Outwin v. Commissioner
United States Tax Court
76 T.C. 153 (1981)
Mary and Edson Outwin (plaintiffs) were married. Each spouse created a self-settled trust, which was an irrevocable trust that named the settlor, i.e., creating spouse, as the trust’s sole beneficiary for life. When the first spouse died, the other spouse would become the beneficiary of the deceased spouse’s trust. The trustees were given complete discretion over how much money to distribute, and when, to a trust’s settlor-beneficiary while that beneficiary was alive, including the option of giving all the money back to the settlor spouse and terminating the trust. The trusts did not provide any standards to guide the trustees’ discretion. However, either spouse could veto a distribution from the other spouse’s trust. The Outwins transferred assets into their trusts. For the trustees, the Outwins named personal friends who the Outwins believed would distribute any amount that either trust beneficiary requested, when requested. The commissioner of Internal Revenue (defendant) assessed gift taxes on the Outwins’ transfers into the irrevocable trusts. The Outwins petitioned for a declaration that the transfers were not subject to the gift tax. The commissioner argued that the Outwins had gifted the assets to the trusts because they had given the trustees full control over the trusts’ assets. In response, the Outwins argued that they still had some control over the trust assets because their creditors could legally reach those assets.
Rule of Law
Holding and Reasoning (Dawson, J.)
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