Final Regs. on GRAT/GRUT qualified interest determinations.

• Jurisdiction: United States
• Author: Weinberger, Mark
• Date: 01 January 2001

The Service has issued final regulations (TD 8899) for determining whether a retained interest in a grantor retained annuity trust (GRAT) or a grantor retained unitrust (GRUT) is a qualified interest under Sec. 2702(b). The final regulations provide that the issuance of a note, other debt instrument, option or other similar financial arrangement, directly or indirectly, in satisfaction of an annual payment obligation, does not meet Sec. 2702(b)'s requirements.

The final regulations became effective on Sept. 5, 2000, adopting, with modifications, the proposed regulations published on June 22, 1999.

Background

Sec. 2702 applies to a transfer in trust that benefits a family member when a grantor retains an interest in the property transferred. If Sec. 2702 applies to a transfer, the value of the grantor's retained interest is zero for gift tax purposes (treating the grantor as making a gift of the entire value of the property), unless the retained interest is a "qualified interest"

A qualified interest includes (1) a right to receive, at least annually, fixed payments (a...