## Facts

- A taxpayer created an irrevocable trust in 1932 for eight living grandchildren and any grandchildren later born during the trust term.
- The trustee was required to accumulate all income for ten years; no beneficiary could receive current distributions during that period.
- After the ten-year accumulation period, income was payable in equal shares only to grandchildren then living who had attained age 21; other grandchildren received income only upon reaching age 21.
- After-born grandchildren could participate in income only after the ten-year accumulation period and subject to limitations based on distributions made before their birth.
- The trust contained further survivorship-based provisions for shifting interests at a grandchild’s death and set ultimate termination and distribution of principal and accumulated income far in the future.
- The taxpayer added property to the trust in 1933, 1934, and 1935 and claimed the $5,000 per-donee annual exclusion under the Revenue Act of 1932.
- The Commissioner denied the exclusions on the ground that the trust transfers were gifts of “future interests.”

## Issues

1. Whether the trust transfers, conditioned on surviving the ten-year accumulation period and attaining age 21, were gifts of “future interests” under § 504(b) of the Revenue Act of 1932.
2. Whether the meaning of “future interests” for federal gift-tax purposes is determined by federal law rather than state property-law classifications.

## Decision

- The Supreme Court reversed the judgment for the taxpayer.
- The Court held the trust transfers were gifts of “future interests” because beneficiaries had no present right to use, possess, or enjoy the property or income at the time of transfer.
- Because the gifts were future interests, the § 504(b) $5,000 annual exclusion was unavailable.
- The Court applied a federal interpretation to ensure uniform operation of federal revenue laws, absent clear congressional dependence on state law.

## Legal Principles

- Federal revenue statutes are construed to implement a uniform national taxing scheme; their operation does not vary with state law unless Congress clearly indicates otherwise.
- A gift is a “future interest” for gift-tax purposes when present enjoyment is postponed or contingent so the donee lacks a current right to use, possess, or enjoy the property or income.
- The annual exclusion under § 504(b) applies only to gifts other than future interests; transfers conferring only delayed or contingent enjoyment are fully includable in computing the gift tax.

## Conclusion

Transfers to a trust that bar current enjoyment and make beneficiaries’ rights depend on surviving a stated period and reaching a specified age are gifts of future interests, so the donor cannot claim the statutory annual exclusion for those transfers, and federal law supplies the controlling definition to maintain uniform taxation.


United States v. Pelzer, 312 U.S. 399 (1941)