Dan Evans <dan[at]evans-legal.com> wrote:

- quote -

Depends on what the "right" language means. The test is
whether the gift is of a present or a future interest.
Sometimes that issue can get a little esoteric. For
example, while a gift to a trust that the beneficiary can't
get access to right away is a gift of a future interest, a
gift into a limited partnership in which the limited partner
really has no right to do anything other than sell his
interest, is generally considered a present interest.

- quote -

If the withdrawal right is "meaningful" my guess is that it
will be upheld even if the formalities are not observed.
The formalities are there more as a safe harbor, making sure
there's no question. But I doubt that failing to follow
formalities would be, by itself, fatal.

- quote -

I agree. I at not aware of any specific ruling on this
issue, however.

Stu

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Stuart O. Bronstein" <spamtrap[at]lexregia.com> wrote:
- quote -

I think you misunderstood what I wrote.

I agree that gifts in trust generally don't qualify for the
annual exclusion, and that a crummey withdrawal right is one
way for a gift to a trust to qualify for the annual gift tax
exclusion.

The statement above suggested that, even if the trust has
the right language in it, the gift does not qualify unless
the trustee sends a written notice every year, and I'm not
sure that's true.

In Rev. Rul. 81-7, 1981-1 C.B. 474, the IRS ruled that a
demand right did not qualify for the annual exclusion if the
beneficiary never knew about it. "In failing to communicate
the existence of the demand right and in narrowly
restricting the time for its exercise, G did not give A a
reasonable opportunity to learn of and to exercise the
demand right before it lapsed. G's conduct made the demand
right illusory and effectively deprived A of the power."

But suppose the beneficiary knows of the existence of the
trust, knows of the demand power, and knows that gifts are
made to the trust each year around the same time, but the
trustee fails to give formal written notice?

I would agree that the annual exclusion would probably fail
under the circumstances of Rev. Rul. 81-7, but I'm not sure
that failure to give formal written notice for every gift
every year is necessarily fatal.

If you know of some court rulings on the issue, I'd like to
see them.

*Dan Evans
*"One is not superior merely because one
*sees the world as odious."
*Francios Rene de Chateaubriand (1768-1848).

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Dan Evans wrote:
- quote -

Yes, for my clients in that position, I say, "Send your
Crummey letters" (to himself as guardian of his minor
children) and we move on. For grown children, I'd encourage
him to get signatures waiving rights to prior withdrawals,
and hope it stood up in case of audit.

Phoebe

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Dan Evans <dan[at]evans-legal.com> wrote:
- quote -

Every court case that I've ever seen has agreed. It's based
on the clear provision of section 2503(b) that says the
annual exclusion does not apply to "gifts of future
interests in property."

That was the basis and sole reason for the Crummey ruling.
If the beneficiary has the right to withdraw a contribution
for a time, it's considered a present interest even if he
later loses the right to do that.

If any old gift in trust qualified for the annual exclusion,
there's be no need for Crummey trusts.

Stu

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"Phoebe Roberts, EA" <Phoebe[at]cottagesoft.com> wrote:
- quote -

That is certainly the IRS position, but I don't know if any
court has yet agreed.

*Dan Evans
*"One is not superior merely because one
*sees the world as odious."
*Francios Rene de Chateaubriand (1768-1848).

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jplasater[at]NOSPAMjuno.com wrote:

- quote -

And the grown children consented to having money that was
theirs, free and clear, tied up in irrevocable trusts,
right?

- quote -

I believe that causes the gifts to not qualify as present
interests, and not qualify for the annual $11,000 exclusion.

- quote -

File his gift tax returns and move on. You really need
someone familiar with the terms of the trust to give him
advice, though.

Phoebe

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I have a friend who started giving money to his children at
an early age. He simply set up a brokerage account for
each of them and started putting the amount allowed (gifting
limit) every year. The kids are now in their 30's. Three
years ago, the money was transferred into IT's for each. My
friend continued to contribute the gifting limits into the
trusts over the past 2 years but failed to send his kids the
Crummy letters. I am almost certain that he was advised by
the attorney who set up the IT's that he should send the
letters if he made more contributions.

What is his situation in this predicament? What can he do
about it?

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