Gift in Trust

A gift in trust is an indirect bequest of assets to a beneficiary by means of a special legal and fiduciary arrangement. The purpose of a gift in trust is to avoid taxes on gifts that exceed the annual gift tax exclusion amount. Gift givers almost always pay gift taxes if gifts exceed $13,000 in one year. (The excess is taxable in these scenarios.)

Gift givers can give gifts in excess of the annual exclusion without paying taxes by establishing a special type of trust, such as a Crummey trust. A gift to a Crummey trust allows the beneficiary to withdraw the gift for a limited time, which makes the gift a present interest and eligible for the gift tax exclusion. If the gift did not have these limited-time withdrawal rights, it would be considered a future interest and would be subject to gift taxes. That being said, it is generally understood that the beneficiary will not actually withdraw the funds during the withdrawal period. Gifts in trust are commonly used by parents or grandparents who want to establish a trust fund for their children or grandchildren.

In 2018, the IRS announced the estate and gift tax exemption is $5.6 million per individual and $11.2 million for a married couple. The individual limit is up from $5.49 million in 2017. The annual gift exclusion amount is $15,000, up from $14,000 in 2017. Along with the 2018 limits, the IRS also released several additional updates, including a new online Transcript Delivery Service (TDS). This provides individuals and authorized practitioners the ability to view and print instant account transcripts for estate tax returns.

In prior years, the gift tax exclusion has been: $1,500,000 (2004-2005), $2,000,000 (2006-2008), $3,500,000 (2009), $5,000,000 (2010-2011), $5,120,000 (2012), $5,250,000 (2013), $5,340,000 (2014), $5,430,000 (2015), $5,450,000 (2016), and $5,490,000 (2017).

Gift in trust is one method of helping establishing a financial cushion for future generations. Transferring wealth from one generation to the next via a will or other means of inheritance is a complicated endeavor, both logistically and even emotionally. At the same time, these rules can bring enormous benefits to individuals, families, and communities. In May 2017, for example, the Hinrichs Family Trust donated $17,273 to the Solano Community Foundation, distributing a sum directly from their trust for the cause. Understanding the nuances of gifting can bring added value to both grantors and beneficiaries.