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Unlocking the Trapdoor of IRC Section 677(a)(3)Unlocking the Trapdoor of IRC Section 677(a)(3)

Avoid grantor trust status

Andrew S. Katzenberg, Of Counsel

March 23, 2016

14 Min Read
Unlocking the Trapdoor of IRC Section 677(a)(3)

Last year’s Tax Court decision in Webber v. Commissioner1 handed taxpayers a defeat in the area of private placement life insurance (PPLI). This first reported case on PPLI was littered with pages of facts revealing the taxpayer’s use of agents to indirectly control the trust-owned PPLI policy. A footnote in the decision regarding grantor trust status has led some life insurance companies and other observers to conclude that it’s better to use a non-grantor trust to own a PPLI product.2 Yet, most practitioners may pause for a moment because they’ve come to believe that an insurance trust is synonymous with grantor trust status. Internal Revenue Code Section 677(a)(3) controls grantor trust status as it applies to life insurance. A fresh ...

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About the Author

Andrew S. Katzenberg

Of Counsel, DLA Piper

Andrew S. Katzenberg focuses on wealth transfer planning and preservation, multi-generational planning, estate and trust administration, nonprofit and tax-exempt organizations and charitable giving. Among his high-net-worth clients are hedge fund and private equity managers, business owners, art dealers and athletes. He also represents clients in all phases of forming and managing nonprofit and tax-exempt organizations (including public charities, private foundations and private operating foundations) and acquiring and retaining their tax-exempt status.

Andrew has authored numerous articles related to his field and is a frequent contributor to the New York State Bar Association's Trusts and Estates Law Section Newsletter. He is also a nationally recognized lecturer, a Fellow of the American College of Trusts and Estates Counsel (ACTEC) and AV Preeminent rated attorney by Martindale-Hubbell. In addition to his regular practice, he actively engages in pro bono work and has been recognized for his contributions by the New York Legal Assistance Group (NYLAG) and the New York City Family Court Volunteer Attorney Program.

Andrew also serves as an adjunct professor at University of Baltimore Law School Graduate Master's Program.

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