Section 60 Gift Tax

• Library: Trust and Estate Legislation 2012

A gift is a transfer of property for less than adequate and full consideration in money or money’s worth. I.R.C. § 2512. It is not necessary that there be donative intent on the part of the transferor. Instead, the application of the tax is based on objective facts and circumstances of the transfer. Treas. Reg. § 25.2511-1(g)(1). On the other hand, the gift tax is only applicable to a beneficial interest in property; a trustee does not make a taxable gift when making a distribution from a trust under which the trustee has no beneficial interest. Id. When the trustee does have a beneficial interest in the trust, as long as the distribution from the trust is made under a “reasonably fixed or ascertainable standard,” there is no taxable gift as the result of the trustee’s exercise of his fiduciary duty. Section 25.2511-1(g)(2).

So how is it possible that gift tax could apply to a decanting? One way it could arise is when a beneficiary consents to the decanting. When a beneficiary consents to a shifting of the beneficiary’s guaranteed interest in a trust, a taxable gift occurs. I.R.C. § 2511; Treas. Reg. § 25.2511-1(h)(6); see also Treas. Reg. § 25.2514-1(b)(2). Note that, even...