A proposal by the Obama Administration regarding grantor trusts has estate planners on edge as they ponder its implications.

A grantor trust is a trust in which an individual, normally the grantor, is treated as the owner for income tax purposes. Under current rules, a grantor trust is taxed as if the grantor or another person owns the trust assets directly, and the deemed owner and the trust are treated as one and the same. For transfer tax purposes, however, the trust and the deemed owner are separate persons, and the trust is generally not included in the deemed owner’s gross estate.

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