Final Regs Clarify Estate Tax Treatment of Grantor Retained Interests

The IRS issued final regulations providing guidance on the portion of property (held in trust or otherwise) includible in the grantor’s gross estate if the grantor has retained the use of the property or the right to an annuity, unitrust, graduated retained interest, or other payment from the property for life, for any period not ascertainable without reference to the grantor’s death, or for a period that does not in fact end before the grantor’s death (T.D. 9555).

The regulations provide the method required to determine the portion of the trust corpus of a grantor retained annuity or unitrust trust (GRT) that is includible in the grantor’s gross estate under Sec. 2036 if the deceased grantor retains an interest that increases annually during the term of the trust (a graduated retained interest). This method applies to graduated retained interests in transferred property whether or not held in trust.