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Solved: In 2000 June a 75 year old widow creates an irrevocable trust


In 2000, June, a 75-year-old widow, creates an irrevocable trust naming her five adult grandchildren as the beneficiaries. The assets transferred in trust consist of marketable securities (worth $800,000) and June’s personal residence (worth $400,000). Bob, June’s younger brother and a practicing attorney, is designated as the trustee. Other provisions of the trust are as follows:

• Bob is given the discretion to distribute the income to the beneficiaries based on their need or add it to corpus. He is also given the power to change trust investments and to terminate the trust.

• The trust is to last for June’s lifetime or, if sooner, until termination by Bob.

• Upon termination of the trust, the principal and any accumulated income are to be distributed to the beneficiaries (June’s grandchildren).

For 2000, June files a Form 709 to report the transfer in trust and pays a gift tax based on value of $1.2 million ($800,000þ$400,000).

After the transfer in trust and up to the time of her death, June continues to occupy the residence. Although she pays no rent, she maintains the property and pays the yearly property taxes. June never discussed the matter of her continued occupancy of the residence with either Bob or the beneficiaries of the trust.

Upon June’s death in 2008, the value of the trust is $2.3 million, broken down as follows: marketable securities and cash ($1.6 million) and residence ($700,000).

Shortly thereafter, Bob sells the residence, liquidates the trust, and distributes the proceeds to the beneficiaries.

What are the estate tax consequences of these transactions to June? Partial list of research aids:

§ 2036.

Guynn v. U.S., 71-1 USTC {12,742, 27 AFTR 2d 71-1653, 437 F.2d 1148 (CA-4, 1971).

Estate of Eleanor T. R. Trotter, 82 TCM 633, T.C.Memo. 2001-250.

Estate of Lorraine C. Disbrow, 91 TCM 794, T.C.Memo. 2006-34.


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