Steve Akers, of Bessemer Trust, has published his analysis of Securities Exchange Commission v. Wyly, 2014 WL 4792229 (S.D.N.Y. Sept. 25, 2014).  Mr. Akers summary begins as follows:

On rare occasions, the IRS has tried to make a “de facto trustee” argument, treating a settlor as holding the powers of the trustee if the settlor exercised persuasive control over the trustee. Courts including a U.S. Supreme Court case have generally rejected that “de facto trustee” argument. SEC v. Wyly raises concerns for estate planning advisors by treating settlors as the de facto trustee of a trust albeit in an extreme fact situation in which the trustees always followed the settlors directions for over a decade.

A federal district court, in an SEC disgorgement case, not a tax case, rejects the “independent trustee” exception in §674c and finds that trusts are grantor trusts despite the use of professional offshore trustees, where the trustees consistently followed the settlors directions. After its earlier losses including the Supreme Court Byrum case, the IRS rarely makes the “de facto trustee” argument. The reasoning of the opinion could be extended beyond the independent trustee exception to the grantor trust rules and could also be applied to treat the “controlling” grantors or beneficiaries as trustees under §§2036, 2038, or 2014. We will see if the IRS resurrects these types of attacks in light of this case or if this is simply a “terrible facts make bad law” case.

See report and link to download at Bessemer Trust –.

Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.