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Estate and Gift Tax

Trust’s Asset Transfer to Third-Party Bank Account was Gift Made by Beneficiary

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

In Chief Counsel Advice, the IRS has ruled that a trust’s transfer of assets to a third-party bank account at the direction of the trust’s beneficiary was a transfer to the beneficiary and then a gift by the beneficiary to the owner of the bank account.

Background.

Reg §25.2511-2(b) provides that as to any property of which a donor has so parted with dominion and control as to leave in the donor no power to change its disposition, whether for the donor’s own benefit or the benefit of another, the gift is complete.

Code Sec. 2518(a) provides that if a person makes a qualified disclaimer with respect to any interest in property, the gift tax applies with respect to such interest as if the interest had never been transferred to such person.

Code Sec. 2518(b) provides that the term “qualified disclaimer” means an irrevocable and unqualified refusal by a person to accept an interest in property but only if, among things, as a result of such refusal, the interest passes without any direction on the part of the person making the disclaimer and passes to a person other than the person making the disclaimer.

Facts.

Upon the dissolution of a trust, the trust’s sole beneficiary (Beneficiary) directed the trustee to transfer the trust assets to a bank account (Bank Account) over which Beneficiary had no ownership or control.

Issues.

(1) Is Beneficiary treated as having received the trust assets and then gifting them to the owner of Bank Account?

(2) Alternatively, whether the transfer of the trust assets to an account over which Beneficiary had no ownership or control is the result of a Code Sec. 2518(b) qualified disclaimer, so that the assets are treated as if they had never been transferred to Beneficiary and Beneficiary is not treated as making a gift.

Advice.

(1) The trust distributed the trust assets to, or for the benefit of, Beneficiary as the primary and sole beneficiary. The transfer of the trust’s assets to Bank Account was completed at Beneficiary’s request and direction. The fact that Beneficiary had no signature authority or ownership interest in Bank Account indicates Beneficiary had released dominion and control over the trust’s assets and that constitutes a completed gift for gift tax purposes.

(2) Alternatively, Chief Counsel advised, the transfer of the trust assets to an account in which Beneficiary had no ownership interest was not a qualified disclaimer because Beneficiary directed the transfer to Bank Account. Therefore, the trust’s assets are treated as if they had been transferred to Beneficiary and then transferred by gift to the owner of Bank Account.

To continue your research on when a gift in trust is completed for gift tax purposes, see FTC 2d/FIN ¶Q-3004.

 

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