Divorce and Sale of the Principal Residence

The division or other disposition of the marital residence has always been a major issue in most divorces. Given the tremendous increase in the value of homes in recent years, the economic and tax concerns of dealing with the marital residence are even more acute for clients and their advisers. The general rules governing income taxation on the sale of a residence were enacted as part of the Taxpayer Relief Act of 1997, Public Law 105-34, which became effective Aug. 5, 1997. Prior rules concerning home sale rollover, or exclusion of gain by certain older taxpayers, are generally no longer relevant and not discussed in this article.

General Rule Concerning Sale of Home

In general, the tax law is codified in Internal Revenue Code of 1986 (“Code”) Section 1001. The gain from the sale of property generally equals the excess of the amount realized over the adjusted tax basis, unless another specific statutory exception applies to reduce or eliminate that gain. This is generally investment, less depreciation, plus improvements. In the case of a marital residence, the only statutory provision relevant to reducing or eliminating gain on the sale of your client's residence is Code ' 121, Home Sale Exclusion. The “residence” might include a houseboat, house trailer or stock in a cooperative corporation. Prior Treas. Reg. Sec. 1.1034-1(c)(3)(i); Rev. Rul. 74-241, 1974-1 C.B. 68, Rev. Rul. 90-35, 1990-1 C.B. 48. Personal property (such as furniture) will not qualify. Caution should be exercised when relying on authorities under prior law.

Maximize Tax Basis, Reduce Gain

Since the gain that may be recognized is the excess of the amount realized over your client's adjusted tax basis, to the extent he or she can maximize the amount of the tax basis through documentation of improvements, any gain that might be taxable, if ' 121 did not apply, or that may be taxable even with the application of ' 121 (if the gain exceeds the amount that can be excluded) will be reduced. In the context of a divorce, it is especially important that a collaborative effort of both spouses be made to document all improvements and that both spouses have a complete file of such records in the event of a later tax audit to avoid the need to contact an ex-spouse to defend an audit.

General Rule of Code ' 121 Exclusion of Gain

When qualified taxpayers sell a principal residence, they may exclude from income the amount of gain that would otherwise be taxable up to $250,000. Certain qualifying joint income tax return filers may exclude up to $500,000 of gain. The gain that can be excluded is the gain realized on a qualified sale of the principal residence, generally not more than once in every 2-year period.

Overview of Code ' 121 General Requirements

Qualifying taxpayers may exclude from gross income either $250,000 (or $500,000 for certain qualifying joint filers on joint income tax returns) of the proceeds realized on the qualified sale of the principal residence. As mentioned above, this generally may not be done more than once in every 2-year period.

Two primary requirements must be satisfied in order to qualify for an exclusion:

• The taxpayer has (or if married, the taxpayers, file a joint return in the year, and have) owned and used the home as a principal residence for periods aggregating 2 to 5 years immediately prior to sale. Code ' 121(d)(1); and
• The taxpayers have not excluded the gain under Code ' 121 with respect to a sale occurring within the 2 years immediately preceding the current sale. Code ' 121(b)(3)(A).

A number of issues are raised by these requirements. Will a joint return in fact be filed? Is this worthwhile from a tax perspective? When do the clients anticipate the sale occurring (this might be vital to meeting the requirements for income tax exclusion)? Is there any flexibility in planning to meet these timing requirements? When is the divorce, or was the divorce, finalized?

Detailed Analysis of Principal Residence Requirement

In order to qualify for Code ' 121, the property sold must qualify as a “principal residence.” This is defined in the regulations Treasury Regulation ' 1.121-1(b)(12242). The test is largely one of facts and circumstances. Place of employment, and principal place of abode of the taxpayer and family members, are factors to consider. Many of these factors can be affected by the divorce.

If any portion of the home is rented or used as a home office for which a home-office deduction was claimed, that portion of the home may not qualify as a principal residence. The general rule is that if the taxpayers meet the ownership and use requirements for a portion of the house, only the gain on that portion is excluded. IRC Sec. 121(a). The exclusion is also reduced to the extent of any depreciation adjustments taken in connection with the business or rental of the property after May 6, 1997. Alternative (ie, non-residential) uses should be confirmed and prior income tax returns reviewed for home office use, rental use and depreciation deductions.

Ownership and Use Requirements, Including Special Rules for Separated and Divorced Taxpayers

Code ' 121(a) imposes both an ownership and use requirement. Generally the taxpayers must have owned and used the home as a principal residence for periods aggregating 2 years or more, during the 5 years immediately prior to the sale (ie, ending on the date of sale). These time periods do not necessarily have to be contiguous. For example, seasonal, vacation or other short-term absences, are still counted as periods of use. Treasury Regulation ' 1.121-1(c)(2).

If married taxpayers file a joint return in the year of the sale, either spouse's ownership of the home will satisfy this requirement. Code '' 121 (b)(2)(A)(i); 121(d)(1); Treas. Reg. Sec. 1.121-2(a)(3)(A). Your client's ownership will include the time a spouse or former spouse held the property if the transfer to your client is incident to a divorce. Treas. Reg. Sec. 1.121-4(b)(1). Both spouses must meet the aggregate use requirement. IRC Sec. 121()b)(2)(A)(k); Treas. Reg. Sec. 1.121-2(a)(3)(B). Your client will be treated as using the residence for the time the spouse or former spouse is given the right to use the property under a divorce or separation instrument. Treas. Reg. Sec. 1.121-4(b)(2).

In order to determine the application of this rule in your client's situation, you may have to plan whether or not your client will continue to reside in the home, or at what date your client ceased residing in the home and had a different principal residence. This may not be easy to address in the context of an adversarial divorce, but may be essential to the tax result. In some cases the loss of the tax benefit can be a factor incorporated in the negotiation of when your client vacates the marital residence. You certainly should not take a position that is contrary to any filed court documents, pleadings or agreements between your client and the ex-spouse.

If a joint return is not filed, then each spouse or ex-spouse must meet the 2- or 5-year test. A number of issues are raised: Who lives in the home? How long did each spouse live in the home? Who moved out? When?

The implications of the issues raised above are that if a joint income tax return is not filed (which may be due to the completion of the divorce in the year of the sale, or determination by the parties to file their income tax returns separately to avoid the liability and other complications of a joint return), then each spouse must separately meet the 2- or 5-year test noted above. The home sale rules of Code Section 121 (d)(3) include two special rules addressing divorce. The first addresses basis and holding period. If the house was originally owned by one of the spouses, and your client obtained ownership of the house from his/her spouse incident to the divorce, Code Section 1041 provides that your client would have the same tax basis and holding period as the spouse who transferred the home to your client. Consequently, in addition to the tax basis carrying over, your client's holding period for determining capital gains would also include the time period the spouse held the property before transfer to your client. See Treas.Reg. Sec. 1.121-4(b)(1).

The second rule under Code ' 121(d)(3) deals with use of the house and provides that if one spouse is granted the use of the home under the divorce agreement as described under Code ' 71(b)(2) that transferor spouse's use of the property as a principal residence will be imputed to the transferee spouse. Regulation ' 1.121-4(b)(2). Thus, if the divorce agreement granted your client's ex-spouse the sole use and occupancy of the house for some period of time following the divorce, that amount of time would be imputed to your client. Caution must be exercised in attempting to apply this latter rule in that the “divorce instrument” must expressly address this, and must be in place for the benefit to apply. In other words, if your client's ex-spouse used the marital residence pursuant to a verbal agreement, but prior to the entry or execution of the divorce instrument, that time period would not be imputed to your client in determining whether or not your client met the 2- and 5-year ownership and use requirements. Therefore, exact dates of each event and the status of the “divorce instrument” are critical to identify. Note: In dividing the assets, professional clients, eg, doctors, attorneys, or accountants, should consider the value of certain assets, such as pensions, that would be protected in the event of a malpractice claim.

Amount of Exclusion

The introductory discussion above indicates that each taxpayer is entitled to a $250,000 exclusion, and certain qualifying taxpayers filing a joint return are entitled to a $500,000 exclusion. IRC Sec. 121(b); Treas. Reg. Sec. 1.121-2(a). To qualify for the larger exclusion, a joint return must be filed and either spouse must meet the ownership requirements, both spouses must meet the use requirements, and finally, neither spouse could have sold another residence within the 2 preceding years. Code ' 121(b)(2)(A);Treas. Reg. ' 1.121-2(a)(3)(I). (In general, the ex-clusion will not be available to the extent a residence was sold during the preceding 2-year period. Code ' 121(b)(3).) Affirmative representations should be obtained in the settlement documentation for any critical facts that are not within your client's ability to prove.

Special 'Unforeseen Circumstances' Utilization

If a taxpayer has not met the ownership or use test of using and owning the home for 2 of the prior 5 years, or your client has excluded gain on the sale of a former home within 2 years, generally he or she will not be able to take advantage of the exclusion. However, if the sale occurs as a result of “unforeseen circumstances,” the tax law provides that the excludable gain is prorated based on the amount excludable if your client had satisfied all three eligibility requirements. Code ' 121(c)(2)(B). The regulations provide that divorce or legal separation under a decree of divorce for separate maintenance, is characterized as an “unforeseen circumstance.” Treasury Regulation ' 1.121-3(e)(2). The proration works in accordance with the following formula: Lesser of [the number of days of ownership or use; or the number of days between the dates of the sale of a previous or current residence] divided by 730 days multiplied by $250,000 [or $500,000 if applicable]. See Code ' 121(c)(1)(A) & (B); Treasury Regulation ' 1.121-3(g).

Income Tax Return Filing Status

In the context of divorce, even if the $500,000 exclusion may be available through the filing of a joint return, careful consideration should be given to whether or not a joint income tax return should be filed as this creates the potential for joint liability in the event an audit raises an additional assessment or penalty or interest charge. Further, filing a joint return for yet another year, creates another year that the client and the ex-spouse may have to cooperate in the context of an audit. In many cases, it is preferable to file “married filing separately” until such time as the divorce is complete, after which time separate individual income tax returns are filed. Great care should be exercised in making the determination as to whether or not a joint return should be filed. If the joint return appears necessary in order to qualify for a larger home sale exclusion, consideration should be given to quantifying the actual benefit and determining whether that amount warrants the additional risk and need for future involvement and cooperation between ex-spouses in the event of an audit. If the parties file a joint return, your client may elect to limit his/her liability for any deficiency with respect to the joint return to that portion of the deficiency attributable to the erroneous items allocable to your client. Code ' 6015(c).

In general, both taxpayers signing a joint income tax return are liable for any penalties, interest and additional tax assessed on audit. The 1998 IRS Reform Act added a relief of liability provision under Code ' 6015(c) for qualifying divorced and separated spouses who file joint returns. It allows a spouse to elect to limit liability for any deficiency arising with respect to a joint return to that portion of the deficiency attributable to erroneous items allocable to that spouse. IRS ' 6015(c)(1); Treasury Regulation ' 1.6015-3(a)and(d). Note that this provision only applies to deficiencies in tax not with respect to any underpayment of tax due on the reported tax return. Therefore, if you decide to file a joint return, your client should assure that the entire tax is actually paid and that the liability for any payment (or allocation of any refund to be received) is determined to avoid future disputes.

Further, it is strongly recommended that if a joint return is to be filed, all detailed supporting schedules be maintained by both spouses in the event of a future audit that involves a ' 6015 issue. It might even be advisable as part of the property settlement agreement to attach the worksheets for the joint return as an exhibit and indicate on these worksheets which spouse is responsible for which items.

Ownership in Trust

For many high net-worth clients, the use of trusts in the ownership, or partial ownership, of their home is common. For older clients, the use of revocable living trusts to own real estate and other assets is common. These trusts permit the avoidance of probate, management of assets in disability, etc. Most revocable living trusts are characterized as “grantor trusts” (ie, your client as grantor is taxed on the income of the trust as if the trust does not exist). A house owned by such a trust should also qualify for the home sale exclusion. Treas. Reg. Sec. 1.121-1(c)(3). For larger estates seeking to minimize estate tax, and even in more modest estates when asset protection is a concern, a qualified personal residence trust might be used to own part or all of the house for purposes of transferring title to designated heirs, typically children of the couple. A qualified personal residence trust (QPRT) is a grantor trust and some portion or all of the house might qualify for the home sale exclusion, even though it is owned by such a trust.

The use of trusts, however, raises a host of issues that need to be expressly addressed. For example, if the trust is a non-grantor irrevocable trust, the IRS view is that a house held by such a trust will not be able to qualify for the home sale exclusion. See PLR 200104005 and 200018021. Thus, a determination as to whether the trust is revocable or not, and whether the trust is a grantor trust or not, is key. However, these issues are beyond the scope of this article.

The division or other disposition of the marital residence has always been a major issue in most divorces. Given the tremendous increase in the value of homes in recent years, the economic and tax concerns of dealing with the marital residence are even more acute for clients and their advisers. The general rules governing income taxation on the sale of a residence were enacted as part of the Taxpayer Relief Act of 1997, Public Law 105-34, which became effective Aug. 5, 1997. Prior rules concerning home sale rollover, or exclusion of gain by certain older taxpayers, are generally no longer relevant and not discussed in this article.

General Rule Concerning Sale of Home

In general, the tax law is codified in Internal Revenue Code of 1986 (“Code”) Section 1001. The gain from the sale of property generally equals the excess of the amount realized over the adjusted tax basis, unless another specific statutory exception applies to reduce or eliminate that gain. This is generally investment, less depreciation, plus improvements. In the case of a marital residence, the only statutory provision relevant to reducing or eliminating gain on the sale of your client's residence is Code ' 121, Home Sale Exclusion. The “residence” might include a houseboat, house trailer or stock in a cooperative corporation. Prior Treas. Reg. Sec. 1.1034-1(c)(3)(i); Rev. Rul. 74-241, 1974-1 C.B. 68, Rev. Rul. 90-35, 1990-1 C.B. 48. Personal property (such as furniture) will not qualify. Caution should be exercised when relying on authorities under prior law.

Maximize Tax Basis, Reduce Gain

Since the gain that may be recognized is the excess of the amount realized over your client's adjusted tax basis, to the extent he or she can maximize the amount of the tax basis through documentation of improvements, any gain that might be taxable, if ' 121 did not apply, or that may be taxable even with the application of ' 121 (if the gain exceeds the amount that can be excluded) will be reduced. In the context of a divorce, it is especially important that a collaborative effort of both spouses be made to document all improvements and that both spouses have a complete file of such records in the event of a later tax audit to avoid the need to contact an ex-spouse to defend an audit.

General Rule of Code ' 121 Exclusion of Gain

When qualified taxpayers sell a principal residence, they may exclude from income the amount of gain that would otherwise be taxable up to $250,000. Certain qualifying joint income tax return filers may exclude up to $500,000 of gain. The gain that can be excluded is the gain realized on a qualified sale of the principal residence, generally not more than once in every 2-year period.

Overview of Code ' 121 General Requirements

Qualifying taxpayers may exclude from gross income either $250,000 (or $500,000 for certain qualifying joint filers on joint income tax returns) of the proceeds realized on the qualified sale of the principal residence. As mentioned above, this generally may not be done more than once in every 2-year period.

Two primary requirements must be satisfied in order to qualify for an exclusion:

• The taxpayer has (or if married, the taxpayers, file a joint return in the year, and have) owned and used the home as a principal residence for periods aggregating 2 to 5 years immediately prior to sale. Code ' 121(d)(1); and
• The taxpayers have not excluded the gain under Code ' 121 with respect to a sale occurring within the 2 years immediately preceding the current sale. Code ' 121(b)(3)(A).

A number of issues are raised by these requirements. Will a joint return in fact be filed? Is this worthwhile from a tax perspective? When do the clients anticipate the sale occurring (this might be vital to meeting the requirements for income tax exclusion)? Is there any flexibility in planning to meet these timing requirements? When is the divorce, or was the divorce, finalized?

Detailed Analysis of Principal Residence Requirement

In order to qualify for Code ' 121, the property sold must qualify as a “principal residence.” This is defined in the regulations Treasury Regulation ' 1.121-1(b)(12242). The test is largely one of facts and circumstances. Place of employment, and principal place of abode of the taxpayer and family members, are factors to consider. Many of these factors can be affected by the divorce.

If any portion of the home is rented or used as a home office for which a home-office deduction was claimed, that portion of the home may not qualify as a principal residence. The general rule is that if the taxpayers meet the ownership and use requirements for a portion of the house, only the gain on that portion is excluded. IRC Sec. 121(a). The exclusion is also reduced to the extent of any depreciation adjustments taken in connection with the business or rental of the property after May 6, 1997. Alternative (ie, non-residential) uses should be confirmed and prior income tax returns reviewed for home office use, rental use and depreciation deductions.

Ownership and Use Requirements, Including Special Rules for Separated and Divorced Taxpayers

Code ' 121(a) imposes both an ownership and use requirement. Generally the taxpayers must have owned and used the home as a principal residence for periods aggregating 2 years or more, during the 5 years immediately prior to the sale (ie, ending on the date of sale). These time periods do not necessarily have to be contiguous. For example, seasonal, vacation or other short-term absences, are still counted as periods of use. Treasury Regulation ' 1.121-1(c)(2).

If married taxpayers file a joint return in the year of the sale, either spouse's ownership of the home will satisfy this requirement. Code '' 121 (b)(2)(A)(i); 121(d)(1); Treas. Reg. Sec. 1.121-2(a)(3)(A). Your client's ownership will include the time a spouse or former spouse held the property if the transfer to your client is incident to a divorce. Treas. Reg. Sec. 1.121-4(b)(1). Both spouses must meet the aggregate use requirement. IRC Sec. 121()b)(2)(A)(k); Treas. Reg. Sec. 1.121-2(a)(3)(B). Your client will be treated as using the residence for the time the spouse or former spouse is given the right to use the property under a divorce or separation instrument. Treas. Reg. Sec. 1.121-4(b)(2).

In order to determine the application of this rule in your client's situation, you may have to plan whether or not your client will continue to reside in the home, or at what date your client ceased residing in the home and had a different principal residence. This may not be easy to address in the context of an adversarial divorce, but may be essential to the tax result. In some cases the loss of the tax benefit can be a factor incorporated in the negotiation of when your client vacates the marital residence. You certainly should not take a position that is contrary to any filed court documents, pleadings or agreements between your client and the ex-spouse.

If a joint return is not filed, then each spouse or ex-spouse must meet the 2- or 5-year test. A number of issues are raised: Who lives in the home? How long did each spouse live in the home? Who moved out? When?

The implications of the issues raised above are that if a joint income tax return is not filed (which may be due to the completion of the divorce in the year of the sale, or determination by the parties to file their income tax returns separately to avoid the liability and other complications of a joint return), then each spouse must separately meet the 2- or 5-year test noted above. The home sale rules of Code Section 121 (d)(3) include two special rules addressing divorce. The first addresses basis and holding period. If the house was originally owned by one of the spouses, and your client obtained ownership of the house from his/her spouse incident to the divorce, Code Section 1041 provides that your client would have the same tax basis and holding period as the spouse who transferred the home to your client. Consequently, in addition to the tax basis carrying over, your client's holding period for determining capital gains would also include the time period the spouse held the property before transfer to your client. See Treas.Reg. Sec. 1.121-4(b)(1).

The second rule under Code ' 121(d)(3) deals with use of the house and provides that if one spouse is granted the use of the home under the divorce agreement as described under Code ' 71(b)(2) that transferor spouse's use of the property as a principal residence will be imputed to the transferee spouse. Regulation ' 1.121-4(b)(2). Thus, if the divorce agreement granted your client's ex-spouse the sole use and occupancy of the house for some period of time following the divorce, that amount of time would be imputed to your client. Caution must be exercised in attempting to apply this latter rule in that the “divorce instrument” must expressly address this, and must be in place for the benefit to apply. In other words, if your client's ex-spouse used the marital residence pursuant to a verbal agreement, but prior to the entry or execution of the divorce instrument, that time period would not be imputed to your client in determining whether or not your client met the 2- and 5-year ownership and use requirements. Therefore, exact dates of each event and the status of the “divorce instrument” are critical to identify. Note: In dividing the assets, professional clients, eg, doctors, attorneys, or accountants, should consider the value of certain assets, such as pensions, that would be protected in the event of a malpractice claim.

Amount of Exclusion

The introductory discussion above indicates that each taxpayer is entitled to a $250,000 exclusion, and certain qualifying taxpayers filing a joint return are entitled to a $500,000 exclusion. IRC Sec. 121(b); Treas. Reg. Sec. 1.121-2(a). To qualify for the larger exclusion, a joint return must be filed and either spouse must meet the ownership requirements, both spouses must meet the use requirements, and finally, neither spouse could have sold another residence within the 2 preceding years. Code ' 121(b)(2)(A);Treas. Reg. ' 1.121-2(a)(3)(I). (In general, the ex-clusion will not be available to the extent a residence was sold during the preceding 2-year period. Code ' 121(b)(3).) Affirmative representations should be obtained in the settlement documentation for any critical facts that are not within your client's ability to prove.

Special 'Unforeseen Circumstances' Utilization

If a taxpayer has not met the ownership or use test of using and owning the home for 2 of the prior 5 years, or your client has excluded gain on the sale of a former home within 2 years, generally he or she will not be able to take advantage of the exclusion. However, if the sale occurs as a result of “unforeseen circumstances,” the tax law provides that the excludable gain is prorated based on the amount excludable if your client had satisfied all three eligibility requirements. Code ' 121(c)(2)(B). The regulations provide that divorce or legal separation under a decree of divorce for separate maintenance, is characterized as an “unforeseen circumstance.” Treasury Regulation ' 1.121-3(e)(2). The proration works in accordance with the following formula: Lesser of [the number of days of ownership or use; or the number of days between the dates of the sale of a previous or current residence] divided by 730 days multiplied by $250,000 [or $500,000 if applicable]. See Code ' 121(c)(1)(A) & (B); Treasury Regulation ' 1.121-3(g).

Income Tax Return Filing Status

In the context of divorce, even if the $500,000 exclusion may be available through the filing of a joint return, careful consideration should be given to whether or not a joint income tax return should be filed as this creates the potential for joint liability in the event an audit raises an additional assessment or penalty or interest charge. Further, filing a joint return for yet another year, creates another year that the client and the ex-spouse may have to cooperate in the context of an audit. In many cases, it is preferable to file “married filing separately” until such time as the divorce is complete, after which time separate individual income tax returns are filed. Great care should be exercised in making the determination as to whether or not a joint return should be filed. If the joint return appears necessary in order to qualify for a larger home sale exclusion, consideration should be given to quantifying the actual benefit and determining whether that amount warrants the additional risk and need for future involvement and cooperation between ex-spouses in the event of an audit. If the parties file a joint return, your client may elect to limit his/her liability for any deficiency with respect to the joint return to that portion of the deficiency attributable to the erroneous items allocable to your client. Code ' 6015(c).

In general, both taxpayers signing a joint income tax return are liable for any penalties, interest and additional tax assessed on audit. The 1998 IRS Reform Act added a relief of liability provision under Code ' 6015(c) for qualifying divorced and separated spouses who file joint returns. It allows a spouse to elect to limit liability for any deficiency arising with respect to a joint return to that portion of the deficiency attributable to erroneous items allocable to that spouse. IRS ' 6015(c)(1); Treasury Regulation ' 1.6015-3(a)and(d). Note that this provision only applies to deficiencies in tax not with respect to any underpayment of tax due on the reported tax return. Therefore, if you decide to file a joint return, your client should assure that the entire tax is actually paid and that the liability for any payment (or allocation of any refund to be received) is determined to avoid future disputes.

Further, it is strongly recommended that if a joint return is to be filed, all detailed supporting schedules be maintained by both spouses in the event of a future audit that involves a ' 6015 issue. It might even be advisable as part of the property settlement agreement to attach the worksheets for the joint return as an exhibit and indicate on these worksheets which spouse is responsible for which items.

Ownership in Trust

For many high net-worth clients, the use of trusts in the ownership, or partial ownership, of their home is common. For older clients, the use of revocable living trusts to own real estate and other assets is common. These trusts permit the avoidance of probate, management of assets in disability, etc. Most revocable living trusts are characterized as “grantor trusts” (ie, your client as grantor is taxed on the income of the trust as if the trust does not exist). A house owned by such a trust should also qualify for the home sale exclusion. Treas. Reg. Sec. 1.121-1(c)(3). For larger estates seeking to minimize estate tax, and even in more modest estates when asset protection is a concern, a qualified personal residence trust might be used to own part or all of the house for purposes of transferring title to designated heirs, typically children of the couple. A qualified personal residence trust (QPRT) is a grantor trust and some portion or all of the house might qualify for the home sale exclusion, even though it is owned by such a trust.

The use of trusts, however, raises a host of issues that need to be expressly addressed. For example, if the trust is a non-grantor irrevocable trust, the IRS view is that a house held by such a trust will not be able to qualify for the home sale exclusion. See PLR 200104005 and 200018021. Thus, a determination as to whether the trust is revocable or not, and whether the trust is a grantor trust or not, is key. However, these issues are beyond the scope of this article.