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Tuesday, February 02, 2010


Starting this year, Code §2511(c) takes effect. This provision provides that notwithstanding any other provision of §2511, and, except as provided in regulations, a transfer in trust shall be treated as a transfer of property by gift, unless the trust is treated as a wholly owned grantor trust.

Some practitioners have suggested that this provision means that a gift to a wholly owned grantor trust will NOT be treated as a gift under the Code, even if it otherwise would be treated as a gift. This reading does not appear to be correct, and the IRS has now issued a Notice confirming that.

So what does the provision mean? Only that transfers to a trust will be treated as a gift, unless the trust is a wholly owned grantor trust. Previously, it was possible to transfer property to a trust but it could be characterized as an incomplete (and thus a nontaxable) gift depending on the facts and circumstances, including retained powers of the transferor. This result has been legislated away.

Come January 1, 2011, this provision sunsets – good riddance.

NOTICE 2010-19

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