Give the Gift of a Gift Trust

During holiday time, many people feel more generous than usual. This is not surprising since religious teachings of this period emphasize the importance of helping others, and many stories of the season involve giving in one way or another. If you are inclined to make gift-giving preparations, now is a good time to contact an experienced wills and trusts attorney. If you live in Southeastern Massachusetts or Cape Cod, you should look into the impeccable credentials of the well-respected firm of Surprenant & Beneski, PC.

What is the purpose of a gift trust?

A gift trust is an irrevocable trust set up by a grantor (you) to be a one-time gift to another person (your beneficiary). The trust has a maturity date, designating when the control of the money will transfer to your heir. You will choose the maturity date at the time the trust is established.

The purpose of a gift trust is to bestow a gift on the desired beneficiary while avoiding the federal gift tax. For those with substantial estates, a gift trust is an efficient way to transfer wealth to the next generation without leaving your loved ones responsible for an additional tax burden. 

The gift trust will allow them to receive assets that exceed the annual gift tax exclusion. The annual federal gift tax exclusion allows you to give away up to $15,000 in 2020 to as many people as you wish, without those gifts counting against your $11.58 million lifetime exemption. In the future, this $15,000 amount may be increased due to inflation. Those you provide for with your gift trusts may be close relatives or other beneficiaries.

It is important to remember that although the IRS does not levy gift taxes on trusts, nor consider payments from the trust to a beneficiary as a gift, you have to note the gift on your income tax return.

What is a Family Gift Trust (FGT)?

An FGT is crafted as a separate legal entity to receive and hold gifts of property. Here, too, the named beneficiaries may be relatives or other people close to you. When your estate planning attorney drafts an FGT, it is an irrevocable trust.

Benefits of Gift Trusts

There are several advantages to having your trust attorney establish gift trusts for your beneficiaries. These include:

  • Satisfying your desire to see your children and grandchildren receive their gifts during your lifetime
  • Removing the value of the gift from your taxable estates, along with a future appreciation of its value
  • Having the opportunity to observe the level of maturity with which your heirs handle the money they receive
  • Making inheritance funds available early enough to pay for your grandchildren’s education at the time it is needed
  • Dispersing your assets early to diminish the assets of your taxable estate

What is a Crummey trust?

A Crummey trust is an estate planning tool that can also be used to take advantage of the gift tax exclusion by allowing the transferring money or assets to another person while retaining the option to place limitations on when the recipient can access the money. 

In other words, when your estate planning attorney assists you in creating a Crummey trust, you can add particular stipulations to the document. Such stipulations may limit the amount of money your beneficiary may withdraw during a limited period of time. This has the benefit of protecting the assets you are giving from being frittered away quickly, protecting your beneficiary from temptations to overspend or to follow his-or-her worst instincts.

Why do you need an effective estate planning attorney to establish a gift trust?

As with other financial matters tied to protecting and distributing your assets in the way that they will do the best for your family and your community, you need an informed, skilled professional to help you achieve your goals. The laws surrounding inheritance and trusts are both specific and complex. Make certain that your estate accomplishes all that you envision by giving the most important gift of all — trustworthy advice and guidance. Contact our office today to schedule a virtual consultation.

©Surprenant & Beneski, P.C. 35 Arnold Street, New Bedford, MA 02740, 336 South Street,   Hyannis MA 02601 and 45 Bristol Drive, Easton MA 02375.  This article is for illustration purposes only.  This handout does not constitute legal advice.  There is no attorney/client relationship created with Surprenant & Beneski, P.C. by this article.  DO NOT make decisions based upon information in this handout.  Every family is unique and legal advice can only be given after an individual consultation with an elder law attorney.  Any decisions made without proper legal advice may cause significant legal and financial problems.