“A bill to amend the Internal Revenue Code of 1986 to modify rules for grantor trusts.”
No CRS summary available for this bill.
This section establishes additional requirements under IRC § 2702(b) for grantor retained annuity trusts (GRATs)—irrevocable trusts in which the grantor retains a right to fixed annuity payments for a term, with the remainder passing to beneficiaries—to qualify the retained interest for valuation at its full annuity amount (rather than zero) for gift tax purposes. The requirements, applicable to trusts created or contributions made on or after enactment, are that (1) the annuity term is at least 15 years but no more than the annuitant's life expectancy plus 10 years, (2) annual fixed payments do not decrease during the term, and (3) the remainder interest is valued at transfer at not less than the greater of 25% of the transferred property's fair market value or $500,000.
This section establishes new IRC §1063, which treats any transfer of property for consideration (including in-kind satisfaction of an annuity or debt discharge) between a grantor trust and its deemed owner as a sale or exchange for federal income tax purposes, regardless of the deemed owner status. (As background, a grantor trust is one where the grantor or another person is treated as the owner of all or part of the trust under IRC §§671-679, such that trust transactions are generally disregarded for income tax purposes.) The provision excludes fully revocable grantor trusts, asset-backed securities trusts (i.e., grantor trusts holding mortgage-backed or other asset-backed securities and engaged in securitization), and those designated by the Secretary of the Treasury. This section also amends IRC §267(b) to treat a grantor trust and its deemed owner as related parties (e.g., for loss disallowance rules). The amendments apply to transfers after the date of enactment.
This section treats taxes paid by the deemed owner on the income of an applicable grantor trust (i.e., a grantor trust under IRC §§671-679 that is not fully revocable) as a taxable gift for that calendar year, unless reimbursed by the trust, with the gift deemed to occur on the earlier of December 31 of that year, the day before the owner's death, or the date of renunciation of reimbursement rights. It denies gift tax marital and charitable deductions for such deemed gifts (under IRC §§2522 and 2523) and subjects them to the annual exclusion limitation under IRC §2503(a). The provision applies to trusts created on or after the date of enactment.