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IRS Recognizes Separate GST Trusts
Grantor established a trust that would distribute assets to her living descendants at her death. Since grantor retained a life income interest in the trust, the trust assets would be included in her estate under §2036. Grantor's mother also left her residuary estate to the same trust established by Grantor. This transfer involved skip beneficiaries so it was preferable to create a separate trust for GST purposes. Trustees of the trust were authorized by state law to segregate specific assets in a separate trust that would be governed by terms identical to the trust from which the assets were derived. The trustees would maintain separate custodial accounts, accounting records, etc. for the two trusts. The IRS ruled that the Grantor's trust and the separate trust that received assets from Grantor's mother would be treated as separate for GST tax purposes. The mother's GST tax exemption could be allocated pursuant to Reg. §26.2654-1(a)(4) to the separate trust established for assets from her estate.
Source: Let. Rul. 200039003
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