## Facts

- In 1969, Edson S. Outwin and Mary M. Outwin funded multiple irrevocable discretionary trusts.
- Each spouse created trusts in which the settlor was the sole potential lifetime beneficiary, and trustees could distribute income or principal in their “absolute and uncontrolled discretion,” including distributing all assets back to the beneficiary.
- The trust instruments provided no ascertainable standard governing distributions to the settlor-beneficiary.
- Each spouse selected personal friends as trustees and believed the trustees would make distributions the beneficiaries requested.
- Distributions to a settlor from that settlor’s trust required the other spouse’s written consent (a veto power).
- On the settlor’s death, the surviving spouse became beneficiary; remainder interests ultimately passed to other beneficiaries (family members/charitable recipients).
- The Commissioner determined the 1969 transfers were completed gifts and asserted gift tax deficiencies.
- The Outwins contended the transfers were not completed gifts because, under applicable state law, trust assets were reachable by the settlor’s creditors, so the settlor had not fully parted with dominion and control.

## Issues

1. Whether transfers to irrevocable trusts, where each settlor remained the sole discretionary lifetime beneficiary, constituted completed gifts subject to federal gift tax.
2. Whether the settlor’s creditors’ ability under state law to reach trust income and corpus prevents gift completion for federal gift tax purposes.

## Decision

- The Tax Court held the transfers were completed gifts of the remainder interests and sustained the Commissioner’s gift tax determinations.
- The court ruled that creditor reachability under state law did not, by itself, make the transfers incomplete for gift tax purposes.
- The court treated the settlors’ retained discretionary lifetime interests as interests to be valued and accounted for, not as powers negating completion.
- The court rejected arguments based on the settlors’ expectations that friendly trustees would comply with requests, because subjective expectations did not create a retained legal power to compel distributions.
- The spouse’s veto over distributions was an independent limitation inconsistent with unilateral donor control.

## Legal Principles

- A transfer is a completed gift when the donor has parted with dominion and control so the donor cannot change the disposition of the transferred property, except for expressly retained interests properly valued under the gift tax rules.
- The completeness inquiry centers on the donor’s retained legal powers over beneficial disposition, not on third-party remedies against the property.
- Creditors’ ability to reach assets of a self-settled discretionary trust under state law does not, standing alone, constitute a retained power that prevents completion of a lifetime gift.
- Possible estate tax inclusion of transferred property due to retained enjoyment or control is a separate question from whether a lifetime transfer is a completed gift for gift tax purposes.

## Conclusion

The Tax Court held that funding self-settled irrevocable discretionary trusts produced completed taxable gifts of the remainder interests, and that state-law creditor access to trust assets did not prevent gift completion; the settlors’ retained discretionary lifetime benefits affected valuation rather than whether a gift occurred.


Outwin v. Commissioner, 76 T.C. 153 (1981)