Non Adverse Party Law and Legal Definition

The definition of adverse party can be important in deciding how a trust will be treated for income tax purposes. If certain prohibited powers are possessed by someone who is not determined to be an adverse party, the trust will be treated as a grantor trust by the IRS Therefore, the trust income will be taxable to the grantor. In the context of the grantor trust provisions of the Internal Revenue Code, the term "nonadverse party" refers to any person who is not an adverse party. The term "adverse party" is defined as any person holding a substantial beneficial interest in the trust that would be adversely affected by the exercise or nonexercise of the power which he holds over the trust. Someone with a general power of appointment over the trust property will be found to have a beneficial interest in the trust.