Jonathan G. Blattmachr and Martin M. Shenkman
When and why might an irrevocable trust make a loan to a beneficiary or the grantor who created the trust? Why would a trustee want to make loans from a trust to a beneficiary? What are the financial and tax consequences? What are the criteria for a transfer to be respected as a loan by the IRS and creditors? What factors should be documented? What are the different tax treatments of a loan versus a distribution or other characterization of the transaction? What are the benefits of having a non-fiduciary have an express power to loan trust assets to the grantor who created the trust? Using the power to loan to support characterization of the trust as a grantor trust for income tax purposes (a swap power may not be 100% guarantee of that result). IRC Sec. 675. How can a loan power provide access to trust assets for taxpayers trying to use exemption? What risks might loaning the grantor trust assets pose? What interest rate might be charged?
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