Gift Trust

Most estate planners agree that it is more effective to transfer assets during life than at death.

The drawbacks of transferring assets during life in order to achieve tax savings are that A) you have to actually transfer the assets, and B) you cannot retain the ability to get the assets back if the need or desire arises.

Since gift trusts are designed to last a very long time and have all post-gift appreciation escape the donor's taxable estate, the challenge is to draft a trust with sufficient flexibility to adapt to changing family and tax law dynamics, while not giving too much control to the grantor/donor, which would cause the assets to be included in the donor's taxable estate. A common solution to this issue is appointing an independent "trust protector" who has the power to amend the trust if necessary.

As a general rule, any gift of property is subject to gift tax. There are three important exceptions to this rule: Marital Gifts, Annual Exclusion Gifting, Medical & Educational Expenses.

Annual Exclusion Gifting

Individuals can give up to $13,000 per person per year. This can be a very effective way to reduce the size of your estate. For example, a parent with five children can give away $65,000 per year. By adding the spouses of each donor and recipient, the gifted amount can be increased to $260,000 per year.

The annual exclusion exception to the gift tax is the cornerstone of irrevocable life insurance trust planning.

Marital Gifts

The IRS generally does not tax gifts between spouses. The ability to make tax free gifts to your spouse is the foundation upon which credit shelter trusts are built. However, this gift tax exemption does not apply to spouses which are not United States citizens.