Subscribe Now!
Free Daily News, Jobs, Webcasts, Discussions
Post and Distribute
Your Jobs
ARPA Webcasts

Featured Jobs

Employee Benefits/Health and Welfare Attorney

Miller Johnson
(Telecommute / Grand Rapids MI / Kalamazoo MI / Detroit MI)

Miller Johnson logo

Manager, 5500 Team

401K Generation
(Altamonte Springs FL)

401K Generation logo

Retirement Plan Consultant / Relationship Manager

Associated Pension Consultants
(Chico CA / Sacramento CA)

Associated Pension Consultants logo

401(k) Consultant

TPS Group
(Telecommute / North Haven CT)

TPS Group logo

Defined Benefit Retirement Plan Administrator

Benefit Associates, Inc.
(Telecommute / Huntington Beach CA)

Benefit Associates, Inc. logo

DB/DC Administrator

Primark Benefits
(Telecommute / Burlingame CA)

Primark Benefits logo

Retirement Plan Administrator

Premier Plan Consultants
(Telecommute / San Diego CA)

Premier Plan Consultants logo

Product Support Consultant part of Wolters Kluwer Legal & Regulatory
(Telecommute) part of Wolters Kluwer Legal & Regulatory logo

DC Retirement Plan Administrator

The Nolan Company
(Telecommute / Overland Park KS)

The Nolan Company logo

401(k) Implementation Manager

Human Interest
(Telecommute / San Francisco CA)

Human Interest logo

Director of 401(k) Implementation, Core

Human Interest
(Telecommute / Mill Valley CA)

Human Interest logo

DB Retirement Plan Administrator

The Nolan Company
(Telecommute / Overland Park KS)

The Nolan Company logo

DC Administrator

(Telecommute / Phoenix AZ)

MGKS logo

Director of Finance

NYCDC of Carpenters Benefit Funds
(New York NY)

Free Newsletters

“BenefitsLink continues to be the most valuable resource we have at the firm.”

-- An attorney subscriber

Mobile App image LinkedIn icon
Twitter icon
Facebook icon

BenefitsLink > Q&A Columns >

Who's the Employer?

Answers are provided by S. Derrin Watson, JD, APM

Attribution Through Grantor Trust

(Posted May 1, 2002)

Question 167: If a trust owns an corporation, do the attribution rules for purposes of Sections 318 and 1563 depend on whether the trust is a grantor trust? If so, how is a grantor trust determined?

Answer: Yes, they do.

Whether or not a trust is a grantor trust, beneficiaries of that trust are deemed to own their pro rata interest of property held by the trust. (Under IRC 1563, there is no attribution to beneficiaries who have less than a 5% interest, determined according to IRS actuarial tables.)

Additionally, if the trust is a grantor trust, then the deemed owner (usually the grantor or settlor) of the trust is deemed to own all of the trust's property.

The rules relating to grantor trusts are detailed and complex. They are the subject of several weeks of a law school course. Although I will quickly summarize them here, these summaries are no substitute for a thorough understanding of the rules. If in doubt, seek advice from a qualified attorney or CPA on the subject.

IRC 673 says a grantor trust exists when the grantor has a reversionary interest of at least 5% of the value of the trust.

IRC 674 says a grantor trust exists when the grantor or a nonadverse party has the power to control who will receive the income or principal from the trust. There are numerous exclusions. Most "living" trusts are grantor trusts because while the grantor is alive he or she retains the right to determine who will receive trust property after he or she dies.

IRC 675 identifies several "poison" administrative powers which will make a trust into a grantor trust.

IRC 676 says a revocable trust is a grantor trust. Thus, all trusts are grantor trusts while the grantor is alive unless the trust is irrevocable.

IRC 677 says a grantor trust exists if income from the trust is payable to (or held for the benefit of) the grantor or the grantor's spouse, or used to pay for their life insurance.

All these rules apply to make the grantor, the person who set up the trust, the deemed owner of trust property. IRC 678 is different. It applies to make a beneficiary the deemed owner of trust property. If the beneficiary has (or has released) the power to vest trust property in him or herself, that beneficiary can be the deemed owner of the trust.

IRC 679 deals with foreign trusts.

Again, this is just a quick summary to let you know the types of issues involved. It is not a substitute at all for a careful review by a qualified professional.

For examples on how the attribution rules apply in trust situations, including grantor trusts, see Chapters 7 and 14 of my book, Who's the Employer.

Important notice:

Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner or to readers. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of this and similar situations.

The law in this area changes frequently. Answers are believed to be correct as of the posting dates shown. The completeness or accuracy of a particular answer may be affected by changes in the law (statutes, regulations, rulings, court decisions, etc.) that occur after the date on which a particular Q&A is posted.

Copyright 1999-2017 S. Derrin Watson
Related links:

(restricted access)

(restricted access)

© 2021, Inc.