Based upon the transfer in trust the grantor claimed multiple
annual exclusions. These exclusions included those for the remote contingent beneficiary's proportionate share of the trust.
The IRS stated in Action on Decision (AOD) 1996-10, however, that it will challenge
annual exclusions for gifts to trusts with Crummey powers where the substance of the withdrawal rights do not conform with their form.
The court explained that despite following this general rule, the IRS has stated that it will challenge
annual exclusions if there was a prearranged understanding that the withdrawal right will not be exercised or that doing so would result in adverse consequences to its holder (e.g., losing other rights or gifts under the trust instrument or other beneficial arrangement).
(151) The taxpayer then claimed
annual exclusions based on the withdrawal rights.
If the parents place the business into a FLP, they can give the children $16,283,076 worth of limited partnership interests, gift tax free, in the first year, assuming a 35 percent discount ($10.5 million gift tax applicable exclusions plus $84,000 of
annual exclusions).
Form 709 is filed separately by each spouse and allows them to treat half of their spouse's gifts of separate property as their own to maximize the use of
annual exclusions (S13,000 per donee for a gill of a present interest).
Tax liability was calculated after making adjustments for
annual exclusions, the marital deduction, and charitable deductions.
Planning Point: The split-gift provision enables a spouse who owns most of the property to take advantage of the other spouse's
annual exclusions (see Q 7596) and unified credit (see Q 7599).
Thus, married couples effectively have
annual exclusions up to $26,000 per recipient to an unlimited number of recipients this year.
Where the value of a policy exceeds the
annual exclusion, the insurance company may consent to split it into two or more smaller policies; by giving the donee one policy in each of several succeeding years, the entire value can fall within the
annual exclusions.
And what's more, he and his wife Mary could combine their
annual exclusions to double the amount to $480,000 to their family, gift-tax free.
Their estate plan already takes advantage of the gift and estate tax exemptions and
annual exclusions, but the Diedrichs would like to transfer more to their heirs without incurring gift taxes.
