William Byrnes' Tax, Wealth, and Risk Intelligence

In 2009, F. Hale Stewart, JD. LL.M. graduated magna cum laude from Thomas Jefferson School of Law’s LLM Program.  He is the author of three books: U.S. Captive Insurance Law, Captive Insurance in Plain English and The Lifetime Income Security Solution.  He also provides commentary to the Tax Analysts News Service, as well as economic analysis to TLRAnalytics and the Bonddad Blog.  He is also an investment adviser with Thompson Creek Wealth Advisors and contributor to the Income Seeker section of Thestreet.com.

The determination of gift tax liability rests on whether the donor has “so parted with dominion and control of the property as to leave him, “no power to change its disposition, whether for his own benefit or for the benefit of another, the gift is complete.” (Treas. Reg. §20.2511.2(b)).  The mosts obvious example occurs when the donor simply gives money to an individual or organization.  For example, the donor writes a check (or, as is more common now, makes a debit card transfer) to a charity.  Once the money leaves his account, the gift is complete.

Things can get a bit dicier when it comes to using trusts.  A revokable trust results in an incomplete gift because the trustor can simply terminate the trust, reverting the trust property back to his control.  But an irrevocable trust doesn’t necessarily result in a completed gift.  Consider the following facts:

1. Can the trustor change the trustee?  If so, it’s possible the trustor could nominate a more aggreeable trustee that the trustor can bend to his will.  This could result in a determination that the donation to the trust was an incomplete gift.
2. Does the trustor retain a power of appointment over the property?  If so, the gift is incomplete, at least to the degree of the power.

As with all things, the devil is in the details.