On October 9, 2026, the IRS released PLR 202641001, providing favorable guidance on the division of a “grandfathered” GST exempt trust. A grandfathered GST exempt trust is most commonly a trust that was irrevocable before September 25, 1985. In the PLR, the trustee sought to divide the trust (which became irrevocable before September 25, 1985, and did not receive actual or constructive additions after that date) into three separate trusts of equal value for the primary benefit of the settlor’s grandchild, great-grandchildren, and each great-grandchild’s issue. The trustee represented to IRS that the beneficiaries had differing investment objectives and distribution priorities, and the division would be accomplished through a pro rata allocation of trust assets with each resulting trust retaining substantially identical substantive terms. The IRS concluded that the division would not jeopardize the trust’s grandfathered GST exempt status because it “will not result in a shift of any beneficial interest in Trust to any beneficiary who occupies a generation lower than the person holding the beneficial interest” or extend the vesting period of any interest.

The ruling is also noteworthy because the IRS found no adverse federal income or gift tax consequences arising from the trust division. Specifically, the division would not be treated as a sale, exchange, or other disposition of property, and therefore would not trigger (i) gain recognition under §1001 or (ii) income, gain, or loss recognition under §61, §661, or §662. The IRS further concluded that the beneficiaries’ interests remained unchanged, preventing any taxable gift under §2501. In addition, the resulting trusts will succeed to the original trust’s basis and holding periods under §1223 and §1223(2) and will be treated as separate trusts for federal income tax purposes under §643. The ruling, and other rulings on the same issue, such as PLR 202632007, serve as a helpful reminder that, when properly structured under applicable state law and implemented on a pro rata basis, trust divisions may provide administrative flexibility without causing the loss of valuable GST exempt status.

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