Q Assignment is about a man named Donald who established Grantor Trusts on May 10, 2013 concerning internal revenue. Home, - INTERNAL REVENUE CODE Donald established an irrevocable trust on May 10, 2013. The trust named his wife, Melinda, as trustee and named his daughter, Daisy, as backup trustee. The trust instrument contained the following key provisions: This trust is irrevocable. To the extent allowed by law, the assets in this trust shall not be subject to the beneficiaries' liabilities or creditors and shall not be subject to assignment or anticipation by any beneficiary. During the lifetime of the grantor, the trustee may, in her sole discretion, distribute assets to or for the benefit of the spouse and/or children of the grantor to the extent that she deems appropriate for their health, education, maintenance and support. However, no distribution shall be made for the benefit of Melinda under this Paragraph without the express consent of at least one child or grandchild of the grantor. During the first five years of the trust's existence, the trustee may, in her discretion, also use trust income (but not principal) for the benefit of Donald, the grantor. After five years shall have elapsed from the execution of this trust, this power shall cease to exist and shall be null and void. After the death of the last to die of the grantor and his wife, the remaining trust assets, if any, shall be distributed to and among the children of the grantor, in equal shares, per stirpes. You may assume that the remaining provisions of the trust are fairly standard boilerplate provisions and are not relevant to this question. On June 1, 2014, Donald transferred $2,000,000 to this trust. Explaining amount of eligible transfer in relation to gift tax marital deduction According to Internal Revenue Code § 671, an irrevocable trust can be defined as that trust which cannot be amended, modified or terminated in the absence of grantors permission. The trust which is established by Donald since May 10, 2013 is an irrevocable trust. Donald’s trust made Melinda, his wife to be a trustee as well as Daisy, his daughter to be a backup trustee. There are several provisions which the trust have to follow. The trust is not liable for any kind of creditors or liability of the beneficiaries till the limit permitted by the law. The amount of eligible transfer in relation to gift tax marital deduction is $14000. The amount of deduction is decided by the Internal Revenue Code of the United States. Explaining trust assets as a part of taxable estate of Donald with factors on which it depend Any kind of income is taxable in the hands of the income earner in that country from where the income is earned. The trust which is established by Donald since May 10, 2013 is an irrevocable trust. Also, Donald transferred on June 1, 2014 an amount of $2,000,000 to the trust. Thus from June 1, 2014, the trust is a taxable part of the total estate of Donald. This is because the amount was transferred on this date. The factors on which the trust income taxability depends are the time period for which the asset was hold and the amount. According to Internal Revenue Code § 671, the date on which the trust was established affects the taxability of the trust income. Describing the causes of gifts to the trust being not eligible for the annual gift tax exclusion and things that could be changed The causes of gifts to the trust being not eligible for the annual gift tax exclusion includes the provisions which are there with the trust. According to Internal Revenue Code § 671, an earner of trust income needs to pay taxes on the part of income earned by that person from that particular trust asset which is received as a gift. Also, in the provisions of the trust income it has been mentioned that the transfer will be made on the basis of the education, maintenance, support and health. Also, no transfer or distribution of the trust can be made on the basis of benefits. Thus, gifts to the trust of Donald are not eligible for gift tax annual exclusion. The changes which are needed for annual tax exclusion are the consent of the grantor and the laws of Internal Revenue Code. Explaining the trust assets as a part of taxable estate of Melinda The trust assets is a part of taxable estate of Melinda after the transfer of the trust income. The trust asset can be said as a part of taxable estate of Melinda as it will generate income for Melinda. According to Internal Revenue Code § 671, any kind of income is taxable in the hands of the income earner in that country from where the income is earned. Melinda will have to pay taxes since the date of transfer of the trust assets. This is because Melinda will earn income since the date of transfer. Explaining for the purposes of income tax, Donald’s trust as a grantor trust In the laws of Internal Revenue Code Grantor Trusts are those trusts where the grantor or the creator of a trust possess single or multiple powers on the trust. Also, due to this trust's income the grantor has to pay tax to the government. Analysing all the situations of the trust income it can be said that the trust of Donald which is irrecoverable can be treated as the grantor’s trust. This is because Donald holds power in relation to the trust which includes transfer of the trust to his wife and daughter. The trust of Donald named Melinda, his wife as a trustee and Daisy, his daughter as a backup trustee which can be reflected as a power. Also in the duration of five years Dionalld can use the income from this trust for own benefit.