Estate Planning Legal Topics Tax Law

The (Incomplete) Gift That Keeps on Giving

The estate tax is repealed for estates of decedents dying in 2010, but the gift tax remains in effect for lifetime gifts in excess of $1 million. Under current law, any transfer in trust is treated as a transfer of property by gift, unless the trust is a grantor trust for income tax purposes—including transfers that are incomplete gifts for gift tax purposes. See IRC §2511(c). 

Some practitioners fear that §2511(c) could be construed as treating an entire transfer to a charitable remainder trust as a gift—including the annuity or unitrust interest retained by the donor. This is an absurd result from a tax perspective, and practitioners expect the issue to be resolved soon. But until it’s resolved, steer clear of charitable remainder trusts in which the donor retains the annuity or unitrust interest.

For more on charitable remainder trusts, see Drafting California Irrevocable Trusts, chap 18 (3d ed Cal CEB 1997).

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