Law Commons^™

A Proposal For Integrating The Income And Transfer Taxation Of Trusts, Robert T. Danforth

Scholarly Articles

Present law fails to integrate the income and transfer (i.e., estate and gift) taxation of trusts; a gratuitous transfer to a trust may be incomplete for income tax purposes (producing a so-called grantor trust, the income of which is taxed to the grantor), but complete for transfer tax purposes. Grantors create trusts that exploit two features of this tax law dichotomy: the grantor's income tax payments on trust income enhance the value of the trust by allowing it to appreciate in value income tax free; and present law provides no basis for subjecting this enhanced value to gift or estate …