2. Assume that G, age 60, transfers $400,000 to a trust. The income is payable to C,...

2. Assume that G, age 60, transfers $400,000 to a trust. The income is payable to C, age 60, for life and then the remainder is distributable to C’s children. At nearly the same time, C transfers $300,000 of her own assets to a trust. The income from that trust is payable to G for life and the remainder is distributable to G’s children.

a. What are the gift tax consequences to C and G on creating their respective trusts?

b. Is either trust included in G’s gross estate upon his death?

c. Assume further that at G’s death, the trust created by C is valued at $500,000, and at C’s death the trust created by G is valued at $700,000. How much should be included in each estate?

Expert Solution

a) Tax consequences of to C & G on creating their respective trusts.

Answer : This is a clear case of cross transfer since the transfers are so intimately connected to form part of a single transaction and each trasaction constitues consideration for the other by being mutual or otherwise.

In the given scenario, G has trasnferred his assets worth $400000 to a trust. However since the same is payable to C for his remaining life, and being payable to his children afterwards, clearly states the intention of G to transfer income/asset to C without having to attract the tax consequences of gift.

Similarly, nearly the same time, C creates a trust worth $300000, whereas the income from the trust is payable to G for life and remainder being payable to his children, highlghting his intention to transfer income without having to pay in tax on it by way of Gift Tax.

Therefore, it is a clear tax on tax evasion through cross transfer which will fall within the purview of clubbing of income and gift tax shall arise on amount of $300000 being the amount for which actual cross transfer is being done.

b) Yes, G's gross estate will include trust worth $400000, since tax has already been paid on the same. Since, uplifitng the intention behind the transaction, tax has already been levied on amount of cross trasnfer of $300000, the estate shall include the trust.

c) G's estate shall include trust at the current value of $500000 and C's estate shall include trust at current value of $700000 created by G.

ekkarill92 answered 2 years ago

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2. Assume that G, age 60, transfers $400,000 to a trust. The income is payable to C,...

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Expert Solution

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