Can a Trust Make Tax Free Gifts

Name of the person acting as trustee, trustee of the name of the donor`s family trust dated the date of signature of the trust (x/x/xx) fbo name of the child, grandchild or any other beneficiary No. You can stop making annual donations to the trust at any time and start again at any time. However, the annual exclusion is a “use it or lose it” proposal, and unused exclusion amounts are not carried forward to future years. Gift trusts with “Crummey” powers offer maximum flexibility. There is no specific age at which the beneficiary must receive the property, except for the age or age groups you choose. A typical agreement is to distribute the assets of the trust at age 25 to 1/3 at age 30 and the rest at age 35, but you can leave the assets in trust until the beneficiary is 50 or even older if you wish. You can give the trustee the opportunity to change age at will. More and more clients are recognizing the benefits of creditor protection and tax planning when assets are held in trust and ensuring that each child`s assets remain trustees throughout their lives, with the child acting as the sole trustee at an age set by the client. They can give the trustee the power to penetrate the shares of less needy beneficiaries in favor of needy beneficiaries.

You can even have the trust as a generational jump trust (also known as a “dynasty trust”), so the property remains trustee for up to 360 years to provide benefits to each subsequent generation without being subject to inheritance tax in their estates. Yes. You can sell assets to your trust at fair market value. To transfer money or securities, the trustee opens an account in the name of the trust and the settlor asks his bank or broker to transfer the funds from his account to the trust account. In the case of real estate, a deed is used to transfer legal ownership of the settlor`s property to the trust. All future declarations of insurance and property income must be sent to the trustee and paid with trust funds. To transfer an existing life insurance policy, the settlor only needs to receive and complete a change of ownership form and the change form for the beneficiary of its life insurance company. No. The insurance policy must be transferred to the trust at least three years before the death of the insured. This three-year rule prevents people from giving life insurance on their deathbed and “cheating” the IRS of inheritance tax on the product. However, the three-year rule only applies to policy gifts, not policy sales.

To avoid the three-year rule, many clients prefer to transfer money to the trust and then let the trust buy the policy from them. Since the trust is a settling trust, this type of sale has no tax consequences and the three-year rule is effectively avoided. A gift trust is irrevocable. Once it has been set up, you cannot revoke the trust or change its terms. The key is to ensure that the trusted document offers sufficient flexibility. For example, the trustee should have the discretion to withhold distributions it holds in the best interests of the recipient and should have discretion in other key areas. The tax advisor can prepare the tax return for each trust. This is not a complex return for a qualified professional and it is important that it is done every year and correctly.

By using this technique, you allow trust ownership to multiply tax-free income, which could significantly increase the value of the property in the trust (and your estate) over several years. For example, suppose $100,000 is paid to a gift trust, which is a settling trust, and it generates income equal to 10% of its wealth per year, taxed at a tax rate of 30%. If the gift trust were to pay the trust`s income taxes, the trust would have assets worth approximately $196,700 after 10 years. If the settlor pays the taxes, the trust`s assets would be close to $259,400 at the end of the same 10-year period, meaning that an additional $62,700 in assets would avoid being subject to inheritance tax, saving nearly $25,080 in estate tax, assuming the 40% rate applies. These concerns can be addressed by properly structuring the gift. There are four common methods for making donations: According to IRS Decision 95-58 on Revenue, you can retain the power to replace the trustee as long as the alternate trustee you choose is not “related” or “subordinate.” Most customers find that this ability gives them adequate control over trust. .