IRS Accepted State Court’s Ruling That Based on a Scrivenor’s Error Trust was Irrevocable and not Includible in Decedent’s Taxable Estate

• Tuesday, March 3, 2015
• Category: Wills, Trusts and Estate Litigation

PLRs 201442042-201442046 (October 17, 2014)

In these five Private Letter Rulings the taxpayers asked the IRS to approve a trust reformation made by a state court to correct a “scrivenor’s error” and to effectuate the intent of the grantor.

The state court ruling enabled the trust assets to be excluded from the taxpayer’s estate. The IRS agreed to respect the trust reformation because there was clear and convincing evidence that the reformation corresponded to the taxpayer’s original intent.

The grantor created two GRATs whose remainder interests were to be transferred to a trust for the benefit of the grantor’s children. The grantor was designated trustee of the children’s trust. By its terms the children’s trust was a revocable trust, and the grantor retained a right to amend, modify or revoke it. The accountant preparing the gift tax returns informed the drafting attorney that the remainder would be includible in the grantor’s estate, but the attorney stated that there would be no tax problem. The accountant filed the gift tax return showing the transfers as completed gifts. Sometime later, another attorney noticed the problem and successfully petitioned to reform the trust under state law to correct the scrivenor’s error of the drafting attorney which rendered the trust contrary to the grantor’s intent and to make the trust irrevocable ab initio. The attorney sought a ruling from the IRS concerning the tax consequences of the court’s ruling.

The IRS accepted the state court’s ruling and confirmed that the children’s trust would not be includible in the grantor’s estate and that the transfers to the GRATs were completed gifts.

Reference: Margery J. Schneider, Esquire, Probate and Trust Law Section Newsletter, Philadelphia Bar Association, February 2015, No.138, Page 10

Filed Under: Estate Litigation; Estate Tax Planning; Advanced Estate Planning; Probate/Estate Administration; Reformation of Trust

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