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§ 3.7 GRANTOR TRUST RULESFUNDAMENTAL CONCEPTSSeveral instances of the federal tax law concerning charitable giving require applicationof the grantor trust rules. These rules apply with respect to grantors and otherswho are treated as substantial owners of the property in the trust for taxpurposes—that is, those persons in relation to a trust over which they haveretained substantial dominion and control. 515 The rules tax to the grantor theincome of the grantor trust; technically, the income of the trust (along with appropriatetax deductions 516 and tax credits) is attributed to the grantor. 517 A grantor isa person (including a corporation 518 ) who transfers property to a trust. 519There are five circumstances in which a grantor is regarded as an owner ofsome portion of a trust and thus is taxed on the income of the trust 520 :1. A grantor is treated as the owner of any portion of a trust in which he orshe has a reversionary interest in either the corpus of or the income fromthe trust if, as of the inception of that portion of the trust, the value of theinterest exceeds 5 percent of the value of the portion. 5212. A grantor is treated as the owner of any portion of a trust in respect ofwhich the beneficial enjoyment of the corpus or the income from it is subjectto a power of disposition, exercisable by the grantor or a nonadverseparty, or both, without the approval or consent of any adverse party. 522This general rule does not apply, however, to a power to determine thebeneficial enjoyment of the corpus or of the income from it if the corpusor income is irrevocably payable for a charitable purpose. 523 The power tochoose between charitable beneficiaries or to affect the manner of theirenjoyment of a beneficial interest does not cause the grantor to be treatedas an owner of a portion of the trust. 5243. A grantor is treated as the owner of any portion of a trust when certainadministrative powers over the trust exist and the grantor can or doesbenefit under these powers. 525 These powers are the power to deal for less515 IRC §§ 671–679.516 This principle includes the charitable contribution deduction. Reg. § 1.671-2(c). For example, a charitable contributionmade by a trust which is attributed to the grantor (an individual) is aggregated with the grantor’s othercharitable contributions to determine their deductibility under the percentage limitations (see Chapter 7). Reg.§ 1.671-2(c).517 IRC § 671.518 Reg. § 1.671-2(e).519 Generally, the grantor of a trust is the person who donates the principal to the trust. Bixby v. Commissioner, 58T.C. 757 (1972); Rev. Rul. 87-127, 1987-2 C.B. 156; Priv. Ltr. Rul. 9338015. The IRS published final andtemporary regulations providing guidance as to the qualification of persons as grantors of trusts. T.D. 8890.520 Reg. § 1.671-1(a).521 IRC § 673.522 IRC § 674(a).523 IRC § 674(b)(4).524 Reg. § 1.674(a)-1(b)(1)(iii). The IRS ruled that an arrangement, by which the “presumptive remaindermen” ofthree charitable lead trusts would serve as “charitable appointers” (those who designate the income beneficiarycharities) following the death of the trusts’ grantor, would not cause the trusts to be treated as owned by thegrantor. Priv. Ltr. Rul. 200029033.525 IRC § 675. 122