Saturday May 4, 2024

Rev. Rul. 80-261

GiftLaw Note: Under Sec. 2503(b) of the Code, a gift in the amount of the annual exclusion is not a taxable gift. However, the gift must be a present interest to the donee.

In this ruling, a demand right is treated as a gift of a present interest. If the donee receives the right to withdraw up to the annual exclusion amount, that is treated as a present interest gift.

Rev. Rul. 80-261, 1980-2 C.B. 279, 1980-39 I.R.B. 9.

Internal Revenue Service Revenue Ruling

PRESENT V. FUTURE INTEREST; RIGHT TO SHARE IN TRUST CORPUS; EXCLUSION

Published: September 29, 1980

SECTION 2503.--TAXABLE GIFTS, 26 CFR 25.2503-3

(a): Future interests in property

Present v. future interest; right to share in trust corpus; exclusion. A gift of a right to demand and receive at least a pro rata portion of trust corpus conveyed to several donees is a gift of a present interest to the extent of each donee's pro rata portion, and the annual exclusion under section 2503 of the Code is allowable.

ISSUE

Is a donor entitled to the annual exclusion, under section 2503(b) of the Internal Revenue Code, for a gift of a portion of trust corpus to a donee if an interest in the corpus was also conveyed by the donor, at the time of the gift, to other persons, under the circumstances described below?

FACTS

In 1976, G, the settlor, established a trust and transferred $13,000 to the trustee. Under the provisions of the trust instrument, A, B, C, D, and E each had the right to receive a total sum of $4,000 of trust corpus by submitting a written demand to the trustee. However, if there was insufficient corpus to satisfy all of the demands, then the corpus was to be distributed on a pro rata basis among those donees demanding corpus. If any donee received an amount greater than the pro rata share of the trust corpus, the donee would be required to immediately reimburse the trustee for the excess amount in the event the trust corpus was insufficient to satisfy demands made by other donees.

LAW AND ANALYSIS

Section 2503(b) of the Code provides an exclusion of the first $3,000 of gifts made to any person by the donor during the calendar year. This exclusion applies to all gifts other than gifts of future interests. The fact that the donee must first make a demand for the corpus does not make the donee's interest a future interest. If a donee is assured of receiving some minimum amount of trust corpus, then the section 2503(b) exclusion for a gift of a present interest is allowable for the amount that the donee will receive with certainty notwithstanding that the donee must first make a demand for the corpus.

In the present situation, since each donee's demand for corpus is assured of being satisfied on a pro rata basis to the extent of $2,600, each gift of corpus is a gift of a present interest in the amount of $2,600.

HOLDING

G is entitled to an annual exclusion for each donee in the amount of $2,600.
Rev. Rul. 80-261, 1980-2 C.B. 279, 1980-39 I.R.B. 9.