This PLR involves a requested ruling on the gift tax consequences of a taxpayer’s proposed disclaimer of a contingent remainder interest in an irrevocable trust created prior to January 1, 1977.
The taxpayer is a great-grandchild of the Grantor. The Trustees may make principal and income distributions to or for the benefit of the Grantor’s child and the descendants of that child in the event of illness, accident, other misfortune or any emergency, or if, in the Trustee’s judgment, distributions are necessary for the beneficiaries’ comfortable maintenance, support or education. The taxpayer previously had received discretionary distributions from the Trust. The Trust terminates 20 years after the death of the survivor of the Grantor’s descendants living on the date the Trust was funded, and on termination, the remaining principal is distributed to the descendants of the Grantor’s child who have no living ancestor who is a descendant of such child, per stirpes.
The taxpayer proposes to disclaim her right to receive any distribution from the Trust upon its termination, though she will retain her right to receive discretionary distributions during the Trust term. The disclaimer will be executed by the taxpayer within nine months after attaining majority.
Whereas Section 2518 and the related Treasury Regulations govern disclaimers of interests in property created by transfers made after December 31, 1976, Treasury Regulation Section 25.2511-1(c)(2) provides that, in the case of transfers made before January 1, 1977, a refusal to accept ownership does not constitute the making of a gift if the refusal: (1) is unequivocal; (2) is effective under local law; (3) is made before the disclaimant has accepted the property; and (4) is made within a reasonable time after knowledge of the existence of the transfer creating the interest to be disclaimed.
In the case of a disclaimer of an interest in trust, in general, the transfer occurs when the trust is established rather than when the interest actually vests in the disclaimant, if the transferor has not reserved any power over the trust. However, the time limitation for making the disclaimer does not begin to run until the disclaimant has attained the age of majority and is no longer under a legal disability to disclaim. In this case, the Service concluded that the proposed disclaimer, occurring nine months after the taxpayer reached majority, would be considered to satisfy the “within a reasonable time” standard of Treasury Regulation Section 25.2511-1(c)(2).