0606001 Informal Interpretation

Date

June 2, 2006

Rule

801.1(c)

Staff

Michael Verne

Response/Comments

Updated July 2014: This is no longer the position of the PNO. A distribution of anything other than cash (i.e., voting securities, assets, non-corporate interests) to the settlor of a GRAT is a potentially reportable acquisition, but it does not constitute a reversionary interest in the trust. Only if the settlor will receive all or part of the corpus of the trust at the end of the term of the GRAT, would he be deemed to have a reversionary interest in it. Original Response June 2006: We have taken the position that receiving a stream of income from a GRAT does not constitute a reversionary interest in the trust. However, if the husband will receive assets that constitute part of the corpus of the trust, I think that does become a reversionary interest. You are correct - if the trust is revocable, the settlor is deemed to hold the asset of the trust.

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Question

From: (redacted)

Sent: Friday, June 02, 2006 6:26 PM

To: Verne, B. Michael

Subject: Quick GRAT question

Mike:

I have a situation in which a wife has established a grantor-retained annuity trust, through which she receives income for 4 years. At the end of this period, her husband and adult children receive the trust assets. I saw the attached interpretation and it appears to me that the husband's interest in the trust's assets at the end of the GRAT period would not be considered to be a "reversionary interest" of the wife who established the trust. Please correct me if I am wrong. Also, if the trust is revocable (which I do not know yet), I assume all bets are off and the settlor is deemed to hold the assets in the GRAT.

$jot. (. 	(c)
Verne, 8.Michael
From:
Sent: 	Friday, June 02, 2006 6:26 PM
To: 	Verne, B. Michaei
Subject: 	Quick GRAT question
Mike:
I have a situation in which a wife has established a grantor-retained
annuity trust, through which she receives income for 4 years. At the
end of this period, her husband and adult children receive the trust
assets. I saw the attached interpretation and it appears to me that the
husband's interest in the trust's assets at the end of the GRAT period
would not be considered to be a "reversionary interest" of the wife who
established the trust. Please correct me if I am wrong. Also, if the
trust is revocable (which I do not know yet), I assume all bets are off
and the settlor is deemed to hold the assets in the GRAT.
Man 	thanks as always,
mh
We have taken the position that receiving a stream of income from a GRAT does not
constitute a reversionary interest in the trust. However, if the husband will receive
assets that constitute part of the corpus of the trust, I think that does become a
reversionary interest. You are correct - if the trust is revocable, the settlor is deemed to
hold the asset of the trust.

0606001 Informal Interpretation

Question

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