Even if the grantor retains a power or right
listed in #1 through #4 above, he/she is not considered the owner if an
adverse party must consent to the grantor’s exercise of control. An
adverse party is a person who has a substantial beneficial interest in the
trust and who would be adversely affected by the exercise or nonexercise
of the grantor’s power. [IRC §672] Trust beneficiaries are generally
adverse parties; however, a beneficiary who has a right to only a portion
of a trust’s income or principal is only an adverse party as to that
portion. A remainder beneficiary is generally not adverse to a power over
income. Income beneficiaries are generally adverse to distributions of
principal only during the term of their interests. See Reg. §1.672(a)-1
for examples. A grantor is also treated as owner of the trust if one of
the powers listed in #1 through #4 above is given to a nonadverse party. A
grantor is considered to have retained any power or interest given to
a spouse for transfers to trust after 3/1/86.
[IRC §672(e)]
