## Facts

- David H. Levine created five identical irrevocable trusts on December 30, 1968, one for each grandchild (ages 2–15).
- Each trust was funded with corporate stock valued at $3,750.
- Until the beneficiary reached age 21, trust income was to be accumulated unless an independent trustee directed distributions; accumulated income was to be distributed at age 21.
- After age 21, the beneficiary was entitled to receive all trust income at least annually.
- If a beneficiary died before age 21, accumulated income was payable to the beneficiary’s estate.
- During the beneficiary’s life, an independent trustee had “absolute and uncontrolled discretion” over principal, including authority to distribute principal, retain it, or terminate the trust by distributing the entire corpus.
- If any principal remained at the beneficiary’s death, the beneficiary held a limited power of appointment among Levine’s lineal descendants (not to the beneficiary, the beneficiary’s estate, or creditors).
- Levine claimed annual gift-tax exclusions under I.R.C. § 2503(b), alternatively relying on § 2503(c) (transfers for minors).
- The Commissioner determined deficiencies, treating the beneficiaries’ rights to income after age 21 as future interests ineligible for the annual exclusion.
- The Tax Court ruled for the taxpayers, treating the post-21 income rights as a continuation of qualifying present interests during minority; the Commissioner appealed.

## Issues

1. Whether beneficiaries’ rights to receive trust income after age 21 were “present interests” eligible for the annual exclusion under I.R.C. § 2503(b) or “future interests” ineligible for the exclusion.
2. Whether I.R.C. § 2503(c) permits post-21 income rights to be treated as present interests by characterizing them as continuations of minors’ qualifying interests.

## Decision

- The Second Circuit reversed the Tax Court.
- The court held that the beneficiaries’ rights to trust income after age 21 were future interests and therefore did not qualify for the annual exclusion.
- The court held that § 2503(c) could not be used to treat post-21 income interests as present interests based on a “continuation” theory.
- The Commissioner’s deficiency determinations were upheld to the extent they denied exclusions for the post-21 income interests.

## Legal Principles

- For gift-tax purposes, an interest is a future interest when enjoyment is postponed or conditioned on a future event; a right to receive income beginning only at a later age is generally a future interest.
- I.R.C. § 2503(c) is a limited exception for transfers “for the benefit of” a donee under age 21 and does not redefine the character of interests taking effect after the donee attains age 21.
- Post-21 rights must independently satisfy § 2503(b)’s present-interest requirement; they cannot qualify merely because the same trust also satisfies § 2503(c) during the beneficiary’s minority.

## Conclusion

The court treated the beneficiaries’ post-21 income rights as future interests because the beneficiaries could not presently enjoy that income at the time of the gifts, and it rejected using § 2503(c) to extend present-interest treatment beyond age 21.


Commissioner v. Estate of Levine, 526 F.2d 717 (2d Cir. 1975)