FEBRUARY 18, 2000


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National Notes

White House Budget Proposes 

Some Changes for Gift/Estate Taxation

President Bill Clinton’s budget includes several proposals pertaining to gift and estate taxation. Some of these proposals are not new, such as those to eliminate qualified personal residence trusts (QPRTs) and to eliminate non-business valuation discounts. Both of these proposals and others were included in the President’s budget last year but were not enacted.

But the new budget also proposes a few new changes. For instance, the requirements for annual exclusion gifts would be modified so that Crummey powers would no longer be necessary for annual exclusion gifts that are transfers in trust.

Under §2503(b), a donor can make gifts of "present interests" of up to $10,000 per donee per year without paying gift taxes on those transfers. These are known as "annual exclusion gifts." However, transfers in trust are generally not considered transfers of present interests to the trust’s beneficiaries. Crummey v. Commissioner, 397 F.2d 82 (9th Cir. 1968) offered a way to make annual exclusion gifts with transfers in trust. If the trust instrument grants the beneficiary power to withdraw the transferred amount for a limited period (a "Crummey power"), the transfer would be considered a gift of a present interest.

As proposed in the President’s budget, the new rules would modify the annual exclusion rules to conform to the generation-skipping transfer tax rules. So, the gift tax annual exclusion would not apply to any transfer to a trust for the benefit of an individual unless

  1. During the life of such individual, no portion of the corpus or income of the trust may be distributed to (or for the benefit of) any person other than such individual, and
  2. The assets of such trust will be includible in the gross estate of such individual if the trust does not terminate before the individual dies.
This would allow gifts in trust to qualify for the annual exclusion without the use of Crummey powers, but a separate trust would be required for each beneficiary.

To view the Department of the Treasury’s "General Explanation of the Administration’s Fiscal Year 2001 Revenue Proposals" ("2000 Greenbook"), download it from www.treas.gov/taxpolicy, where you can find it in either .pdf or .doc format.
 

Source: "2000 Greenbook"