Dick wants to transfer property with a $600,000 FMV to an irrevocable trust with a bank as the trustee. Dick will name his distant cousin Earl to receive all of the trust income annually for the next eight years. Then the property will revert to Dick. In the last few years, the income return (yield) on the property has been 6%. Assume this yield is not likely to decline and that the applicable rate from the actuarial tables is 4%.
a. What will be the amount of Dick’s gift to Earl?
b. Would you recommend that Dick transfer the property yielding 6% to this type of a trust? Explain. If not, what type of property would you recommend that Dick transfer to the trust?