The IRS released Notice 2010-19 clarifying new code section 2511(c). Remember, section 2511(c) became effective on Jan. 1, 2010 and will sunset with EGTRRA on Dec. 31, 2010.
Section 2511(c) provides that a transfer in trust is a gift, unless it is made to a grantor trust. Some people had contended, by negative implication, transfers to grantor trusts were not gifts.
The IRS has now made it clear: the normal gift tax rules were not repealed and still apply. Section 2511(c) just overrides the normal gift tax rules for transfers to a non-grantor trust, such as an otherwise incomplete gift.
What to take from this: In 2010, it is not possible to make an incomplete gift to a non-grantor trust. However, gifts to grantor trusts are still gifts.
Director of Education, American Academy of Estate Planning Attorneys
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