Case Summaries Tax Risks for Agreement Creating Exempt/Nonexempt Trusts

The IRS dropped paragraphs at the end of three IRS Private Letters Rulings in 2025 hinting that it might take the position that the grantor’s decision of whether to allocate GST exemption to a trust that has different terms for exempt and non-exempt trusts may cause inclusion in the gross estate under Sections 2036 or 2038 and might create an “estate tax inclusion period” (ETIP). The same reasoning might suggest that a transfer to the trust is an incomplete gift.  That was a very surprising development. The IRS may have reflected an intention to back away from those positions in PLR 202628005 (April 14, 2026).