Chapter 11 liquidating trust
The appointment is generally done in the plan, confirmation order and trust agreement. 94-45, the plan and disclosure statement must explain how the bankruptcy estate will treat the transfer of its assets to the trust for federal income tax purposes.
Treasury Regulation 301.7701-4(d), 26 CFR § 301.7701-4(d) (“Treas. 301.7701-4(d)”) provides for establishment of a liquidating trust as a grantor trust, such that it will be a pass-through entity for tax purposes, without an entity-level tax. The plan, disclosure statement, and trust agreement must provide that the beneficiaries of the trust will be treated as the grantors and deemed owners of the trust and that the trust instrument (or plan if a separate trust agreement does not exist) requires the trustee to file returns for the trust as a grantor trust pursuant to section 1.671-4(a) of the Income Tax Regulations, 26 CFR § 1.671-4(a).For questions concerning insolvency law, including US bankruptcy law and insurance company insolvency law, please contact Ashley Stitzer at (302) 429-4242 or [email protected] liquidating trust can also be a useful tool outside of bankruptcy.Business organizations that are dissolving may wish to use a liquidating trust in order to delegate the administration of the winding up process.While the managers of a business may be well-suited for the tasks of running a going concern, their talents may not be optimal for the winding down process, which consists of marshaling and selling assets, making distributions to and communicating with creditors and estimating reserves.