Estate Of Kohlsaat T.C. Memo

1997-212 (1997)

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Nature of the Case

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Facts

Decedent formed the Lieselotte Kohlsaat Family Trust as an irrevocable trust (the trust) and transferred to the trust a commercial building owned by decedent and managed for many years by various Kohlsaat family members. At the time of decedent's transfer of the building to the trust, the building was valued at $ 155,000. Thereafter, no other transfers were made to the trust. Under provisions of the trust, Beatrice and Peter, decedent's two adult children, were designated as cotrustees and primary beneficiaries of the trust. Beatrice and Peter each received an interest in one-half of the corpus and income of the trust, and each received a special power to appoint the corpus of his or her one-half share of the trust to his or her children or grandchildren. Sixteen contingent remainder beneficiaries were designated. Beatrice's three children and eight grandchildren were designated as contingent remainder beneficiaries in Beatrice's one-half share of the trust, and Peter's spouse and four sons were designated as contingent remainder beneficiaries in Peter's one-half share of the trust. Beatrice and Peter, as well as the 16 contingent beneficiaries, were each given the right -- following each transfer of property to the trust -- to demand from the trust an immediate distribution to them of property in an amount not to exceed the $10,000 annual gift tax exclusion under section 2503(b) that was considered to be available to each beneficiary. Each beneficiary's right to demand a distribution lapsed 30 days after a transfer of property to the trust. The guardian of any minor beneficiary was authorized to exercise the minor beneficiary's right to demand a distribution of property from the trust.

None of the beneficiaries exercised his or her right to demand a distribution from the trust, and none of the beneficiaries requested notification of future transfers of property to the trust. No understandings existed between decedent, the trustees, and the contingent beneficiaries to the effect that the beneficiaries would not exercise their rights to demand distributions from the trust. P treated the interests of the 16 contingent beneficiaries as qualifying for 16 annual gift tax exclusions under section 2503(b) with regard to decedent's 1990 transfer of the commercial building to the trust. D denied the exclusions in that the contingent beneficiaries did not hold present interests in the trust.