Estate of Cristofani v. Commissioner - 97 T.C. 74 (1991)

Rule:

An unrestricted right to the immediate use, possession, or enjoyment of property or the income from property (such as a life estate or term certain) is a present interest in property. An exclusion is allowable with respect to a gift of such an interest (but not in excess of the value of the interest). Sec. 25.2503-3(b), Gift Tax Regs. 

Facts:

Maria Cristofani created an irrevocable inter vivos trust to which she contributed property during each of the two years preceding her death. The value of each contribution was $ 70,000. The primary beneficiaries of the trust were her two children. Her five minor grandchildren had contingent remainder interests in the trust. In addition, the trust provided that Maria Cristofani two children and five grandchildren each had the unrestricted right to withdraw an amount not to exceed the amount of annual gift tax exclusion under sec. 2503(b) ($ 10,000), within 15 days following each of Maria Cristofani’s contributions to the trust. The Commissioner of Internal Revenue (IRS) determined that Maria Cristofani was not entitled to gift tax exclusions for transfers benefiting her grandchildren on the grounds that they did not receive a "present interest" in property as required by sec. 2503(b). The estate sought review of the IRS' decision.

Issue:

Did the transfers of property to a trust, where the beneficiaries possessed the right to withdraw an amount not in excess of the section 2503(b) exclusion within 15 days of such transfers, constitute gifts of a present interest in property within the meaning of section 2503(b)?

Answer:

Yes

Conclusion:

The court found that the estate was entitled to the exclusions for decedent's grandchildren because their right to withdraw an amount not to exceed the § 2503(b) exclusion represented a present interest for the purposes of § 2503.