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Keywords

trust

Related Cases

Estate of Kohlsaat v. C.I.R., T.C. Memo. 1997-212, 1997 WL 230834, 73 T.C.M. (CCH) 2732, T.C.M. (RIA) 97,212, 1997 RIA TC Memo 97,212

Facts

Lieselotte Kohlsaat formed an irrevocable trust and transferred a commercial building valued at $155,000 to it shortly before her death. The trust designated her two adult children as cotrustees and primary beneficiaries, with 16 contingent beneficiaries, including her grandchildren and sons-in-law. Each beneficiary had the right to demand distributions from the trust up to $10,000 annually, but none exercised this right after the transfer.

On March 27, 1990, decedent formed the Lieselotte Kohlsaat Family Trust as an irrevocable trust (the trust) and transferred to the trust a commercial building owned by decedent and managed for many years by various Kohlsaat family members.

Issue

Whether the decedent's inter vivos transfer of property to an irrevocable trust is eligible under section 2503(b) for the annual gift tax exclusion with respect to each of the 16 contingent beneficiaries of the trust.

Whether, in the computation of petitioner's Federal estate tax, decedent's inter vivos transfer of property to an irrevocable trust is eligible under section 2503(b) for the annual gift tax exclusion with respect to each of 16 contingent beneficiaries of the trust.

Rule

Only gifts of present interests in property qualify for the annual gift tax exclusion under section 2503(b). Interests in property qualify as present interests when they represent the unrestricted right to immediate use, possession, or enjoyment of property or income from property.

Only gifts of present interests in property qualify for the annual gift tax exclusion. Gifts of future interests in property (i.e., interests in property that are limited to commence in use, possession, or enjoyment at some future date) do not qualify for the annual exclusion.

Analysis

The court found that the contingent beneficiaries had unrestricted rights to demand immediate distributions of trust property following the transfer. The absence of any evidence of understandings that would prevent the beneficiaries from exercising their rights led the court to conclude that these rights constituted present interests in property, thus qualifying for the annual gift tax exclusions.

The evidence does not establish that any understandings existed between decedent and the beneficiaries that the contingent beneficiaries would not exercise those rights following a transfer of property to the trust.

Conclusion

The court held that the decedent's transfer of the commercial building to the trust qualified for 16 annual gift tax exclusions under section 2503(b) for the present interests of the 16 contingent beneficiaries.

Decedent's transfer of the commercial building to the trust qualifies for 16 annual gift tax exclusions under section 2503(b) with regard to the present interests of the 16 contingent beneficiaries therein.

Who won?

The Estate of Lieselotte Kohlsaat prevailed because the court determined that the contingent beneficiaries held present interests in the trust, allowing for the annual gift tax exclusions.

The court's reasoning was that the contingent beneficiaries' unrestricted rights to demand immediate distributions of trust property are to be treated as present interests in property.

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