bearing note — known as a “sale to a defective grantor trust” — the sale does not trigger capital gains taxes and the grantor is not taxable on the trust’s interest payments to him. Such transactions can pass significant potential appreciation to the grantor’s heirs free of gift tax and generation-skipping transfer tax. To eliminate this planning technique, the proposal provides that if the deemed income tax owner of a trust (this could be the grantor or a beneficiary) “engages in a transaction with that trust that constitutes a sale, exchange, or comparable transaction,” then the portion of the trust attributable to this transaction (along with income or appreciation on the property): 1) would be includible in the deemed owner’s estate; 2) would be subject to gift tax if the deemed owner ceased to own the trust during life; and 3) would be treated as a gift from the deemed owner if, during the owner’s life, distributions were made from the trust to another person. Any gift or estate tax triggered by the proposal would be payable from the trust. The proposal would not apply to trusts that are already includible in the grantor’s estate, “rabbi trusts” (non-qualified deferred compensation plans that are subject to claims of the grantor’s creditors) or trusts that are grantor trusts solely because the trust's income can be used to pay insurance premiums on the life of the grantor or the grantor’s spouse (i.e., insurance trusts that are designed to remove insurance proceeds from an insured’s estate). Comments. Last year was the first appearance of this proposal to unify income and transfer tax rules for grantor trusts. It was so broadly worded that it would have caught existing trusts, such as insurance trusts. This new iteration simply targets sales to defective grantor trusts. e Extend the lien on estate tax deferrals. The tax law allows the estate tax on certain closely held business interests to be deferred for up to 15+ years from the decedent’s death. Another p