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property purportedly transferred into trust differed in any
material respect before and after the formation of the trust; (2)
whether the trust had at least one bona fide independent trustee;
(3) whether an economic interest in the trust passed to any of
the designated trust beneficiaries other than to the grantor; and
(4) whether the taxpayer felt bound by any of the restrictions
imposed by the trust at issue or the law of trusts. See
Markosian v. Commissioner, supra at 1243-1245.
A. Grantor’s Relationship to Trust Property Before and
After Trust Formation
The first factor to be considered in determining whether a
trust lacks economic substance is whether the grantor’s
relationship to the property transferred to the trust at issue
differed in any material respect before and after the formation
of the trust. Id. at 1243.
Before the formation of Floors Trust, Harlan operated
Edwards Vinyl as a sole proprietorship. After the formation of
Floors Trust, he continued to make the day-to-day managerial
decisions for the business. Additionally, the business assets
were located at Harlan’s personal residence, where he had
unrestricted access to them, both before and after the transfer
to the trust.
Harlan and Jody were the persons authorized to sign checks
drawn on Floors Trust’s business checking account. Further,
Harlan conceded in his testimony that no trustee imposed any
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Last modified: May 25, 2011