2043 cases in the context of life estates. A 2043 offset may mitigate much of a 2036 argument. Exhaustion issue. IRC Sec. 7520. If annuity is paid from limited fund cannot use standard tables to value unless there are enough assets that will satisfy the annuity if the individual lived to age 110. This is an important limitation. Commentators argue that this test is unreasonable. Because of the income tax effects you will use a grantor trust to avoid immediate up front income recognition. So the trust may violate the exhaustion test. Idea is that if you live long term you win on the bet so you need a lot of assets. To satisfy the exhaustion test how much as to be in the trust to address it. It takes a substantial amount in the trust before the transaction can pass the exhaustion test. If you fail the exhaustion test you calculate the gift. Gift can be significant. Regulations may not be valid. The assumption of age 110 is not realistic. Can you ignore the exhaustion test? IRS logic is that there should be sufficient assets in trust to pay for stated term. Use a sufficiently prefunded trust which might be a previously created grantor trust. Use guarantees to shore up trust. See Trombetta above. Use a private annuity with a stated term that will change the calculation of the exhaustion test. Use a term longer than life expectancy. See GCM. If longer than tables annuity tables have to be used. IRC Sec. 1275 OID rules. There is an exception for annuities. Do we have to worry about this? Deferred SCIN. Kite case. the transaction. “Juices” Sale of assets from QTIP. 2519 issue.
2043 cases in the context of life estates. A 2043 offset may mitigate much of a 2036 argument. Exhaustion issue. IRC Sec. 7520. If annuity is paid from limited fund cannot use standard tables to value unless there are enough assets that will satisfy the annuity if the individual lived to age 110. This is an important limitation. Commentators argue that this test is unreasonable. Because of the income tax effects you will use a grantor trust to avoid immediate up front income recognition. So the trust may violate the exhaustion test. Idea is that if you live long term you win on the bet so you need a lot of assets. To satisfy the exhaustion test how much as to be in the trust to address it. It takes a substantial amount in the trust before the transaction can pass the exhaustion test. If you fail the exhaustion test you calculate the gift. Gift can be significant. Regulations may not be valid. The assumption of age 110 is not realistic. Can you ignore the exhaustion test? IRS logic is that there should be sufficient assets in trust to pay for stated term. Use a sufficiently prefunded trust which might be a previously created grantor trust. Use guarantees to shore up trust. See Trombetta above. Use a private annuity with a stated term that will change the calculation of the exhaustion test. Use a term longer than life expectancy. See GCM. If longer than tables annuity tables have to be used. IRC Sec. 1275 OID rules. There is an exception for annuities. Do we have to worry about this? Deferred SCIN. Kite case. “Juices” the transaction. Sale of assets from QTIP. 2519 issue.