- 25 - to control beneficial enjoyment of the corpus or income are vested in the grantor or certain other persons. Sec. 674. Fifth, certain administrative powers are exercisable by the grantor or a nonadverse party. Sec. 675. Adverse party is defined as “any person having a substantial beneficial interest in the trust which would be adversely affected by the exercise or nonexercise of the power which he possesses respecting the trust.” Sec. 672(a). Even if the section 672 definition of an adverse party is satisfied, however, sections 674-677 require a trust’s income to be taxed to the grantor unless the consent of the adverse party is required before the grantor may exercise any of the powers enumerated in those sections. Because petitioners did not hold beneficial interests in the trusts, they were not adverse parties with respect to each other. See, e.g., Schulz v. Commissioner, supra at 495-496. In 1998, the OMK Company Trust paid petitioners’ costs of housing, medical care, travel, and family gatherings. The OMK Company Trust also paid the education expenses of petitioners’ grandchildren, who were not beneficiaries of the OMK trusts. Several factors indicate that petitioners retained total control over the OMK trusts and that the trusts are grantor trusts. First, none of petitioners’ powers as trustees required the consent of an adverse party. Second, petitioners retainedPage: Previous 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 Next
Last modified: May 25, 2011