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Any advantages to using a grantor trust or welfare benefit fund rather


Guest kredlin

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Guest kredlin

Are there any advantages to using a grantor trust or welfare benefit fund rather than a VEBA for a self-insured health plan with "church plan" status that provides benefits to employees of multiple affiliated organizations?

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I am trying to figure out your question. Why would a church need to establish a veba which is a tax exempt organization if the church is tax exempt ? Is it because the affiliated organizations are not tax exempt? A grantor trust is not subject to the restrictions imposed on vebas- e.g., 200k limit on comp covered.

mjb

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Guest Danny Miller

The use of a grantor trust, or a trust that is itself exempt from taxation under section 501©(3) of the Code, should be considered. As the recent reply to your question indicated, the use of such a trust in lieu of a VEBA will avoid the application of the VEBA requirements, some of which could be problematic.

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Guest kredlin

I agree that a VEBA is not needed. As a second question, wouldn't this trust be a welfare benefit fund? If so, hasn't the IRS ruled that a WBF can't be a grantor trust? Also, other than a VEBA, how can a trust be tax-exempt?

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Guest Danny Miller

The IRS has issued determination letters to trusts formed by 501©(3) organizations that grant the trust section 501©(3) status based on what I would call an "incoporated pocketbook" theory. That is, the trust is performing a function that would be permitted to be performed by the "parent" tax exempt organization directly, so the trust's activity is itself tax-exempt. The feeder organization regs suggest this reasoning as a possibility. I don't know of any PLRs directly on point, as these determinations are of course made through the determination letter process rather than by rulings. But I believe the 501©(3) route should work. Some organzations add the trust to their group ruling exemption letter to obtain 501©(3) status for it, assuming they have such a letter.

On the grantor trust issue-- I think you may be right about that. Do you have a cite or cites to the rulings you mentioned?

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