Legislation under consideration in Congress might make existing and new “grantor trusts” subject to income tax, gift tax, and estate tax. It is impossible to predict whether legislation will pass or when it would become effective. A new law could become effective before the end of 2021.

“Grantor trusts” are drafted so that the person who created the trust — the “grantor” or “settlor” — is responsible for all of the income taxes generated by the assets in the trust. Spousal Lifetime Asset Trusts (SLATs), Grantor Retained Annuity Trusts (GRATs), Qualified Personal Residence Trusts (QPRTs), and most Irrevocable Life Insurance Trusts (ILITs) are drafted as grantor trusts.

Immediate action might reduce tax exposure and allow you to “grandfather” in some of these trusts or new gifts if you:

1. Already have any of these trusts in place or:
2. Are considering creating a trust to receive gifts or to hold life insurance.

Please contact your tax advisors and Taft estate planner as soon as possible if you wish to discuss the possible ramifications of new tax laws.

Other tax law changes are also possible, including a reduction in estate and gift tax exemptions and a loss of discounts for gifts of non-operating family LLCs, partnerships, and corporations.