The Internal Revenue Service has announced that it will no longer issue letter rulings or determination letters on whether assets in a grantor trust will receive a Section 1014 basis adjustment (typically a step-up in basis to fair market value) upon the death of the deemed owner of the trust when those assets are not includible in the owner’s gross estate.
This issue is particularly important for intentionally defective grantor trusts, which are specifically structured to run “afoul” of certain rules contained in the Grantor Trust provisions of the Internal Revenue Code so that the movement of assets from the senior generation to junior generation be incomplete transfers (thus, intentionally “defective”) for income tax purposes but complete transfers for estate tax purposes so the trust assets are excluded from the grantor’s gross estate. A popular and commonly used mechanism to facilitate these estate tax objectives, the letter ruling process previously in place provided a guarantee that the step up would be afforded appreciated assets.
The revenue procedure expands on earlier guidance provided in section 5.01 of Revenue Procedure 2015-3 and is effective for requests received after June 15, 2015. The entire content of the announcement can be found in Revenue Procedure 2015-37, Internal Revenue Bulletin 2015-26.
Please contact Bob Grossman at 412.338.9300 with questions or comments.
