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The authors analyze the impact of the Tax Court's 2000 Walton v. Commissioner decision on fixed-term zeroed-out grantor retained annuity trusts. The use of such trusts as a means of allowing taxpayers to transfer property to family members without paying gift taxes is discussed.

Among the useful changes made by EGTRRA are an expansion of the automatic GST exemption allocation rule, a new rule permitting trusts to be severed, a direction for section 9100-type relief with respect to making or electing out of allocations, a new rule directing that a GST allocation is effective if there has been substantial compliance, a limited provision allowing for retroactive allocations, and a clarification of the valuation rules used to determine a trust's inclusion ratio.

Under the approach taken by IRS in recent Proposed Regulations, it should be easier to avoid a loss of exempt status because of changes to a trust. While the new rules generally are favorable to taxpayers, they need expansion and clarification. In addition, pending legislative changes to the rules governing allocation of GST exemption may finally succeed in being enacted.

A charity organized as a trust rather than a corporation may minimize the effective tax rate on UBTI derived from an S corporation, if the charity is prepared to make substantial contributions to a public charity. Individual shareholders of S corporations considering a donation of stock to a charity should take into account several factors, including whether the donee is likely to hold or sell the stock. Likewise, charities seeking such donations may want to set up trusts to receive such stock.

Without notice to practitioners or taxpayers, when the Section 2702 Regulations were finalized in 1992 an example was changed, ostensibly to resolve an inconsistency. Instead, the new example is itself inconsistent with the rest of the Regulations, with the statute, and with centuries of common law and state property law interpretations. While a direct court challenge to the example is pending, a recent Tax Court decision compounds the problems by misinterpreting the application of the example.