97 T.C. 74, 84–85 (1991)
Maria Cristofani died testate on December 16, 1985, while residing in the State of California.1 Petitioner, the Estate of Maria Cristofani with Frank Cristofani as executor, timely filed the Federal estate tax return on September 16, 1986.2 Respondent determined a deficiency in petitioner's Federal estate tax in the amount of $49,486.3
Decedent had two children, Frank Cristofani and Lillian Dawson, both born on July 9, 1948 and in good health during 1984 and 1985.4 Decedent also had five grandchildren: Anthony Cristofani born July 16, 1975, Loris Cristofani born November 30, 1978, Justin Dawson born December 1, 1972, Daniel Dawson born August 9, 1974, and Luke Dawson born November 14, 1981.5
On June 11, 1984, decedent executed a durable power of attorney naming her two children as her Attorneys in Fact and executed her will.6 On June 12, 1984, decedent executed an irrevocable trust entitled the Maria Cristofani Children's Trust I with Frank Cristofani and Lillian Dawson named as trustees.7
Under the trust, following a contribution, each of the two children and five grandchildren could withdraw an amount not to exceed the section 2503(b) exclusion within 15 days, and the trustee was required to notify the beneficiaries of each contribution.8 Decedent transferred an undivided 33-percent interest in the Spring Street property in Redwood City, California, to the Children's Trust by quitclaim deed on December 17, 1984, and a second such interest recorded on November 27, 1985, each interest valued at $70,000.9
Decedent claimed seven annual exclusions of $10,000 each under section 2503(b) for each year 1984 and 1985 with respect to her two children and five grandchildren but did not report the transfers on Federal gift tax returns.10 There was no agreement or understanding that decedent's grandchildren would not exercise their withdrawal rights, and none of the grandchildren exercised their rights or received distributions during 1984 or 1985.11
Respondent allowed the annual exclusions with respect to decedent's two children but disallowed the exclusions claimed with respect to each of decedent's grandchildren for 1984 and 1985, increasing petitioner's adjusted taxable gifts in the amount of $100,000.12
Whether transfers of property to a trust, where the beneficiaries possessed the right to withdraw an amount not in excess of the section 2503(b) exclusion within 15 days of such transfers, constitute gifts of a present interest in property within the meaning of section 2503(b)?13
Section 2503(b) provides that the first $10,000 of gifts to any person during a calendar year shall not be included in the total amount of gifts made during such year.14 The section 2503(b) exclusion applies to gifts of present interests in property and does not apply to gifts of future interests in property.15 A trust beneficiary is considered the donee of a gift in trust for purposes of the annual exclusion under section 2503(b).16 An unrestricted right to the immediate use, possession, or enjoyment of property or the income from property (such as a life estate or term certain) is a present interest in property.17
Yes. The Tax Court applied the Crummey test by examining the legal right of the grandchildren to demand withdrawal rather than the likelihood of actual exercise.18 The grandchildren possessed the same enforceable withdrawal right as the children, the trustees could not legally resist a demand, and no agreement existed to forgo exercise of the rights.19
The grandchildren's withdrawal rights constituted gifts of present interests in property within the meaning of section 2503(b), so the estate is entitled to the claimed annual exclusions.20