¹All the calculations in this article have been rounded.

²However, the exclusion is subject to various court and legislative limits (e.g., the reciprocal-gift doctrine).

³See the discussion below under "Gift-Splitting."

⁴D. Clifford Crummey, 397 F2d 82 (9th Cir. 1968). The trust is funded with $200,000 to avoid the "five and five" rule; this rule and Crummey powers are discussed below under "Crummey Powers."

⁵See Forsberg, "Special Powers of Appointment: The Key to Flexibility in Planning," 27 Est. Plng. 13 (January 2000); see also the discussion on the generation-skipping transfer tax in Part II of this article.

⁶See the discussion below under "Purposeful Gifting."

⁷Rev. Rul. 95-58, 1995-2 CB 91.

⁸See "Trustee Removal and Replacement Powers," ALI-ABA Est. Plng. Course Materials J. (April 1999).

⁹If Y and spouse elect to split gifts, the maximum gifting is $400,000 ($20,000 3 20), while the "equalization" approach gifts only $240,000 (($20,000 3 4) 3 3 families).

¹⁰However, the reciprocal-gift doctrine may apply; see the discussion in Part II of this article.

¹¹See Sec. 7702B.

¹²Rev. Rul. 96-56, 1996-2 CB 161; see Est. of Albert F. Metzger, 100 TC 204 (1993).

¹³Est. of Sarah H. Newman, 111 TC 81 (1998); see Robert Rosano, 67 FSupp2d 113 (ED NY, 1999), and Est. of Sylvia Swanson, Ct. Fed. Cls., 3/13/00.

¹⁴See Kalter and Newman, "Annual Exclusion Gift Checks and the Relation-Back Doctrine," 25 Est. Plng. 402 (November 1998), and Newman and Kalter, "Relation-Back Doctrine Applied to Annual Exclusion Gift Checks," 27 Est. Plng. 3 (January 2000).

¹⁵The reduction of the estate means that the residuary beneficiaries receive the tax savings, at a 37%–60% estate tax rate. However, if noncash assets are gifted, the donees will take V's basis and the resulting potential tax on any appreciation in value.

¹⁶See note 4, supra; see also Est. of Maria Cristofani, 97 TC 74 (1991), and Est. of Lieselotte Kohlsaat, TC Memo 1997-212. For an excellent discussion of the nuances of Crummey withdrawal rights, see Zaritsky and Leimberg, Tax Planning With Life Insurance (WG&L, 1992), 5.03[3], and Christensen, Law and Life Insurance, "Obtaining the Annual Exclusion for Gifts," 137 Trusts and Estates 72 (June 1998).

¹⁷The donees must reflect the deemed gift of the lapsed withdrawal right on a gift tax return, reducing their unified credits. They may also be required to include part of the trust in their estates at death as retained interests under Sec. 2036.

¹⁸Although Est. of Cristofani, note 16 supra, allowed the use of contingent beneficiaries, the IRS has asserted that remote beneficiaries may not have sufficient trust interests to qualify their withdrawal rights as present-interest annual exclusion gifts; see IRS Letter Ruling 9141008 (6/24/91). But see Galli, Tax Clinic, "Annual Exclusion Allowed for Contingent Trust Beneficiaries," 28 The Tax Adviser 544 (September 1997).

¹⁹ See, e.g., Rev. Rul. 69-344, 1969-1 CB 225; Fred A. Berzon, 63 TC 601 (1975), aff'd, 534 F2d 528 (2d Cir. 1976); Lera H. Stark, 477 F2d 131 (8th Cir. 1973).

²⁰IRS Letter Ruling (TAM) 9628004 (4/1/96).

²¹IRS Letter Ruling 9804047 (10/28/97).

²² See Zaritsky and Leimberg, note 16 supra and Christensen, id.

²³Sec. 2503(e) contains no relationship requirement; thus, even nonrelatives can make excluded payments; see Regs. Sec. 25.2503-6(a).

²⁴See Rev. Rul. 82-98, 1982-1 CB 141.

²⁵IRS Letter Ruling (TAM) 9941013 (7/9/99); see Melone, "Tax-Favored Strategies for Funding a Child's Higher Education," 27 Est. Plng. 21 (January 2000).

²⁶For information on the various state-sponsored programs, see "College Funding: New Kid on the Block (Qualified State Tuition Plan) Challenges Traditional Techniques (Crummey Trusts and Minor Trusts). And the Winner is..." 35 U. of Miami Philip E. Heckerling Inst. on Est. Plng. (2001); see also embark.wiredscholar. com/paying/content/pay_state.html and www.savingforcollege.com; state plans are listed in Case Study, "State Prepaid Tuition and College Savings Plans," 32 The Tax Adviser 204 (March 2001).

²⁷See Benjamin, "When Should the Option to Split Gifts be Chosen?" 22 Est. Plng. 1 (January 1995).

²⁸A gift tax return must be filed even if it was not otherwise required (e.g., only annual exclusion gifts were made).

²⁹Thus, consenting spouses should ensure that the values set out in their gift tax returns are accurate.

³⁰See Sec. 2513(b) and Rev. Rul. 80-224, 1980-2 CB 281. Many married taxpayers thus ignore the filing requirements for gift-splitting, assuming that if audited, the returns can be filed later.

³¹This is $150,000 3 the lowest (37%) or highest (60%) applicable tax rate.

.