S wants to place property in an irrevocable trust for his 14-year-old granddaughter. The trust instrument provides for the accumulation of the trust income until the granddaughter reaches age 21, at which time the accumulated interest and principal will be paid to the granddaughter, if she is then living. The trust instrument will further provide that the granddaughter — in December of any year in which the settlor transfers property to the trust — can demand the immediate distribution to her of a sum equal to the property put into the trust during that year, up to a maximum of $5,000 per year. S places $5,000 in trust. 

1. Is the annual exclusion available under § 2503(b)? 

2. Who is taxed on the income generated by the trust corpus? 

3. What would be the gift, estate and income tax consequences of the trust if S put $6,000 into the trust in one year? 

4. Do your answers change if S makes the transfer in June rather than December? 

Answer rating: 100% (QA)

Lets address each question 1 Annual Exclusion Availability The annual exclusion under 2503b allows f... View the full answer