Gift in trust

Gift in trust is a gift that withholds the legal title from the donee. The title leaves donor powerless to estinguish the trus unless trust contains the power of revocation. Gift givers can give gifts in excess of the annual exclusion without paying taxes by establishing a special type of trust.

Gift in trust helps transfer money to future generations. Transferring wealth from one generation to the next using a will can be complicated. Using proper trust configuration can help to transfer money with minimum taxes applied.

Gift in trust in details

As mention above the gift in trust is related to the indirect bequest of goods such as for example property which comes without the title what means that it cannot be sold by the person who revives this kind of legal gift. This action is made mostly due to avoiding taxes which are imposed on the gifts that outstrip the exclusion amount of the annual gift tax. The tax related to the gifts is changing its limitation throughout the years. For instance, in the United States in the year 2004 the limitation of the gift in trust was set at $1,500,000, however, in 2018 Internal Revenue Service, in short IRS, announced the exemption at the of $5.6 million, which shows a vast increase of the allowance in terms of gift tax limitations.

The non-tax asset of gifts in trust

A document called a gift in trust is often established with a special sort of trust which limits the time of withdrawal right. That is why it is a common practice used by parents and grandparent in relation to creating a trust fund dedicated to their children and grandchildren without the obligation to pay the tax for a given gift. However, by using this type of gift, the legal guardian of the particular child or teenager acting for the purpose which benefits the beneficiaries in cases where the beneficiary is not mature or in situations where the beneficial interest is divided among multiple descendants. It is also one of the best ways to protect from the spendthrifts action. Nonetheless, there are more benefits of the gift in trust which are not connected to the tax avoiding actions. Though that kind of legal document the donor can also protect spouses, other members of the family and can keep the funds away from the claims of creditors.

The main requirements of gift in trust

To make a gift a legally effective donation the three main requirements such as below noted must be made:

• the first requirement is associated with the donative intent, which is connected with the intention of grander or donor to give a particular gift to the grantee or donee,
• the second condition is definite by the delivery of the gift to the donee or grantee,
• the last requirement requires the need for acceptance of the donation by the donee.

Types of gifts in trust

When introducing the subject of the gift in law, it is essential to underline the two main types of donations such as:

• inter vivos - also called lifetime gift, this type of the gift is connected to the donation made during the lifetime of the donor,
• causa mortis - also called deathbed gift, this type of the gift is associated with the forthcoming donation made in expectation of imminent death of the donor.

The generation-skipping transfer tax

The interesting feature is present in the U.S. taxation rule which is called Generation-skipping transfer tax and was introduced by the Congress in 1978. This rule is based on the ideology which assume that wealth can be transferred as a gift in trust to the person which either is unrelated to the donor and is more than 37 years younger than the grander, or is a representative of a generation which is more than the subsequent to the donor and is related to the grander.

A brief information about the history

The origins of the gift and trust law are associated with the Roman times. However, the reforms related to the tax and gifts in trust have changed many times throughout the years. As an example, the changes in the Tax Reform Act of 1976 introduced by the US Congress, can be proposed. This particular reform submits major the changes in terms of inter vivid gifts making the legal process more accessible and more affordable to the potential donors.

Gift in trust — recommended articles

Disclaimer trust — Spendthrift clause — Tenancy at Will — Absolute assignment — Mutual Will — Clear title — Proof of loss — Consent order — Limited warranty deed

References

• Dukeminier, J., & Sitkoff, R.H.(2014). Wills, trusts, and estatesWolters Kluwer Law & Business.
• Gale, William G.; SLEMROD, Joel B.(2001).Rethinking the estate and gift tax: overview. National Bureau of Economic Research.
• Glazier, A.K.(2011).The principles of gift law and the regulation of organ donation. New England Organ Bank, Boston University School of Law, Waltham, MA, USA.
• Langbein, J.H.(2010).Burn the Rembrandt? Trust Law’s Limits on the Settlor’s Power to Direct Investments. Faculty Scholarship Series. Paper 497.
• Rogers, D.(1951).Practical Considerations in Gifts to Minors. 20 Fordham L. Rev. 233.
• Scott, A. W.(1966-1967).The Importance of the trust. 39 U. Colo. L. Rev. 177.
• Shively, J.G (2000).The Death of the Life in Being—The Required Federal Response to State Abolition of the Rule Against Perpetuities. 78 Wash. U. L. Q. 371
• Turnier, W. J.(1981).The role of Gift Giving in Estate Planning.59 N.C.L. Rev. 377.

Footnotes

Author: Magdalena Czajka