The grantor trust: Handmaiden to the IRS and servant to the taxpayer

The following is reviewed: 1. the methodologies used to achieve so-called grantor trust status deliberately, 2. the transactions which are currently in use to take advantage of that status, 3. the various lurking issues, some of which have surfaced but not been definitively resolved, and some which have not yet surfaced, and 4. a description of the inconsistencies that exist even on the part of the IRS in its application of the concept. The statutory language requires the characterization to be made in all events in the case of transactional gain or loss passed to the grantor by determination of qualification of its receipt and tax character at the grantor level. To reach that result is not to change the integrity of the trust in any fashion or its independent status but, rather, simply to recognize that one cannot attribute to the grantor the tax incidents of the trust in a fair manner unless it is to be judged at the grantor level in terms of tax result where the substantive transaction is not modified but merely qualification for treatment is determined.