## Facts

- Katherine L. N. Willis owned a one-half interest in a partnership holding farmland and a recreational complex.
- In 1971 and 1972, Willis transferred her partnership interest to an inter vivos trust benefiting 17 relatives.
- The trust instrument granted beneficiaries an unconditional right to trust income, with income to be derived from the partnership.
- The partnership’s operating history showed profit in only one of eight years, and that profit was reinvested rather than distributed.
- Willis claimed 17 annual gift-tax exclusions per year under I.R.C. § 2503(b), treating the transfer as separate gifts to each beneficiary.
- The IRS disallowed the exclusions, treating the beneficiaries’ interests as future interests, and assessed additional gift tax.
- The estate (through Maryland National Bank as executor) sued for a refund; the district court upheld the IRS’s denial of the exclusions.

## Issues

1. Whether the beneficiaries’ interests in trust income constituted “present interests” qualifying for the I.R.C. § 2503(b) annual exclusion, or “future interests” for which no exclusion is allowed.
2. Whether an unconditional legal right to trust income is sufficient to create a present interest when current enjoyment depends on speculative or deferred distributions.

## Decision

- The Fourth Circuit affirmed the judgment for the United States.
- The court held that the 17 beneficial interests were gifts of future interests, not present interests, so the § 2503(b) annual exclusions were unavailable.
- The court sustained the IRS’s disallowance of the exclusions and the resulting gift-tax assessment for both years.

## Legal Principles

- The § 2503(b) annual exclusion applies only to gifts of present interests; it does not apply to gifts of future interests.
- A present interest requires a right to immediate use, possession, or enjoyment of property, or immediate enjoyment of the income from property.
- Formal trust language granting an unconditional right to income does not, by itself, establish a present interest when the facts show no realistic prospect of current enjoyment.
- In determining present versus future interests, courts may consider practical economic circumstances affecting whether income is likely to be available for current distribution.

## Conclusion

Because the trust beneficiaries’ ability to receive income depended on a partnership with a sustained history of non-distribution and uncertain profitability, the beneficiaries lacked a realistic opportunity for immediate enjoyment; their interests were future interests, so the estate could not claim § 2503(b) annual exclusions.


Maryland Nat’l Bank v. United States, 609 F.2d 1078 (4th Cir. 1979)