Section 11.19 Federal Estate Taxes

• Library: Trusts and Powers 2013 Supp

B. (§11.19) Federal Estate Taxes

A transfer to a minor’s custodianship that qualifies for the annual gift tax exclusion normally will not be included in the donor’s estate. Gifts of insurance policies to a minor’s custodianship are an exception; though potentially worth little when given, if death occurs within three years of transfer, the proceeds are includable in the donor’s taxable estate. I.R.C. § 2035(b).

A transfer to a minor’s custodianship, regardless of when made, will be included in the donor’s estate if the donor was the custodian or acting as successor custodian at death. This occurs by reason of I.R.C. §§ 2036
and 2038. A nonparent donor is considered to have retained the right as custodian to determine the extent to which the minor may enjoy the income from the property before reaching age 21. A parent donor is considered to have retained the right of enjoyment of the income from the custodial property through the potential unlawful exercise of the custodian’s authority to use the custodial...