I end my blogposting trifecta today with an account of an accumulation trust that deftly uses the annual gift tax exclusion (then $12K per donor per donee) for sixty (count ‘em, sixty) of the trustors’ nearest and dearest to dodge both GST and gift tax, in Israel Mikel, 2015 T. C. Memo. 64, filed 4/6/15.

Is and Mrs Is gifted $3,262,000 of property in trust, filed the Form 709 late (after IRS was on their trail), but claimed they were under the unified credit because each of Is and Mrs Is gave $12K to each of the sixty.

This they did by virtue of a 30-day grab clause in the trust instrument. Each of the sixty, adult or minor, gets an annual notice, saying the trustees must turn loose, in cash or property, the lesser of a mathematical formula or the annual exclusion then in effect upon mere request, if given within thirty days of the notice. And everybody gets the annual notice.

Otherwise, the trustees, in their sole, complete, exclusive, unfettered and unreviewable discretion, can pay principal, interest and whatever to any beneficiary for education, to start a trade or business, or to have a nice wedding.

There’s an in terrorem clause. Although not favored in Our Fair State, this one passes muster. Whosoever challenges the trustees’ largesse, brings lawsuits or otherwise behaves like a grubbe yung (an arcane technical term which I need not translate) will get nothing, nichts, nada, rien.

Anyone with a gripe must go to a Beit Din. This is a Jewish rabbinical court, which, at least in the Empire State, is recognized as an arbitral entity, whose awards may be entered as judgments and enforced under our Civil Practice Law and Rules.

IRS engages in some argy-bargy about whether New York State will enforce an arbitration provision on one who does not explicitly agree thereto, but backs off, and raises a valuation question that Judge Lauber blows off as beside the point in a partial summary judgment motion.

While the trust instrument isn’t a “paragon of draftsmanship” (2015 T. C. Memo. 64, at p. 18), Judge Lauber says the in terrorem clause doesn’t render the demand rights of the beneficiaries illusory.

The thrust of the opinion is the reaffirmance of Crummey v. Commissioner, 397 F.2d 82 (9th Cir. 1968), rev’g in part T.C. Memo. 1966-144.

This masterpiece of tax planning is “an ingenious device to obtain an [annual gift tax] exclusion for a discretionary accumulation trust by giving beneficiaries the right to demand immediate distribution of particular amounts.” Boris I. Bittker & Lawrence Lokken, Federal Taxation of Income, Estates, and Gifts, para. 124.3.3, at 124-13 (2d ed. 1993), quoted in 2015 T. C. Memo. 64, at p. 12.

IRS has acquiesced in Crummey for years, but now claims the in terrorem frustrates any demanding beneficiary from pursing their rights, so the demand right is illusory. No, says Judge Lauber, the Beit Din remains and isn’t covered by the in terrorem. Anyway, reading the in terrorem, it applies only when someone challenges the trustees when they give away, not when they refuse.

So the demand right is real, and Is and Mrs Is get partial summary judgment.