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If not withdrawn, assets are distributed by the trustee according to trust’s provisions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