Many Nevada residents have recognized the benefits of using a trust to effectively transfer assets and lighten the estate tax burden. Currently, gifts given to a trust during the individual’s lifetime may result in a gift tax. While this tax may not actually be paid right now, it can lower the tax exempt amount that an individual has during his lifetime.
There are options to consider when giving a gift to a trust. The reason a gift tax may be imposed is if the gift is considered to be a future gift — the beneficiary will not receive it until he or she actually receives the trust. In this case, this gift could result in a gift tax.
In some cases, the gift to the trust could be considered a present-day gift, although the beneficiary will not receive the trust until the death of the individual who created it. One provision, referred to as a Crummey Provision, suggests mailing a letter to the beneficiaries, informing them of the gift to the trust. As a part of this letter, there could be a window of opportunity for the beneficiary to claim the gift from the trust. This could then make the gift a present-day gift and qualify for the annual gift tax exemption.
Nevada residents who are concerned about gift taxes and exemptions may want to discuss these trust gifts with their knowledgeable advisor. Using a trust is one effective method for transferring assets and minimizing tax obligations. As with all trust and estate planning strategies, it is always advisable to research the available options and discuss their possible benefits.
Source: financial-planning.com, Crummey provision: Tax tactic for gifts to trusts, Donald Jay Korn, March 13, 2014