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§ 14-616. Qualification for tax benefits; maintaining certain statuses of the trust; grantor tr...

West's Annotated Code of MarylandEstates and TrustsEffective: October 1, 2023

West's Annotated Code of Maryland
Estates and Trusts (Refs & Annos)
Title 14. Trusts (Refs & Annos)
Subtitle 6. Maryland Trust Decanting Act (Refs & Annos)
Effective: October 1, 2023
MD Code, Estates and Trusts, § 14-616
§ 14-616. Qualification for tax benefits; maintaining certain statuses of the trust; grantor trusts
Currentness
Definitions
(a)(1) In this section the following words have the meanings indicated.
(2) “Grantor trust” means a trust as to which a settlor of a first trust is considered the owner under 26 U.S.C. §§ 671 through 677 or § 679.
(3) “Internal Revenue Code” means Title 26 of the United States Code.
(4) “Nongrantor trust” means a trust that is not a grantor trust.
(5) “Qualified benefits property” means property subject to the minimum distribution requirements of 26 U.S.C. § 401(a)(9), any applicable regulations, or similar requirements.
(6)(i) “Tax benefit” means a federal or State tax deduction, exemption, exclusion, or other benefit.
(ii) “Tax benefit” does not include a benefit arising from being a grantor trust.
In general
(b)(1) If the first trust contains property that qualified, or would have qualified but for any provision of this subtitle other than this section, for a marital deduction for purposes of the gift tax or estate tax under the Internal Revenue Code or a State gift, estate, or inheritance tax, the second trust instrument may not include or omit any term that, if included in or omitted from the trust instrument for the trust to which property was transferred, would have prevented the transfer from qualifying for the deduction or would have reduced the amount of the deduction under the provisions of the Internal Revenue Code or State law under which the transfer qualified.
(2) If the first trust contains property that qualified, or would have qualified but for any provision of this subtitle other than this section, for a charitable deduction for purposes of the income, gift, or estate tax under the Internal Revenue Code or a State income, gift, estate, or inheritance tax, the second trust instrument may not include or omit any term that, if included in or omitted from the trust instrument for the trust to which the property was transferred, would have prevented the transfer from qualifying for the deduction or would have reduced the amount of the deduction under the same provisions of the Internal Revenue Code or State law under which the transfer qualified.
(3)(i) If the first trust contains property that qualified, or would have qualified but for any provision of this subtitle other than this section, for the exclusion from the gift tax described in 26 U.S.C. § 2503(b), the second trust instrument may not include or omit a term that, if included or omitted from the trust instrument for the trust to which the property was transferred, would have prevented the transfer from qualifying under 26 U.S.C. § 2503(b).
(ii) If the first trust contains property that qualified, or would have qualified but for any provision of this subtitle other than this section, for the exclusion from the gift tax described in 26 U.S.C. § 2503(b) by application of 26 U.S.C. § 2503(c), the second trust instrument may not include or omit a term that, if included or omitted from the trust instrument for the trust to which the property was transferred, would have prevented the transfer from qualifying under 26 U.S.C. § 2503(c).
(4)(i) If the property of the first trust includes shares of stock in an S corporation, as defined in the Internal Revenue Code, and the first trust is, or would be but for any provision of this subtitle other than this section, a permitted shareholder under any provision of 26 U.S.C. § 1361, an authorized fiduciary may exercise the decanting power with respect to part or all of the S corporation stock only if any second trust receiving the stock is a permitted shareholder under 26 U.S.C. § 1361(c)(2).
(ii) If the property of the first trust includes shares of stock in an S corporation, as defined in the Internal Revenue Code, and the first trust is, or would be but for any provision of this subtitle other than this section, a qualified subchapter S trust within the meaning of 26 U.S.C. § 1361(d), the second trust instrument may not include or omit a term that prevents the second trust from qualifying as a qualified subchapter S trust.
(5) If the first trust contains property that qualified, or would have qualified but for any provision of this subtitle other than this section, for a zero inclusion ratio for purposes of the generation-skipping transfer tax under 26 U.S.C. § 2642(c), the second trust instrument may not include or omit a term that, if included or omitted from the first trust instrument, would have prevented the transfer to the first trust from qualifying for a zero inclusion ratio under 26 U.S.C. § 2642(c).
(6)(i) If the first trust is directly or indirectly the beneficiary of qualified benefits property, the second trust instrument may not include or omit any term that, if included in or omitted from the first trust instrument, would have increased the minimum distributions required with respect to the qualified benefits property under 26 U.S.C. § 401(a)(9) and any applicable regulation or similar requirements.
(ii) If an attempted exercise of the decanting power violates this paragraph:
1. The trustee is deemed to have held the qualified benefits property and any reinvested distributions of the property as a separate share from the date of the exercise of the decanting power; and
2. § 14-619 of this subtitle applies to the separate share.
(7) If the first trust qualifies as a grantor trust because of the application of 26 U.S.C. § 672(f)(2)(A), the second trust may not include or omit a term that, if included or omitted from the first trust instrument, would have prevented the first trust from qualifying under 26 U.S.C. § 672(f)(2)(A).
(8) Subject to paragraph (9) of this subsection, a second trust instrument may not include or omit a term that, if included or omitted from the first trust instrument, would have prevented qualification for a tax benefit if:
(i) 1. The first trust instrument expressly indicates an intent to qualify for the benefit; or
2. The first trust instrument is clearly designed to enable the first trust to qualify for the benefit; and
(ii) The transfer of property held by the first trust or the first trust qualified, or would have qualified but for any provision of this subtitle other than this section, for the tax benefit.
(9) Except as otherwise provided in this subsection, the second trust may be a nongrantor trust or a grantor trust.
(10) An authorized fiduciary may not exercise the decanting power if a settlor objects in a signed record delivered within the notice period to the fiduciary and:
(i) 1. The first trust and a second trust are both grantor trusts, in whole or in part;
2. The first trust grants the settlor or another person the power to cause the first trust to cease to be a grantor trust; and
3. The second trust does not grant an equivalent power to the settlor or other person; or
(ii) The first trust is a nongrantor trust and a second trust is a grantor trust, in whole or in part, with respect to the settlor, unless:
1. The settlor has the power at all times to cause the second trust to cease to be a grantor trust; or
2. A. The first trust instrument contains a provision granting the settlor or another person a power that would cause the first trust to cease to be a grantor trust; and
B. The second trust instrument contains the same provision.

Credits

Added by Acts 2023, c. 715, § 1, eff. Oct. 1, 2023; Acts 2023, c. 716, § 1, eff. Oct. 1, 2023.
MD Code, Estates and Trusts, § 14-616, MD EST & TRST § 14-616
Current through legislation effective through May 9, 2024, from the 2024 Regular Session of the General Assembly. Some statute sections may be more current, see credits for details.
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