Gift in trust is an important estate planning tool used to pass wealth from one generation to the next. In essence, a trust fund is created in order to protect and maximize the value of the assets being transferred. The trust can be established by either a single donor or multiple donors.

When creating a gift in trust for tax purposes, the Internal Revenue Service (IRS) will tax up to the annual gift tax exclusion amount. This limits the amount of transfers that can be made without incurring any tax liability. To avoid any taxes on the excess amount of money transferred, one can utilize a particular type of trust – a Crummey trust.

Under a Crummey trust, gifts may be made for a specified duration of time. This may range from a one-time gift to a series of gifting that span several years. The gifts must have a present interest in order to qualify for the gift tax exclusion, meaning they must be available to the beneficiary to access immediately. Another favorable benefit of this type of trust is that the contributions are irrevocable, meaning they cannot be reclaimed.

However, with great power comes great responsibility and this is true when it comes to gifts in trust. For instance, if the trust is established without certain restrictions, commonly known as a “Crummey trust”, a beneficiary (such as a child), may be able to take out large amounts of money. Consequently, this could eventually erode the entire trust fund.

Gift in trust is an essential tool in estate planning, as it allows for an efficient and legally sound transfer of wealth from one generation to the next. But, due to its many benefits, it is important for individuals to make sure that their trust includes restrictions to protect the financial health of the trust fund for years to come.