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Article
A Proposal for Integrating the Income and Transfer Taxation of Trusts
Virginia Tax Review
  • Robert T. Danforth, Washington and Lee University School of Law
Document Type
Article
Publication Date
1-1-1999
Abstract

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 taxation. The lack of income and transfer tax integration thus permits transfer tax avoidance. This Article proposes integrating the grantor trust rules with the rules for completed taxable gifts. The proposal would simplify the grantor trust rules and, in most cases, eliminate the use of grantor trust status as a means of transfer tax avoidance.

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Citation Information
Robert T. Danforthm A Proposal for Integrating the Income and Transfer Taxation of Trusts, 18 Va. Tax Rev. 545 (1999).