The Basics of Annual Exclusion Gifts


Defined as the value transferred in a single calendar year to another person without using the lifetime gift tax exemption









Seven Annual Exclusion Gift Strategies


1. Uniform Transfers to Minors Act (UTMA) and Uniform Gift to Minors Act (UGMA)


  • Simplest way to make annual exclusion gifts to children

  • Funds become the child’s when they come of age (18 or 21, varies by state)

  • Accumulated funds can be invested

  • Deposit a check each year

  • Open an account for the benefit of the child


2. 529 Plans


  • A tax-advantaged plan designed to pay for education

  • Contribute after-tax dollars

  • Income tax on account earnings is deferred

  • Withdrawals are income tax free if are used for qualified education expenses


3. Crummey Trusts


  • Created by a “grantor” for the benefit of one or more beneficiaries

  • Annual exclusion gifts to the trust can be cash, stock or business interests


4. Irrevocable Life Insurance Trusts (ILITs)


  • Like a Crummey Trust, but the assets are used to purchase a life insurance policy


5. 2503(c) Trusts


  • May only have a single beneficiary

  • Separate trusts can be created for each child

  • Upon reaching age 21, the child has only one window of time *usually 30 days) to withdraw all trust assets

  • If not withdrawn, assets are distributed by the trustee according to trust’s provisions


6. 2642(c) Trusts


  • Similar to 2503, but for grandchildren

  • Allows exclusion gifts to be made to the trust without using any of the grandparent’s generation skipping transfer (“GST”) tax exemption


7. Intrafamily Loans


  • Allows gifts above the annual exclusion amount

  • A portion of the loan (equal to that year’s annual exclusion amount) may be forgiven