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the transaction creates an entity with separate existence under
State law. See Zmuda v. Commissioner, supra at 720.
We have decided several cases involving multitiered trust
arrangements where the Commissioner alleged that the trust
structure lacked economic substance and, therefore, had to be
disregarded for Federal income tax purposes. See, e.g., Muhich
v. Commissioner, T.C. Memo. 1999-192, affd. 238 F.3d 860 (7th
Cir. 2001); Dahlstrom v. Commissioner, T.C. Memo. 1991-264, affd.
without published opinion 999 F.2d 1579 (5th Cir. 1993); Clawson
v. Commissioner, T.C. Memo. 1982-321. In deciding whether a
purported trust lacks economic substance, we consider the
following factors: (1) Whether the taxpayer’s relationship, as
grantor, to property purportedly transferred into trust differed
materially before and after the trust’s formation; (2) whether
the trust had a bona fide independent trustee; (3) whether an
economic interest in the trust passed to trust beneficiaries
other than the grantor; and (4) whether the taxpayer honored
restrictions imposed by the trust or by the law of trusts. See
Markosian v. Commissioner, supra at 1243-1245.
A. The Castros’ Relationship to the Trusts’ Property
The first factor we consider is whether petitioner’s
relationship, as grantor, to property ostensibly transferred into
trust differed materially before and after the trusts’ formation.
See id. at 1243.
The Castros lived in the same home with the same furnishings
as they had before their home and furnishings were transferred
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