Opinion ID: 590008
Heading Depth: 2
Heading Rank: 4

Heading: The 1981 and 1982 Transfers of Beneficial Certificates

Text: 22 We do, however, agree with the taxpayer that the 1981 and 1982 transfers of beneficial certificates completed part of the gift. After the 1981 transfer, Joseph A. held 50 of the certificates and others held the remaining 50. Joseph A. had no power to recall the transferred 50 certificates. Accordingly, at that point Joseph A. did not have the power to revest in himself the beneficial ownership of that fifty percent of the trust assets which he had given away to others. We note that even though the trustees could have given Joseph A. all of the trust corpus under the discretionary sprinkling power, that discretionary power is not sufficient under Revenue Ruling 77-378 to find that the transfer of the certificates is an incomplete gift. Additionally, although Joseph A. would have had the power to create new beneficiaries or to give an existing beneficiary a greater proportionate share of the total trust through further gifts of the certificates he retained, he could not deprive a beneficiary of the certificates that that beneficiary already possessed or of the proportionate share of the trust represented by those certificates. Cf. Camp v. Commissioner, 195 F.2d 999, 1004 (1st Cir.1952) (If the trust instrument gives a designated beneficiary any interest in the corpus of the trust property or of the income therefrom, which is capable of monetary valuation, and the donor reserves no power to withdraw that interest, in whole or in part, ... then the gift of that particular interest will be deemed to be complete.). Thus, with respect to the certificates he transferred, Joseph A. relinquished the power to change the beneficiaries and the power to revest the beneficial ownership of the trust assets attributable to those certificates in himself. Accordingly, the gift was complete to the extent of the certificates Joseph A. transferred to others. 23 This holding is consistent with Revenue Ruling 72-571 (1972). In 1958, A transferred corporate stock valued at 100x to himself as trustee for his son. The trust provided that upon termination of the trust in 1978 the stock would be returned to A if it had not been sold. If the stock had been sold, 100x dollars would be paid to A and any remaining corpus to A's son. In 1966, A resigned as trustee and a successor trustee was appointed. The ruling holds that a gift occurred in 1966 under § 25.2511-2(f) when A resigned as trustee, thus relinquishing his discretionary power to retain the stock in trust and revest the beneficial ownership of the stock in himself upon the termination of the trust. Likewise, Joseph A.'s transfer of the beneficial certificates relinquished his discretionary power to revest the stock attributable to those certificates in himself upon the termination of the trust. 3 24 The IRS argues that Joseph A.'s power to change the trustees was sufficient to give him complete control over the trust and to allow him to direct the distribution of the trust assets to himself under the sprinkling power, thus rendering the entirety of the gift incomplete until he gave up that power. We disagree. While Joseph A. had unlimited power to remove the trustees, he could only replace them with independent trustees, i.e., trustees who were not related or subordinate parties under 26 U.S.C. § 672(c). The IRS overstates its position when it contends that Mr. Vak had the power to replace the trustees with individuals who would do his bidding. IRS brief at 14. 4 25 We conclude that the gift was complete with respect to 50 certificates on January 2, 1981. The same logic applies to Joseph A.'s transfer of 23 certificates on January 2, 1982.