Bill Set Up Two Trusts in 2017

question 65

Essay

Bill set up two trusts in 2017. The first was for his son, John, to which he contributed $200,000 during that year. (The income interest was valued at $100,000 and the remainder interest's value was $100,000.) Bill plans to continue contributing money to the trust each year but John can withdraw only the lesser of $15,000 or the amount transferred to the trust each year. The trustee can pay the amount annually until John receives the trust assets at age 40. The second trust was for his 10-year old son, Tim. Bill contributed $50,000 in 2018. (The income interest was equal to $10,000 and the remainder interest was equal to $40,000.) The trustee may distribute the income or principal to Tim until he reaches age 21, at which time the assets will be transferred to Tim. In 2018, Bill contributes $10,000 to John's trust and $16,000 to Tim's trust. What types of trusts are these and what are Bill's gift tax consequences in 2017 and 2018?

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Definitions:

Mathematical Function

A relation or expression involving one or more variables that produces a unique output for each set of inputs.

Single Constants

Literal fixed values represented in code, typically numerical or character constants not expected to change.

Returned Value

The outcome produced and provided back to the caller by a function upon its completion.

Function

A block of code organized in the program that performs a specific task when called.