Trust modification prevents drafting error from resulting in costly transfer tax

In PLR 201132017, the IRS ruled in this case, the documentation submitted by Surviving Spouse strongly indicates that Decedent and Surviving Spouse did not intend to have any control over the assets held in the By-Pass Trust, and that the provision in Section 4.01 of Trust to charge Surviving Spouse’s debts, expenses and death taxes from the By-Pass Trust was the result of a scrivener’s error.  In reforming the By-Pass Trust, Court found that the modification of Trust was an equitable reformation of Trust under common law and
State Statute.

Consequently, the IRS conclude that the Court’s Order modifying the trust instrument nunc pro tunc based on a scrivener’s error is consistent with applicable State law that would be applied by the highest court of that state.  Section 4.01 of Trust, as modified pursuant to the Court’s Order, does not provide Surviving Spouse with a general power of appointment under § 2041(b) over the assets of the By-Pass Trust, does not constitute the exercise or release of a general power of appointment by Surviving Spouse, within the meaning of § 2514(b), and won’t be treated as a deemed transfer of an interest in Trust by Surviving Spouse for gift tax purposes under § 2501.
Therefore, based on the facts submitted and the representations made, we conclude
that the value of the assets in the By-Pass Trust will not be included in Surviving
Spouse’s gross estate under § 2041(a)(2) upon his death.

Beliveau Law Group: Massachusetts | Florida | New Hampshire

The Trust Administration attorneys at the Beliveau Law Group provides legal services for estate planning (wills and trusts),and taxation law (federal and state). The law firm has offices and attorneys in Naples, Florida; Boca Raton, Florida; Danvers, Massachusetts; Waltham, Massachusetts; Quincy, Massachusetts; Manchester, New Hampshire and Salem, New Hampshire.

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