Question

This year Colleen transferred $100,000 to an irrevocable trust that pays equal shares of income annually to three cousins (or their estates) for the next eight years. At that time, the trust is terminated and the corpus of the trust reverts to Colleen. Required: A-1:  Determine the amount, if any, of the current gifts and the taxable gifts. If necessary, you may assume the relevant interest rate is 6 percent and Colleen is unmarried. A-2: What is your answer if Colleen is married and she elects to gift-split with her spouse? (Round discount factors to 3 decimal places and other intermediate calculations and final answers to the nearest whole dollar amount).  

A-1: Amount of current gift?

Amount of taxable gift?  

A-2: Amount of Colleen's current gift?

Amount of Collen's taxable gift?

Answer 1

ANSWER:-

The $100,000 transfer to the.trust is a current gift only to the extent of the income interest (the corpus returns. Colleen). In other words, Colleen has not transferred the reversion interest because it will return to her.

The reversion interest is valued as follows: Reversion interest $100000(1+.06)8 = $100,000/ (1.594)= $62740 (rounded)  The income interest is $100,000 - $62,740 = $37260 (rounded).

Because the income interest is paid currently and to three donees, the gift will qualify for three $13,000 (2010) annual exclusions.

In other words, Colleen made three gifts totaling $37,260 or three gifts of $12420 each.

Hence Colleen did not make any taxable gills with this transfer because the annual exclusions completely offset each gift.

If Colleen is married and elects to gift split, then the current gift $39,260 would be evenly split between the spouses.