Academic Commentary
Gavit implies that the ยง102(a) exclusion goes to the remainderman alone, because he is treated as owning the corpus. In holding that trust income cannot be excluded by an income beneficiary (e.g. life-tenant), "the Court in effect decided not merely how much should be taxed, but to whom." But why not divide the realization of the income somehow between the several heirs? For example:
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- Since the life-tenant's interest is a "wasting asset," tax her life-estate/life-tenancy as an annuity, with a present value (at any given time) equal to the present value of the future payments -- an amount she could "recover ratably" each year.
- The value of the remainder likewise grows from year to year; that could count as annual income, taxed to the remainderman -- but also added to the basis of his remainder interest (as if he had purchased an endowment policy -- but, as we don't tax the income accumulating interest on an endowment policy until it matures, the remainderman should likewise be permitted to defer this "income" until it "matures")
Read more about this topic: Irwin V. Gavit
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