Empowering Generosity: Charitable Trust Benefits

Pile Of Gifts | Succession Planning | Myatt & Bell

One way to reduce your estate tax bill is to give money away during your lifetime. If you are a parent or a grandparent, giving to the children in your life is a great way to accomplish this. By doing so, you can help your children or grandchildren build their financial futures, with tax savings as a natural by-product. With a top estate tax rate of 40%, this by-product can be quite significant.

IRS rules limit how much you can give away each year without reducing your overall gift and estate tax exclusion of $5 million (adjusted for inflation, $5.34 million in 2014). Through 2014, the annual exclusion is $14,000. This means that an individual can give up to $14,000 each year to any other individual without reducing their lifetime exclusion. Parents or grandparents can combine their annual exclusions to give $28,000 annually per couple.

UGMA/UTMA Accounts

This situation gets complicated if your children are still minors. Until they reach adulthood, the law requires that minors have someone manage their money for them. Many parents fulfill this requirement by establishing a Uniform Gifts to Minors Act (UGMA) or a Uniform Transfers to Minors Act (UTMA) account. This is a simple, efficient arrangement that allows you to manage funds on behalf of your child until your child is legally able to take control of the account.

The problem with these accounts is that you are required to turn the entire balance over to your child when he or she reaches age 21 (18 in some jurisdictions). As every parent knows, children mature at different ages and not every young adult is ready to manage a large sum of money at that age.  A great way to address this issue is to set up an Irrevocable Trust.

Irrevocable Trusts

An Irrevocable Trust is one alternative to an UGMA/UTMA account. Estate planning attorneys often recommend this option because an Irrevocable Trust can be tailored to the needs of an individual child. There is no set age at which Trust assets must be distributed to a beneficiary; instead, the assets can be held in Trust for as long as the parents wish. Trust funds can be distributed at periodic intervals instead of in one lump sum. The distribution of assets can even be tied to the achievement of goals such as college graduation or maintaining full-time employment.

An Irrevocable Trust carries greater up-front and administrative costs than an UGMA/UTMA account; however, when deciding between the two options parents should consider the potential risks of handing over a large sum of money to their child at a young age.
By: The American Academy of Estate Planning Attorneys

Share this post:

Related Posts

Mb January 2022 Newsletter | Estate Planning Attorney | Myatt & Bell
Estate Planning

Legal Analysis: Highlights from January 2022

In this edition of M&B Monthly: From the President: “We’re The Firm That Funds Our Trusts” — Estate Planning Seminars: Share With A Friend — A Little About Us… Highlighting Relationship Manager Jami Martin & Her Fabulous Crockpot Salsa Chicken Recipe

Read More