In a recent ruling, the IRS allowed to continued exemption of a divided trust from GST taxation. In the ruling request, trustees proposed to divide trust into three for each of Donor’s three children and their respective issues, equally. The trustees also proposed to modify the terms of Trust as each of the Divided Trust may have the same independent trustee as the other Divided Trusts.

The trustees requested the IRS for the following rulings;
1) The Divided Trusts be exempted from the generation-skipping transfer (GST) tax after the proposed division and modification,
2) The proposed division and modification will not cause the children to have made a taxable gift,
3) The proposed division and modification of Trust will not be included as gross estate of the children,
4) The allocation of assets and proposed modification of Trust will not cause any recognition in income or gain in capital,
5) And the adjusted basis of the Divided Trusts will be the same as the respected adjusted basis held by Trust.
The IRS ruled that the divided trusts will continue to be exempt from the GST tax, and the proposed division and modification will not cause the children to have made a taxable gift, be included as gross estate of the children or incur income or capital gain. Also, the IRS ruled that the adjusted basis of the Divided Trusts will be the same as the respective adjusted basis of the assets held by Trust.

See PLR-103958-14 (Oct. 24, 2014).
Posted by Jin Keol Park, Associate Editor, Wealth Strategies Journal