The primary purpose of estate planning is to keep hard-earned money in the family while reducing taxes. Gift-giving is one of the most common strategies employed for this purpose. Currently, it’s possible to give $14,000 per year to as many people as desired under the gift tax exclusion, according to an Estate Planning Law Attorney in Topeka KS. Spouses can each make $14,000 gifts.
Parents and grandparents frequently choose to give gifts with the intent of adding to a college or investment fund for the child. However, most people would not wish the child to be able to immediately spend this money as they wished.
Trusts
When money is deposited into a trust, the person establishing the trust can decide when the money should be given to the child and under what conditions. The major problem with putting money into most trusts is that it is not considered a tax-free gift because the child does not have a “present interest” in the funds. The gift is considered money promised for a later date rather than money available now.
Crummey Trusts Offer a Solution for Giving Gifts to Children
A Crummey trust provides a method for giving gifts to a trust established for the benefit of an individual while still being qualified for the gift tax exclusion. The necessity for meeting the requirement that the child has a “present interest” in the gift is met by Crummey trusts. The child has the right to withdraw or transfer the gift within a set period of time, usually 30 days. If the child does not do so, then the gift becomes part of the trust and is governed by the conditions of the trust. The child must be informed of this.
Obviously, this is not perfect. While a child in elementary school would be unlikely to withdraw the money, a teenager could be tempted and would have the legal right to take and spend the money as they saw fit. While a parent or grandparent could not prevent this, they could inform the child that if they did so that no further gifts would be received.
Debenham Law Office, LLC has been assisting local residents with their estate planning for more than 40 years. This experienced Estate Planning Law Attorney in Topeka KS believes in offering the highest degree of service possible to each client.
