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Abstract

It’s been a perplexing problem for years but it seems to be increasing as more of the situations come to light – years ago, grandparents conveyed property owned in joint tenancy (or tenancy by the entirety) to an irrevocable inter vivos trust with retained life estates for each of the grandparents and with a remainder interest to the children. As a variation, the grandparents in setting up the trust gave life estates to the children with a remainder interest to grandchildren. The grandparents are now deceased and the questions are two fold – (1) what is included in the gross estates of each of the grandparents and (2) what is the basis in the hands of the children (or grandchildren)?1 The problem is drawing attention, partly because of the rapid escalation of farmland values (many of the trust situations involve farmland or vacation property) and partly because income tax considerations are now viewed as more significant than federal estate tax problems with the $5 million applicable credit amount available, at least for 2011 and 2012.2

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