Andrea transferred $500,000 of stock to a trust, with income to be paid to her niece for 20 years (value $125,000) and the remainder to be paid to her nephew (value $375,000). Andrea named a bank as independent trustee but retained the power to determine how much income, if any, will be paid in any particular year. What is the amount of the taxable gift, if any? Explain your answer.
What will be an ideal response?
The taxable gift is $375,000.
Andrea has retained sufficient control that the transfer of the income interest to her niece is incomplete; the gift to the nephew will be complete as income is actually distributed to him. However, the portion of the transfer representing the remainder interest is a complete gift because Andrea can no longer control this portion of the property. Since it is a future interest, this value will not qualify for an annual exclusion.
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