Taxation of Estates and Gifts
The first $10,000 (adjusted for inflation, so $15,000 in 2019) of gifts can be excluded per donee per year. 26 U.S.C. § 2503(b)(1).
- If the settlor retains the right to withhold the money, each individual distribution uses the annual exclusion for that year. 26 CFR § 25.2511-2(b)–(c).
- If the trustee has the discretion to decide the portions among the beneficiaries, they still have no present interest. The entire amount will be included in that year's taxable gifts, and there're no annual exclusions in the distribution years.
- It's still irrevocable, so you still have to pay the taxes. It's just discretionary so you don't get the deductions.