Natalie transferred $500,000 of bonds to a revocable trust with directions to the trustee to pay income to her aunt for five years after which the corpus is to be distributed to Natalie's niece. At year end, the trustee paid $15,000 of income to the aunt. Which of the following is a true statement?

Question

Quizplus · Accepted Answer

Natalie has made a gift of $500,000 to the trust, but because the trust is revocable, the gift is incomplete until the end of the five-year term. At that point, the gift will be completed and the corpus will be distributed to Natalie's niece. However, the payment of $15,000 of income to the aunt is a taxable gift, subject to the annual gift tax exclusion amount of $15,000. Therefore, Natalie has made a taxable gift of $15,000 - $14,000 (annual gift tax exclusion) = $1,000.

Natalie Transferred $500,000 of Bonds to a Revocable Trust with Directions