Taxation

Modifying a trust can be a taxable event

On November 28, 2023, the IRS Office of Chief Counsel published a memorandum addressing whether modification of an irrevocable grantor trust to add a tax reimbursement clause not previously in the trust constituted a taxable gift. The IRS concluded that it does constitute a taxable gift by the trust beneficiaries because the addition of a discretionary power to distribute income and principal to the grantor is a relinquishment of a portion of the beneficiaries’ interest in the trust.

The lesson here is don’t assume the IRS won’t find a reason to tax changes to a trust. The IRS memo is discussed further here.

 

Published by
David McGuffey

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