- 12 -
trusts that were irrevocable prior to the date the
House Ways and Means Committee began consideration of
the bill containing the GST tax provisions. The most
logical explanation for this grandfather clause is to
protect the reliance interests of trust settlors who
established irrevocable trusts prior to the legislative
introduction of the GST tax regime eventually enacted
by TRA 1986. See Tataranowicz v. Sullivan, 959 F.2d
268, 277 (D.C. Cir. 1992); Sercl v. United States, 684
F.2d 597, 599 (8th Cir. 1982).
As a corollary to its protection of reliance
interests, the grandfather clause does not apply to
transfers “made out of corpus added to the
[grandfathered] trust after September 25, 1985”. TRA
1986 sec. 1433(b)(2)(A). Unlike a person who has
irrevocably transferred money to a trust prior to the
grandfathering date, a person who effects a transfer of
corpus to a grandfathered trust after that date is
aware of (or should be aware of) the effects of the GST
tax. Absent a restriction on post-grandfather-date
transfers, an individual could utilize an existing
grandfathered trust as a vehicle for passing additional
amounts to skip persons free of GST tax, even though
these additional amounts had not been irrevocably
committed to such a transfer as of September 25, 1985.
Such a result would be contrary to the reliance purpose
underlying the grandfather clause. * * *
Section 26.2601-1(b)(1)(v)(A), Temporary GST Tax
Regs., supra, is consistent with the reliance purpose
underlying TRA 1986 section 1433(b)(2)(A), and is
therefore valid. A person who holds a general power of
appointment over trust property maintains control over
the ultimate disposition of that property and is, in
practical effect, in a position similar to the actual
owner of the property. Estate of Kurz v. Commissioner,
101 T.C. 44, 50-51, 59-60 (1993), supplemented by T.C.
Memo. 1994-221. This is the rationale underlying the
inclusion of such property in the gross estate of the
holder of the power for purposes of the Federal estate
tax. Id.
Mrs. Peterson, as the holder of a testamentary
general power of appointment, maintained effective
control over the disposition of the property in the
Marital Trust until her death in 1987. Had she chosen
to do so, Mrs. Peterson could have exercised the
general power of appointment to cause the trust
Page: Previous 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 NextLast modified: May 25, 2011