Crummey GST tax trap.Under Sec. 2503(b), annual gifts of present interests up to $10,000 (indexed for inflation) per donee The recipient of a gift. An individual to whom a power of appointment is conveyed. donee n. a person or entity receiving an outright gift or donation. DONEE. are exempt from the gift tax (the annual exclusion Annual exclusion A tax rule allowing the deduction of certain income from taxation. ). Generally, a transfer in trust is not considered a transfer of a present interest to a trust's beneficiary beneficiary Person or entity (e.g., a charity or estate) that receives a benefit from something (e.g., a trust, life-insurance policy, or contract). A primary beneficiary receives proceeds from a trust or insurance policy before any other. . However, in Crummey, 397 F2d 82 (9th Cir. 1968), a transfer in trust was considered a transfer of a present interest, because the trust instrument permitted the beneficiary to withdraw the transferred amount for a limited period of time (often 30 days or less). Thus, so-called "Crummey powers" are often used to allow a transfer of a $10,000 gift to a trust to qualify for the annual exclusion. In Crummey, the withdrawal power's holder was the trust's ultimate beneficiary. In more recent cases, such as Estate of Cristofani, 97 TC 74 (1991), and Estate of Kohlsaat, TC Memo 1997-212, the trust agreements were drafted to give withdrawal rights to individuals who did not have substantial economic interests in the trust. Typically, by pre-arrangement or understanding, none of these withdrawal rights will be exercised. (See Tax Clinic, "Annual Exclusions Allowed for Contingent Trust Beneficiaries," TTA TTA Telecommunications Technology Association (Korea) TTA Teacher Training Agency (UK) TTA Triangle Transit Authority (Raleigh/Chapel Hill/Durham, North Carolina, USA) , September 1997, p. 544.) GST GST abbr. Greenwich sidereal time GST (in Australia, New Zealand, and Canada) Goods and Services Tax Tax Annual Exclusion An annual exclusion is also available for the generation-skipping transfer (GST) tax. However, under Sec. 2642(c), the GST tax annual exclusion does not apply to any transfer to a trust for an individual's benefit unless: * During that individual's life, no portion of the trust's corpus or income may be distributed to (or for the benefit of) any other person; and * If the trust terminates before the individual dies, the trust's assets will be includible in his gross estate. Pres. Clinton's FY 2001 Budget Proposal Reasons for change. The granting of a withdrawal right to a person who does not have a primary interest in a trust to obtain the use of an additional exclusion is an unreasonable expansion of the annual exclusion and the Crummey decision. Thus, the Cristofani and Kohlsaat decisions should be overruled. In addition, the mechanics of issuing withdrawal notices under Crummey are burdensome. Finally, the differing requirements for an annual exclusion under the gift tax and the GST tax provide a trap for the unwary. This area would be simplified if the gift tax rules and the GST rules were conformed. Proposal. The gift tax annual exclusion rule should be conformed to the GST tax rule. The gift tax annual exclusion would not apply to any transfer to a trust for an individual's benefit unless: * During that individual's life, no portion of the trust's corpus or income may be distributed to (or for the benefit of) any other person; and * If the trust terminates before the individual dies, the trust's assets will be includible in his gross estate. No withdrawal right or notice to the beneficiary would be necessary for a transfer to such a trust to qualify for the annual exclusion. The proposal would be effective for transfers to trusts after 2000; a grandfather rule would apply to trusts in existence on the date of enactment. The grandfather rule would maintain existing law (allowing the use of Crummey powers to create a present interest), but would disallow To exclude; reject; deny the force or validity of. The term disallow is applied to such things as an insurance company's refusal to pay a claim. any annual exclusion attributable to a withdrawal right if a person is not-a primary, noncontingent beneficiary of the trust. The Secretary may prescribe pre·scribe v. To give directions, either orally or in writing, for the preparation and administration of a remedy to be used in the treatment of a disease. regulations necessary to carry out the purposes of this proposal, including rules for determining whether an annual exclusion is attributable to a withdrawal right. FROM STUART Stuart, British royal family Stuart or Stewart, royal family that ruled Scotland and England. The Stuart lineage began in a family of hereditary stewards of Scotland, the earliest of whom was Walter (d. R. JOSEPHS, CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. , TAX ASSISTANCE PRACTICE (TAP), SAN DIEGO San Diego (săn dēā`gō), city (1990 pop. 1,110,549), seat of San Diego co., S Calif., on San Diego Bay; inc. 1850. San Diego includes the unincorporated communities of La Jolla and Spring Valley. Coronado is across the bay. , CA |
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