Do you want to make annual exclusion gifts to your young children or grandchildren but are worried about giving minors unfettered access to the funds? Then a Section 2503(c) minor’s trust might be the solution.
For a transfer to qualify for the annual exclusion from gift tax ($14,000 per recipient for 2015), generally the transfer must be of a “present” interest — essentially, the recipient must have immediate access to the funds. So transfers to trusts typically don’t qualify. But contributions to a minor’s trust do qualify, provided the trust meets these requirements:
- Assets and income may be paid to or on behalf of the minor before age 21,
- Undistributed assets and income will be paid to the minor at age 21, and
- If the minor dies before reaching age 21, the trust assets will be included in his or her estate.
When the beneficiary turns 21, it’s possible to extend the trust by giving the beneficiary the opportunity to withdraw the funds for a limited time (30 days, for example). After that, contributions to the trust no longer will qualify for the annual exclusion, unless you’ve designed it to convert to a Crummey trust. Another option is simply to design the trust as a Crummey trust initially.
As you examine the options for transferring wealth to the next generation, consider a Sec. 2503(c) minor’s trust or a Crummey trust. We can help you determine whether this trust type is a good fit for your estate plan.