Senators Urge Grantor Trusts Reforms
Several Senators sent a letter to the IRS urging changes to various grantor trust rules. They believe the IRS has the authority to make these changes. We shall see.
Several Senators (Warren, Whitehouse, Sanders and Van Hollen) sent a letter to the IRS this week urging the IRS to make various changes to grantor trust rules. These Senators have sent similar letters in the past and nothing has really been implemented. However, the IRS is under a Democratic administration and perhaps this may get some traction.
In the letter, they mention that the number of estates that have paid any estate tax have dropped in recent years. The high was 7.65 percent in 1976 (when the federal exemption was a “whopping” $60,000. The latest figures show that only .08 percent of estates owed estate tax in 2019 with an exemption close to $12 million.
The proposed changes are as follows:
Make any transfer between a grantor and a grantor trust a taxable event by revoking Rev. Rul 85-13,
Make the payment of tax for the benefit of a grantor trust a taxable gift by revoking Rev. Rul. 2004-64,
Make Intentionally Defective Grantor Trust assets not get a step-up in basis,
Set a minimum percentage of GRAT assets be considered a gift (part of the Biden Green Book proposals), and finally
Reduce the ability to discount transfers of family limited partnerships.
As we mentioned, these proposals have been made by these same Senators multiple times. We shall see if any of them get implemented.
Encouraging the revocation of a revenue ruling as a way to increase taxes or close a loophole demonstrates that the senators have no idea what makes a law. Revenue rulings are only the IRS interpretation of existing law. They are guidelines, not law themselves. Revoking the rulings would merely leave taxpayers with less certainty as to how to apply existing law to specific circumstances, but revocation would not change the law.