The IRS has issued corrections to final regulations on the definition of a qualified interest for grantor retained annuity trusts (GRATs) and grantor retained unitrusts (GRUTs). Also, the correction clarifies the rules governing the grace period for payment of a trust's annuity amount. Long-standing rules have dictated that trustees could pay the annuity amount after the close of the taxable year as long as the payment was made no later than the deadline for the filing of the trust's Federal income tax return for that taxable year (without extensions). 

Under the original final regulations (published in T.D. 8899, §25.2702-3(b)(4)), this grace period would be available only if the annuity amount is "payable based on the taxable year of the trust." This language would have denied grace periods to all GRATs except those whose annuity payments are due at the end of the taxable year.

The new regulations correct this problem by stating that "an annuity amount payable based on the anniversary date of the creation of the trust must be paid no later than 105 days after the anniversary date." This will allow trustees of GRATs some flexibility. 

The corrected final regulations are effective as of September 5, 2000.