Final answer:
The transfer tax consequences to Cassidy would depend on whether Marissa is her daughter or niece. If Marissa is her daughter, the transfer may qualify for the annual gift tax exclusion. However, if Marissa is her niece, the entire transfer would be treated as a taxable gift.
Step-by-step explanation:
The transfer tax consequences in this case would depend on the type of transfer being made. Since Cassidy creates an irrevocable trust and funds it with assets, it could be considered a gift for tax purposes. If Cassidy is a U.S. citizen, she would be subject to the federal gift tax. The gift tax is imposed on the donor (Cassidy) and not the recipient (Marissa).
The gift tax applies when someone gives property or assets to another person without receiving anything in return or receiving less than the full value of the property or assets. In this case, by funding the trust, Cassidy is transferring assets worth $500,000 to Marissa as the remainder beneficiary.
If Marissa is Cassidy's daughter (as stated in the question), the transfer would qualify for the annual gift tax exclusion. The annual exclusion allows a taxpayer to give up to a certain amount ($15,000 in 2021) to each recipient without incurring gift tax. Assuming Cassidy doesn't make any other taxable gifts during the year, she would be able to exclude the entire $500,000 transfer to Marissa from the gift tax.
However, if Marissa is Cassidy's niece, the annual exclusion might not apply. The annual exclusion only applies to gifts made to certain individuals, including children, grandchildren, and other lineal descendants. Nieces and nephews do not qualify as eligible recipients for the annual gift tax exclusion. In this case, the entire $500,000 transfer to Marissa would be treated as a taxable gift, and Cassidy would need to report it on a gift tax return. The gift tax rates range from 18% to 40% depending on the amount of the taxable gift.