26 C.F.R. § 25.2511-2

Cessation of donor's dominion and control

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(a) The gift tax is not imposed upon the receipt of the property by the donee, nor is it necessarily determined by the measure of enrichment resulting to the donee from the transfer, nor is it conditioned upon ability to identify the donee at the time of the transfer. On the contrary, the tax is a primary and personal liability of the donor, is an excise upon his act of making the transfer, is measured by the value of the property passing from the donor, and attaches regardless of the fact that the identity of the donee may not then be known or ascertainable. For gift tax rules related to an ABLE account established under section 529A, see § 1.529A-4 of this chapter.

(b) As to any property, or part thereof or interest therein, of which the donor has so parted with dominion and control as to leave in him no power to change its disposition, whether for his own benefit or for the benefit of another, the gift is complete. But if upon a transfer of property (whether in trust or otherwise) the donor reserves any power over its disposition, the gift may be wholly incomplete, or may be partially complete and partially incomplete, depending upon all the facts in the particular case. Accordingly, in every case of a transfer of property subject to a reserved power, the terms of the power must be examined and its scope determined. For example, if a donor transfers property to another in trust to pay the income to the donor or accumulate it in the discretion of the trustee, and the donor retains a testamentary power to appoint the remainder among his descendants, no portion of the transfer is a completed gift. On the other hand, if the donor had not retained the testamentary power of appointment, but instead provided that the remainder should go to X or his heirs, the entire transfer would be a completed gift. However, if the exercise of the trustee's power in favor of the grantor is limited by a fixed or ascertainable standard (see paragraph (g)(2) of § 25.2511-1), enforceable by or on behalf of the grantor, then the gift is incomplete to the extent of the ascertainable value of any rights thus retained by the grantor.

(c) A gift is incomplete in every instance in which a donor reserves the power to revest the beneficial title to the property in himself. A gift is also incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries as between themselves unless the power is a fiduciary power limited by a fixed or ascertainable standard. Thus, if an estate for life is transferred but, by an exercise of a power, the estate may be terminated or cut down by the donor to one of less value, and without restriction upon the extent to which the estate may be so cut down, the transfer constitutes an incomplete gift. If in this example the power was confined to the right to cut down the estate for life to one for a term of five years, the certainty of an estate for not less than that term results in a gift to that extent complete.

(d) A gift is not considered incomplete, however, merely because the donor reserves the power to change the manner or time of enjoyment. Thus, the creation of a trust the income of which is to be paid annually to the donee for a period of years, the corpus being distributable to him at the end of the period, and the power reserved by the donor being limited to a right to require that, instead of the income being so payable, it should be accumulated and distributed with the corpus to the donee at the termination of the period, constitutes a completed gift.

(e) A donor is considered as himself having a power if it is exercisable by him in conjunction with any person not having a substantial adverse interest in the disposition of the transferred property or the income therefrom. A trustee, as such, is not a person having an adverse interest in the disposition of the trust property or its income.

(f) The relinquishment or termination of a power to change the beneficiaries of transferred property, occurring otherwise than by the death of the donor (the statute being confined to transfers by living donors), is regarded as the event that completes the gift and causes the tax to apply. For example, if A transfers property in trust for the benefit of B and C but reserves the power as trustee to change the proportionate interests of B and C, and if A thereafter has another person appointed trustee in place of himself, such later relinquishment of the power by A to the new trustee completes the gift of the transferred property, whether or not the new trustee has a substantial adverse interest. The receipt of income or of other enjoyment of the transferred property by the transferee or by the beneficiary (other than by the donor himself) during the interim between the making of the initial transfer and the relinquishment or termination of the power operates to free such income or other enjoyment from the power, and constitutes a gift of such income or of such other enjoyment taxable as of the “calendar period” (as defined in § 25.2502-1(c)(1)) of its receipt. If property is transferred in trust to pay the income to A for life with remainder to B, powers to distribute corpus to A, and to withhold income from A for future distribution to B, are powers to change the beneficiaries of the transferred property.

(g) If a donor transfers property to himself as trustee (or to himself and some other person, not possessing a substantial adverse interest, as trustees), and retains no beneficial interest in the trust property and no power over it except fiduciary powers, the exercise or nonexercise of which is limited by a fixed or ascertainable standard, to change the beneficiaries of the transferred property, the donor has made a completed gift and the entire value of the transferred property is subject to the gift tax.

(h) If a donor delivers a properly indorsed stock certificate to the donee or the donee's agent, the gift is completed for gift tax purposes on the date of delivery. If the donor delivers the certificate to his bank or broker as his agent, or to the issuing corporation or its transfer agent, for transfer into the name of the donee, the gift is completed on the date the stock is transferred on the books of the corporation.

(i) [Reserved]

(j) If the donor contends that a power is of such nature as to render the gift incomplete, and hence not subject to the tax as of the calendar period (as defined in § 25.2502-1(c)(1)) of the initial transfer, see § 301.6501(c)-1(f)(5) of this chapter.

[T.D. 6334, 23 FR 8904, Nov. 15, 1958, as amended by T.D. 7238, 37 FR 28728, Dec. 29, 1972; T.D. 7910, 48 FR 40374, Sept. 7, 1983; T.D. 8845, 64 FR 67771, Dec. 3, 1999; T.D. 9923, 85 FR 74047, Nov. 19, 2020]

Notes of Decisions

Cited in 35 cases (2 in the last 5 years), 1962–2023 · leading case: Ward v. Comm'r, 87 T.C. 78 (Tax Ct. 1986).

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Ward v. Comm'r, 87 T.C. 78 (Tax Ct. 1986). · cites it 4× “The gift is measured by the value of the property passing from the donor; if the gift is made in property, the property's value at the date of the *101 gift is considered the amount of the gift. Sec. 2512(a) ; secs. 25.”

Dickman v. Comm'r, 465 U.S. 330 (1984). · cites it 2× “2511-2 (b), 26 CFR § 25.2511-2 (b) (1983). At the moment an interest-free demand loan is made, the transferor has not given up all dominion and control; he could terminate the transferee's use of the funds by calling the loan.”

Est. of Goelet v. Comm'r, 51 T.C. 352 (Tax Ct. 1968). · cites it 16× “The settlor "is considered as himself having a power if it is exercisable by him in conjunction with any person not having a substantial adverse interest in the disposition of the transferred property or the income therefrom.”

Ahern v. Thomas, 733 A.2d 756 (Conn. 1999). · cites it 4× “§§ 2501 and 2511; see also 26 C.F.R. § 25.2511-2 (b). 21 Instead, even if title to assets has been transferred irrevocably to the trust, the transferred assets still are considered part of the transferor’s gross taxable estate for federal estate tax purposes.”

Holman v. Comm'r, 130 T.C. 170 (Tax Ct. 2008). · cites it 2× “That value of a gift of property is determined by the value of the property passing from the donor and not necessarily by the measure of enrichment resulting to the donee from the transfer.”

Est. of Davenport v. Comm'r, 184 F.3d 1176 (10th Cir. 1999). · cites it 3× “” 26 C.F.R. § 25.2511-2 (a). The gift tax also applies to transfers "for less than an adequate and full consideration in money.”

J. C. Shepherd v. Comr. of IRS, 283 F.3d 1258 (11th Cir. 2002). “700 (1943); 26 C.F.R. § 25.2511-2 (a). This “in transit” valuation has been described as analyzing “the moment of truth, when the ownership of the [donor] ends and the ownership of the [donees] begins.”

Linton v. United States, 630 F.3d 1211 (9th Cir. 2011). “” 26 C.F.R. § 25.2511-2 (b). The Lintons’ failed-gift argument, by contrast, relies on the formal technicalities of state law.”

Goldstein v. Comm'r, 37 T.C. 897 (Tax Ct. 1962). · cites it 6× “This demonstrates that certainty or uncertainty of benefit from the standpoint of the donees is not the test of the incidence of the gift tax.”

Mary Ann Heyen, of the Est. of Jennie Owen, Deceased v. United States, 945 F.2d 359 (10th Cir. 1991). “-2511-2(h). Although plaintiff does not dispute the general statutory and regulatory language regarding gifts, she cites to 26 C.”

Steinberg v. Comm'r, 141 T.C. 258 (Tax Ct. 2013). · cites it 4× “25.2511-2(a) , Gift Tax Regs. Donative intent on the part of the donor is not an essential element for gift tax purposes; the application of gift tax is based on the objective facts and circumstances of the transfer rather than the subjective motives of the donor.”

Est. of Vak v. Comm'r, 62 T.C.M. 942 (Tax Ct. 1991). · cites it 8× “Section 2511(a) provides that, subject to certain limitations, the gift tax applies whether the transfer is in trust or otherwise, direct or indirect, and whether the property transferred is real or personal, tangible or intangible.”

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— 26 C.F.R. § 25.2511-2(a) — 1 case

Becker v. United States, 751 F. Supp. 827 (D. Neb. 1990).

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