by state statutory treatment of trusts. South Dakota has set itself up as "trust friendly " by passing legislation that has repealed laws injurious to trusts, while also passing statutes that foster a favorable environment for creating them. Consequently, the South Dakota trust industry flourishes as wealthy clients from around the nation choose to situs their trusts in South Dakota. Additionally, grantor trusts are particularly beneficial for South Dakota residents, such as farmers or business owners, whose assets may be illiquid. Upon the death of the owner, the owner's survivors stand to lose the family business to the estate tax without the benefit of grantor trust planning. Nevertheless, many commentators feel that grantor trusts have outlived their usefulness. This scholarly disapproval has been echoed in recent years by Department of Treasury revenue proposals, which recommend imposing specific limitations on different types of grantor trusts. However, these recommendations would be detrimental to the South Dakota trust industry and its clients in that they eliminate or modify valuable estate planning tools. Therefore, South Dakota legal practitioners and estate planners must vigorously advocate to preserve these estate planning tools in order to sustain their use and, in turn, continue to support South Dakota's flourishing trust industry.

I. INTRODUCTION

The world of grantor trusts gives rise to a wide variety of options for the estate planner, including those grantor trusts labeled GRITs, GRATs, GRUTs, QPRTs, ILITs, and IDGTs.' Despite this vast array of acronyms grantor trusts can generally--and more simply--be defined as trusts wherein the grantor, rather than the trust itself, is taxed on the trust's income. (2) These trusts have evolved with changes in the common law, regulations, and legislation, but the purpose of grantor trusts has always been reducing the tax burden on either the grantor, the beneficiaries, or both. (3)

While there is a split of opinions on the usefulness and future viability of grantor trusts, (4) they are, nonetheless, important tools for estate planners to help clients because grantor trusts may reduce or eliminate estate taxes upon the client's death by diminishing the amount of a client's taxable property. (5) Additionally, attainment of grantor trust status--given the current compressed marginal tax rates for trusts--has the effect of reducing the income tax paid on the assets placed in trust because the grantor, rather than the trust, will pay the income taxes. (6)

South Dakota has taken advantage of these benefits by passing legislation that creates a favorable atmosphere for those clients who situs their trusts in the state. (7) However, subsequent to an inversion of the income tax rates in 1986, (8) many commentators argue that grantor trusts have outlived their usefulness and should therefore be eliminated or drastically reformed. (9) The idea for reform has percolated through in recent years as Treasury Department proposals aimed at limiting or destroying the effectiveness of certain grantor trusts. (10) Therefore,

Irrevocable Life Insurance Trust ("ILIT") takes advantage of specific code provisions to remove from one's estate the value of that person's life insurance policy. Steinkamp, supra, at 78. Finally, an Intentionally Defective Grantor Trust ("IDGT") exploits the differences in estate and income tax through a grantor's sale of property to the trust in exchange for payments on a note. Mark S. Poker, Sales to Intentionally Defective Grantor Trusts: Here is How Defects Can Be Positives, Prac. Tax Law., Fall 2010, at 15, 15-16, 18. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • A full archive of books and articles related to this one
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Grantor Trusts in South Dakota: Preserving a Planning Tool to Maintain the State's Trust Friendly Status
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

    Already a member? Log in now.