Understanding Related or Subordinate Party [Internal Revenue]: Key Insights
Definition & Meaning
The term "related or subordinate party" refers to individuals or entities that have a specific relationship with the grantor of a trust or estate. According to the Internal Revenue Code, this includes:
- The grantor's spouse, if they are living together.
- Family members such as the grantor's father, mother, children, brothers, or sisters.
- Employees of the grantor.
- Corporations where the grantor holds significant stock, particularly in terms of voting control.
- Subordinate employees of a corporation where the grantor is an executive.
Legal Use & context
This term is primarily used within the context of estate planning and tax law. It helps to identify parties that may have a vested interest or influence over a trust or estate. Understanding who qualifies as a related or subordinate party is crucial for beneficiaries and grantors when managing trusts and estates, especially for tax reporting and compliance. Users can utilize legal forms from US Legal Forms to create or modify trusts and related documents efficiently.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A trust is established by John, who names his wife and children as beneficiaries. Since they are family members, they qualify as related parties under the Internal Revenue Code.
Example 2: Sarah, a corporate executive, establishes a trust. Her subordinate employees may also be considered related parties if they have any influence over the trust's operations. (hypothetical example)
Relevant laws & statutes
The primary statute governing related or subordinate parties is found in 26 USCS § 672, which details the definitions and implications for tax purposes within the context of estates and trusts.