Reforming the Grantor Trust Rules

Few things in the Internal Revenue Code (Code) are as enduring as the grantor trust rules. Housed in Subpart E of Subchapter J of the Code, they are essentially the same rules that were instituted by the so-called Clifford trust regulations promulgated over a half-century age. In instances where the grantor trust rules apply, the Code ignores the separate existence of a trust. Items of income, deductions, and credits against tax are instead attributed to the grantor. Grantors are thus unable to deflect income away from themselves to others (such as a trust or a trust beneficiary) whose income is taxed at a lower marginal rate. The purpose of the grantor trust rules then, and their purpose now, is to safeguard the progressive rate structure of the income tax