Gene employed his attorney to draft identical trust instruments for each of his three minor children: Judy (age 5), Terry (age 7), and Grady (age 11). Each trust instrument names the Fourth City Bank as trustee and states that the trust is irrevocable. It provides that, until the beneficiary reaches age 21, the trustee at its discretion is to pay income and/or principal (corpus) to the beneficiary. Upon reaching age 21, the beneficiary will have 60 days in which to request that the trust assets be paid over to him or her. Otherwise, the assets will stay in the trust until the beneficiary reaches age 35. The beneficiary also is granted a general testamentary power of appointment over the trust assets. If the beneficiary dies before the trust terminates and does not exercise his or her power of appointment (because, for example, he or she dies without a will), trust assets will be distributed to family members in accordance with state intestacy laws. Each trust will be funded with property valued at $100,000. Before he signs the instruments, Gene wants to obtain a ruling from the IRS concerning whether the trusts qualify for the annual gift tax exclusion. Your task is to prepare a request for a letter ruling.
A partial list of research sources is
• IRC Secs. 2503(b) and (c)
• Reg. Sec. 25.2503-4
• Rev. Rul. 67-270, 1967-2 C.B. 349
• Rev. Rul. 74-43, 1974-1 C.B. 285
• Rev. Rul. 81-7, 1981-1 C.B. 474