South-Western Federal Taxation - Comprehensive 38th Edition Chapter 27 Research Problem 2. In 2000, June, a 75-year-old widow, creates an irrevocable trust naming her five adult grandchildren as the beneficiaries. The assets transferred in trust consist of marketable securities (worth $800,000) and June’s personal residence (worth $400,000). Bob, June’s younger brother and a practicing attorney, is designated as the trustee. Other provisions of the trust are as follows. • Bob is given the discretion to distribute the income to the beneficiaries based on their need or add it to corpus. He is also given the power to change trust investments and to terminate the trust. • The trust is to last for June’s lifetime or, if sooner, until termination by Bob. • Upon termination of the trust, the principal and any accumulated income are to be distributed to the beneficiaries (June’s grandchildren). For 2000, June files a Form 709 to report the transfer in trust and pays a gift tax based on value of $1:2 million ($800,000 þ $400,000). After the transfer in trust and up to the time of her death, June continues to occupy the residence. Although she pays no rent, she maintains the property and pays the yearly property taxes. June never discussed the matter of her continued occupancy of the resi- dence with either Bob or the beneficiaries of the trust. Upon June’s death in 2008, the value of the trust is $2.3 million, broken down as fol- lows: marketable securities and cash ($1.6 million) and residence ($700,000). Shortly thereafter, Bob sells the residence, liquidates the trust, and distributes the proceeds to the beneficiaries. What are the estate tax consequences of these transactions to June? Partial list of research aids: § 2036. Guynn v. U.S., 71–1 USTC {12,742, 27 AFTR 2d 71–1653, 437 F.2d 1148 (CA–4, 1971). Estate of Eleanor T. R. Trotter, 82 TCM 633, T.C.Memo. 2001–250. Estate of Lorraine C. Disbrow, 91 TCM 794, T.C.Memo. 2006–34. Solution The irrevocable trust was created which will continue for the June but it cannot be terminated by the Bob. As per the provisions of internal revenue service when the assets are placed in the irrevocable trust then the grantor of the asset is not under the ownership of the asset and thus when he dies, the assets will not be liable for the estate taxation as they are the assets of the trust and not under the ownership of the grantor. .

1. South-Western Federal Taxation - Comprehensive 38th Edition
Chapter 27
Research Problem 2. In 2000, June, a 75-year-old widow, creates an irrevocable trust naming
her five adult grandchildren as the beneficiaries. The assets transferred in trust consist of
marketable securities (worth $800,000) and June’s personal residence (worth $400,000).
Bob, June’s younger brother and a practicing attorney, is designated as the trustee. Other
provisions of the trust are as follows.
• Bob is given the discretion to distribute the income to the beneficiaries based on their
need or add it to corpus. He is also given the power to change trust investments and to
terminate the trust.
• The trust is to last for June’s lifetime or, if sooner, until termination by Bob.
• Upon termination of the trust, the principal and any accumulated income are to be
distributed to the beneficiaries (June’s grandchildren).
For 2000, June files a Form 709 to report the transfer in trust and pays a gift tax based
on value of $1:2 million ($800,000 þ $400,000).
After the transfer in trust and up to the time of her death, June continues to occupy
the residence. Although she pays no rent, she maintains the property and pays the yearly
property taxes. June never discussed the matter of her continued occupancy of the resi-
dence with either Bob or the beneficiaries of the trust.
Upon June’s death in 2008, the value of the trust is $2.3 million, broken down as fol-
lows: marketable securities and cash ($1.6 million) and residence ($700,000). Shortly
thereafter, Bob sells the residence, liquidates the trust, and distributes the proceeds to
the beneficiaries.
What are the estate tax consequences of these transactions to June?
Partial list of research aids:
§ 2036.
Guynn v. U.S., 71–1 USTC {12,742, 27 AFTR 2d 71–1653, 437 F.2d 1148 (CA–4, 1971).
Estate of Eleanor T. R. Trotter, 82 TCM 633, T.C.Memo. 2001–250.
Estate of Lorraine C. Disbrow, 91 TCM 794, T.C.Memo. 2006–34.

2. Solution
The irrevocable trust was created which will continue for the June but it cannot be terminated by
the Bob. As per the provisions of internal revenue service when the assets are placed in the
irrevocable trust then the grantor of the asset is not under the ownership of the asset and thus
when he dies, the assets will not be liable for the estate taxation as they are the assets of the trust
and not under the ownership of the grantor.