## Facts

- Nell K. Ross and James H. Ross created three identical trusts (one per minor grandchild) in 1956.
- Each trust authorized trustees, in their discretion, to use all or part of income for the beneficiary’s support, maintenance, and education, and to manage income as though they were the beneficiary’s guardian.
- Each trust required distribution of corpus when the beneficiary reached age 21, or to the beneficiary’s estate if the beneficiary died before 21.
- The trusts also granted trustees all powers that a minor’s guardian could exercise under the law of the beneficiary’s domicile (Texas).
- In 1956 and 1957, each settlor made transfers to each trust and claimed the § 2503(b) annual exclusion on gift tax returns.
- The Commissioner disallowed the exclusions as gifts of “future interests,” assessed deficiencies and interest, and the taxpayers paid and sued for a refund.
- The district court granted summary judgment to the United States, holding the gifts were future interests; the taxpayers appealed.

## Issues

1. Whether transfers to trusts for minors constitute “future interests” barred from the I.R.C. § 2503(b) annual exclusion when trustees have guardian-equivalent powers to apply trust income for the minors’ current support, maintenance, and education and the corpus is payable at age 21.

## Decision

- The Fifth Circuit reversed the summary judgment for the United States.
- The court held the transfers were not required to be treated as gifts of future interests; they were present interests qualifying for the § 2503(b) annual exclusion.
- The case was remanded for further proceedings consistent with the opinion.

## Legal Principles

- For § 2503(b), the present-versus-future interest inquiry turns on the donee’s present right to use, possess, or enjoy property (or to have it applied for the donee’s benefit), not on trust form alone.
- A gift to a minor may qualify as a present interest when the person holding the property has guardian-like authority to apply it currently for the minor’s support, maintenance, and education under applicable state law.
- Trustee discretion to distribute income for a minor’s current needs, coupled with powers coextensive with a guardian’s, can supply the practical equivalent of present enjoyment even if corpus distribution is deferred until majority.
- Substance controls over formal labels in classifying an interest as present or future for purposes of the annual exclusion.

## Conclusion

Because the trust instruments gave trustees guardian-equivalent powers to apply income for the minors’ present benefit under Texas law and required distribution of corpus at age 21 (or to the minor’s estate on earlier death), the minors’ interests were treated as present interests eligible for the § 2503(b) annual exclusion.


Ross v. United States, 348 F.2d 577 (5th Cir. 1965)