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When the settlor is a trustee and the beneficiaries are the
settlor and his family, the trusts must be closely scrutinized
for economic substance. See Markosian v. Commissioner, supra at
1245; see also Helvering v. Clifford, 309 U.S. 331, 334 (1940).
We consider the following factors when deciding whether a
trust lacks economic substance for tax purposes: (1) Whether the
taxpayer's relationship as grantor to the property differed
materially before and after the trust's formation; (2) whether
the trust had an independent trustee; (3) whether an economic
interest passed to other beneficiaries of the trust; and (4)
whether the taxpayer felt bound by any restrictions imposed by
the trust itself or by the law of trusts. See Markosian v.
Commissioner, supra at 1243-1245; see also Buckmaster v.
Commissioner, T.C. Memo. 1997-236.
As to the first Markosian factor, the Muhichs' relationship
to their property did not differ materially before and after the
formation of the trusts. The Muhichs' personal residence was the
address for all the trusts, and their personal use of their
property was never restricted. As sole trustees and sole owners
of the CBI's, the Muhichs could manipulate, distribute, or
otherwise use trust property at their whim. In fact, the trust
instruments gave them sole discretion to deal in trust property
and make distributions.
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