For the prior history of the court case United States v. Grant, please see our article here.
After beating the IRS, Arline Grant became careless and sloppy. In 2011, she ordered the foreign trustees to make periodic cash transfers to her totaling more than $500,000. These transfers were made to various accounts in her children’s names that she controlled, as well as to an account in her name in Bermuda. In addition, the trusts now provided for mandatory quarterly distributions to her. The IRS discovered the transfers and brought Ms. Grant before a new federal judge who held her in contempt for violation the repatriation order that was issued in 2008 and was still in effect. (Remember, in 2008 the federal court ordered Arline to repatriate trust funds and pay the proceeds to the IRS, but then refused to hold her in contempt for failing to do so because the court determined that she tried to comply but had no control over the trustees.)
Ms. Grant admitted to receipt of the funds, control over the various accounts and control over the trusts. The court ordered her to turn over the balance of the money she received (approximately $200,000; she must have spent more than $300,000 in the interim) to the IRS, as well as all proceeds she will receive in the future from the trusts, including the mandatory quarterly distributions. The court also ordered Ms. Grant to issue specific quarterly distribution instructions to the trustees but not to tell the trustees that those instructions are being issued pursuant to court order. (This “gag order” is most likely futile, since the court’s order is a public document available to anyone via the internet, including the trustees.)
Superficial commentators may claim that in the end the Grant trusts failed because the IRS got some of Ms. Grant’s money. A more accurate analysis is that the trusts did not fail; they remained intact but Arline Grant sabotaged them by becoming complacent and sloppy. The trustees could have, in their own absolute discretion, distributed funds to Arline’s children, who were secondary beneficiaries of the trusts (in 2008, the trustees refused to comply with the court’s order to repatriate trust funds to Arline because that would violate their obligations to the secondary beneficiaries). The children were not defendants in the IRS proceeding against Ms. Grant. They would have been free to use those funds for whatever purpose they wanted, including the support of their aged mother. This would not have violated the repatriation order issued against Ms. Grant and there would have been no contempt. The trusts worked fine; Arline Grant failed by forgetting how the trusts were supposed to work and by shortcutting the process.