## Facts

- Husband and wife created an irrevocable inter vivos trust (Feb. 12, 1962) for their four children (two adults/near-adults and two minors).
- The parents contributed $50 initially and later made additional contributions in 1962 and 1963.
- The trust granted each child a yearly right, exercisable after a contribution and until December 31 of that year, to demand distribution of up to $4,000 of that year’s contributions; if a child was a minor or lacked capacity, a guardian could make the demand for the child.
- No child exercised the demand right; the minor children were supported at home, and no guardians other than the parents were appointed.
- Each parent filed 1962 and 1963 gift-tax returns claiming annual exclusions under I.R.C. § 2503(b) for gifts to each child.
- The Commissioner allowed only one exclusion per parent per year, treating the minors’ interests as “future interests”; in the Tax Court, the Commissioner conceded an additional exclusion for 1963 because one child had reached age 21.
- The Tax Court allowed an exclusion for the 1962 gift to one child based on California law, but denied exclusions for the younger minors as future interests; both sides sought appellate review.

## Issues

1. Whether contributions to a trust subject to beneficiaries’ annual withdrawal (demand) rights are gifts of “present interests” eligible for the I.R.C. § 2503(b) annual exclusion.
2. Whether minor beneficiaries’ demand rights constitute present interests when enforcement may require action through a guardian under California law.
3. Whether the present-interest analysis turns on the legal existence of a withdrawal right rather than the likelihood or actual exercise of withdrawal.

## Decision

- The Ninth Circuit held that the gifts in trust for all four children, including the minors, were gifts of present interests under § 2503(b).
- The court concluded each child had a present, legally enforceable right to demand up to $4,000 from each year’s contributions during the demand period.
- The court rejected treating the minors’ interests as future interests merely because minors might need a guardian to exercise or enforce the demand right.
- The Tax Court’s denial of exclusions for the younger minors was reversed, and the taxpayers were entitled to annual exclusions attributable to each child’s present withdrawal right.

## Legal Principles

- A gift is a “present interest” under I.R.C. § 2503(b) when the beneficiary has a current, legally enforceable right to use, possess, or enjoy the property, even if the right is not exercised.
- A trust contribution can qualify for the annual exclusion when the beneficiary has a time-limited withdrawal power over the contribution up to a stated amount.
- Limits on a minor’s procedural capacity (e.g., acting through a guardian) do not negate the substantive existence of an enforceable present right created by the trust instrument.
- The present-interest determination does not depend on speculation about whether withdrawals are likely to be demanded.

## Conclusion

The court treated the beneficiaries’ annual withdrawal rights as present, enforceable interests, so the parents’ trust contributions qualified for multiple § 2503(b) annual gift-tax exclusions, including for minor beneficiaries whose rights could be exercised through guardianship mechanisms under state law.


Crummey v. Comm’r, 397 F.2d 82 (9th Cir. 1968)