## Facts

- Maria Cristofani created an irrevocable inter vivos trust in 1984 for her two children, Frank Cristofani and Lillian Dawson, who also served as trustees.
- The trust provided that Frank and Lillian were entitled to net income at least quarterly and, if they survived the settlor by 120 days, would receive principal upon her death; otherwise, their shares would pass to their respective children (five minor grandchildren).
- After each contribution, each child and each grandchild had an unrestricted right to withdraw up to the annual gift tax exclusion amount ($10,000) during a 15-day window.
- The trustees were required to notify beneficiaries of contributions.
- In 1984 and 1985, the settlor contributed to the trust an undivided 33% interest in real property, valued at $70,000 each year.
- Gift tax returns claimed seven $10,000 annual exclusions each year (two children and five grandchildren), fully offsetting each $70,000 transfer.

## Issues

1. Whether contributions to the trust were gifts of “present interests” to the five minor grandchildren under I.R.C. § 2503(b) because each held an unrestricted 15-day withdrawal right up to the exclusion amount.

## Decision

- The Tax Court held that each grandchild’s unrestricted withdrawal right constituted a present interest in the trust corpus to the extent of the withdrawal amount.
- The court allowed annual exclusions for the five grandchildren for each year at issue.
- The court rejected the IRS’s disallowance of the exclusions based on the grandchildren’s contingent remainder status and the fact that the powers were not exercised.

## Legal Principles

- Under I.R.C. § 2503(b), the annual exclusion applies only to gifts of present interests, not future interests.
- A beneficiary’s legally enforceable, immediately exercisable power to withdraw contributed amounts can create a present interest (following Crummey v. Commissioner).
- The contingent or remote nature of a beneficiary’s remainder interest does not negate present-interest treatment when the beneficiary has a current, unrestricted withdrawal right for a defined period.
- The likelihood that a withdrawal right will be exercised, or the fact that it was not exercised, does not defeat present-interest status absent an agreement or understanding that the right would not be used or a trustee power to refuse a proper demand.

## Conclusion

The Tax Court treated the grandchildren’s short-term, unconditional withdrawal rights as present interests under § 2503(b), allowing annual gift tax exclusions for each grandchild despite their contingent remainder status and nonexercise of the powers.


Estate of Cristofani v. Commissioner, 97 T.C. 74 (1991)