Administrative powers (grantor trust)

Meaning in section 675

Section 675 describes administrative powers as one basis for treating the grantor as owner of a portion of a trust. It lists powers involving transactions with trust property, borrowing from the trust, and general administration. The rule concerns the portion associated with the power, not automatically every portion of the trust.^[3]

For general administrative powers, the statutory definition requires exercise in a nonfiduciary capacity and no approval or consent from a person acting in a fiduciary capacity. The definition then identifies voting certain corporate securities, directing or vetoing certain investments, and substituting equivalent value property to reacquire trust corpus.^[3]

Other powers in the same section

The section also addresses powers to deal with trust property for inadequate consideration and powers that enable borrowing without adequate interest or security. It separately covers a grantor's outstanding borrowing of trust corpus or income at the start of the taxable year, subject to a stated loan exception.^[3]

The loan exception concerns a loan with adequate interest and adequate security made by a trustee other than the grantor and other than a related or subordinate trustee who is subservient to the grantor. Section 672 supplies the meanings of adverse party, nonadverse party, and related or subordinate party for this subpart.^[1][3]

• A nonadverse party is defined by reference to whether a person is an adverse party.^[1]
• A related or subordinate party includes specified family members, employees, and certain corporate relationships, if that person is nonadverse.^[1]
• Section 672 presumes a related or subordinate party to be subservient for sections 674 and 675 unless evidence shows otherwise by a preponderance.^[1]

Related grantor trust rules

Sections 674 through 677 address other routes to grantor ownership treatment. Section 674 concerns powers over beneficial enjoyment, with exceptions for listed powers and certain trustee powers. Section 676 addresses a power to revest title in the grantor, while section 677 addresses income available for the grantor or spouse and specified insurance premiums.^[2][4]

Section 677 includes an exception for income that may, in the discretion of another person or a trustee, be applied for the support of a beneficiary other than the grantor's spouse whom the grantor is legally obligated to support, except to the extent the income is actually so applied or distributed. Section 678 addresses a person other than the grantor who can exercise a power alone to vest corpus or income in that person, with exceptions including where the grantor is otherwise treated as owner.^[5][6]

Section 672 also states that a power can count even when its exercise requires prior notice or takes effect after a specified period. It treats certain spouse-held powers or interests as held by the grantor, subject to the timing conditions stated there.^[1]

Questions and answers

Related terms

• Nonadverse party: The Internal Revenue Code defines a nonadverse party by reference to the term adverse party. Sections 672 through 678 use the distinction in trust rules.
• Grantor trust rules: These federal tax code rules explain when a grantor is treated as owning part of a trust, based on the grantor's powers and interests and on income provisions.
• Power to control beneficial enjoyment: Section 674 describes when control over trust benefits causes a grantor to be treated as owner of a trust portion. The rule concerns beneficial enjoyment.
• Adverse party: Section 672 defines an adverse party by reference to a substantial beneficial interest in a trust and the effect of a power held over it in the trust.

Related guides and articles

• Grantor trust rules in sections 671 to 679: A reference for U.S. citizen readers on grantor trust definitions, ownership tests, foreign trust beneficiaries, and statutory links to U.S. reporting rules.
• Grantor and nongrantor trust taxation: U.S. income tax rules distinguish grantor and nongrantor trusts for U.S. citizens. Sections 671 through 679 may assign ownership of all or part of a trust.
• Protector powers, consent and duties: A trust protector is defined by the powers an instrument grants, including trustee removal and appointment, and by how governing law treats the protector role.

Related pages

• Glossary: All terms.
• Beneficiary other than the grantor treated as owner
• Grantor trust rules
• Income for the benefit of the grantor
• Nonadverse party
• IRS forms