The IRS has issued another private letter ruling granting retroactive tax effect to a judicial modification of a trust.<\/p>\n
In PLR 201652002<\/a>, the IRS granted retroactive effect to a court \u201creformation\u201d under Uniform Trust Code \u00a7 416, which allows a court to \u201cmodify\u201d a trust in order to carry out the settlor\u2019s tax objectives. \u00a0The trusts in question were expressly intended to be grantor retained annuity trusts, but failed to prohibit the trustee from issuing a note or other financial instrument in satisfaction of an annuity payment, which failure was a violation of Treas. Reg. \u00a7 25.2702-3(d)(6). \u00a0The IRS concluded that the judicial reformation was to correct a \u201cscrivener\u2019s error,\u201d and that as a result of the reformation, the grantor\u2019s interest in the trust was a qualified interest as of the date the trusts were created. \u00a0This was a generous result, because for the reasons explained in my article “Tax Effects of Retroactive Reformations and Modifications<\/a>,” the taxpayer should have sought a reformation under UTC \u00a7 415 and not a trust modification under UTC \u00a7 416.<\/p>\n","protected":false},"excerpt":{"rendered":" The IRS has issued another private letter ruling granting retroactive tax effect to a judicial modification of a trust. In PLR 201652002, the IRS granted retroactive effect to a court \u201creformation\u201d under Uniform Trust Code \u00a7 416, which allows a … Continue reading