What must a trust do in order to be subject to gift tax?

For a trust to be subject to gift tax, it generally must allow for the potential to provide a lifetime income to specified beneficiaries. This is significant because when assets are transferred into a trust and the transferor retains the right to income from these assets (without relinquishing control), it generally indicates that they are making a gift of the potential future benefits associated with those assets.

When the trust is set up to provide income to specified beneficiaries for their lifetime, it means that the transferor has given something of value away, as the beneficiaries will receive financial benefits from the trust during their lifetimes. This transfer of economic value is what triggers gift tax considerations. The Internal Revenue Service assesses the value of the gift based on the rights and benefits relinquished by the transferor, which is applicable here.

In contrast, the other options describe situations that typically do not involve a taxable gift under the guidelines of U.S. tax law. For example, providing income exclusively to grandchildren or distributing assets equally among siblings may not necessarily entail a taxable gift without the requisite ongoing income rights or control being given up. Maintaining joint ownership with the transferor doesn't constitute a gift if it allows the transferor to retain full enjoyment and use of the asset. Therefore, the choice that allows