Question

Estate Finance Family Tax Plan Question

1.On January 2, 2000, Larry creates a trust with Tenleytown Trust Company as trustee. Tenleytown Trust Company may distribute principal and income to Susie and Leon for their welfare. Upon Larry's death, the remainder is distributed to Susie and Leon equally. Does PNC's power to distribute principal cause the trust to be a grantor trust as to Larry under § 671? Why or why not?

Answer 1

A grantor trust is trust in which grantor who set up the trust retains control over the trust in such way that he/she is treated as Owner for federal income tax purpose which means he/she will be taxed directly on the income and/or distribution of trusts.

As per section 671 grantor treated as OWNER of the TRUST. Upon the death of grantor Larry. The grantor trust is now no longer exists.

PNC is financial services group the provides investment and wealth management and other services.

PNC power to distribute remaining funds to both susie and leon makes it grantor trust

As we discussed above on dealth of grantor grantor trust cease to exist. But for reporting purpose one has to fill last return upon dealth of grantor subject to extension limits.