Unitrust Elections and GST Exemptions

Kreig Mitchell wrote recently about an IRS Private Letter Ruling that stated that this particularly requested unitrust modification of a decedent’s trust would “not result in Trust losing its exempt status for GST tax purposes.”
Mr. Krieg ID’d the PLR as “15529705.” I couldn’t find that one but I did find PLR 200705025.

The facts of this partcular PLR are as follows:

  • Pursuant to the provisions of Decedent’s last will and testament, all the residue of Decedent’s estate was transferred to the trustee of a testamentary trust established under Paragraph NINTH of the will (referred to herein as “Trust”).
  • Paragraph NINTH, subsection (a) provides that the trustee shall pay to Spouse the entire income of Trust in periodic installments. Spouse died on Date 2.
  • Paragraph NINTH, subsection (b) provides that upon Spouse’s death, the trustee shall continue to hold all property in trust for the benefit of Daughter and shall distribute to Daughter the entire income of Trust in periodic installments.
  • Mr. Krieg writes:

    The unitrust election is not a new concept[.] […] Unitrust payments eliminate [the] conflict of interest between current income beneficiaries (such as the taxpayer’s children) and the future income beneficiaries (such as the taxpayer’s children’s descendants).

    If the trust document does not provide for unitrust payments (or provide the trustee with the discretion to opt to start paying unitrust payments), the current income beneficiary (with the consent of the future income beneficiaries) must ask a court to alter the trust so that such payments can be made. This type of court intervention is very common[.]

    Because making a unitrust modification cures the potential conflict between current and residuary beneficiaries I use it frequently in trust litigation also. The point is that its a very flexible tool that should not be forgotten as one of the many tools available to the estate planner or the fiduciary litigator.

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