Estate of Cristofani v. Commissioner

On June 12, 1984, Maria Cristofani executed an irrevocable trust under which her children, Frank Cristofani and Lillian Dawson, and her five minor grandchildren had the right to make a withdrawal within fifteen days after a contribution to the trust had been made. The maximum amount that each could withdraw was equal to the amount of the gift tax exclusion, $10,000. The trust paid all of the income to Frank and Lillian and the trust assets were to be distributed to Frank and Lillian upon Maria’s death unless they predeceased her, in which case their children would receive their respective share. Maria made two transfers to the trust – one in 1984 and one in 1985 – of an undivided thirty-three percent interest in property, each valued at $70,000. Frank and Lillian, as trustees, were obligated to inform the trust beneficiaries of the contributions to the trust. There was no agreement that between Maria and her children that her grandchildren would not exercise their withdrawal rights, however none of her grandchildren exercised these rights following the contributions in either 1984 or 1985. After Maria’s death, her estate (plaintiff) claimed seven annual gift tax exclusions under § 2503(b) for each of the transfers in 1984 and 1985. The Commissioner of Internal Revenue (Commissioner) (defendant) only allowed the exclusions for Frank and Lillian and did not allow $50,000 in exclusions for each of the two years that Maria’s grandchildren did not exercise their withdrawal rights. The Commissioner argued that the grandchildren did not receive present interests in property and therefore the exclusion under § 2503(b) did not apply. The parties stipulated that Maria’s grandchildren had the same rights to withdraw trust property as Maria’s children but the Commissioner claimed that the fact that Maria’s grandchildren had only a contingent remainder interest rather than a vested interest in the trust prevented application of the rule in Crummey v. Commissioner.