2023 Indiana Code › Title 30. Trusts and Fiduciaries › Article 4. Trust Code › Chapter 3. Rules Governing the Rights, Powers, Duties, Liabilities, and Remedies of the Parties to a Trust › 30-4-3-38. Grantor Trust; Reimbursement to Deemed Owner

Sec. 38. (a) This section does not apply to a trust if the application of this section disqualifies the trust for, or reduces the amount of, a marital or charitable deduction available to any person for state or federal:
(1) income;
(2) gift; or
(3) estate;
tax purposes.
(b) As used in this section, "deemed owner" means the settlor or another person who is treated as the owner of the trust for federal income tax purposes under 26 U.S.C. 671 through 26 U.S.C. 679.
(c) As used in this section, "grantor trust" means a trust in which part or all of its income is treated as taxable to a deemed owner for federal tax purposes under 26 U.S.C. 671.
(d) As used in this section, "related or subordinate party" means a nonadverse party who is:
(1) the deemed owner's spouse, if living with the deemed owner; or
(2) any of the following:
(A) The deemed owner's:
(i) father;
(ii) mother;
(iii) issue; or
(iv) brother or sister.
(B) A corporation or an employee of a corporation in which the deemed owner's and the trust's stockholdings are significant from the viewpoint of voting control.
(C) A subordinate employee of a corporation in which the deemed owner is the executive.
(e) This subsection applies only to the part of a trust that is taxable to the deemed owner if only part of the trust is a grantor trust. Unless the terms of the trust expressly provide otherwise:
(1) the trustee of a grantor trust who is not the deemed owner and who is not a related or subordinate party; or
(2) any other trustee of a grantor trust acting at the direction of or with the written consent of a trust director who is not the deemed owner and not a related or subordinate party with respect to the trust's deemed owner;
may reimburse the deemed owner for any amount of the deemed owner's personal federal, state, county, city, local, foreign, or other income tax liability that is attributable to the inclusion of the trust's income, capital gains, deductions, and credits in the calculation of the deemed owner's taxable income.
(f) The trustee may pay the amount under subsection (e) to the deemed owner directly or to an appropriate taxing authority on behalf of the deemed owner.
(g) A person who is authorized to reimburse a trust's deemed owner for income taxes under subsection (e) may not use:
(1) an insurance policy;
(2) the cash value of an insurance policy; or
(3) the proceeds of a loan secured by an interest in an insurance policy;
that the trust holds on the deemed owner's life to reimburse the deemed owner or to pay an appropriate taxing authority on behalf of the deemed owner.
(h) The deemed owner may not be treated as a beneficiary of the trust for purposes of section 2(b) of this chapter or any other Indiana law:
(1) because of the trustee's power to make payments to, or on behalf of, the deemed owner; or
(2) because the trustee decides to exercise power in favor of the deemed owner.
(i) If a person is the deemed owner of only part of a trust for income tax purposes, the reimbursement or payment of income taxes under this section may be made from that part of the trust.
As added by P.L.38-2023, SEC.17.