Fort Worth Gift Trust Attorney

At the Law Office of Carey Thompson, we regularly advise individuals and families in Texas on estate planning and gifting strategies. While many individuals can minimize their estate tax liabilities by making annual gifts, creating a gift trust is another option. Because the tax laws are complicated, however, it is crucial to have the skilled representation our practice provides.

Our trusts and estate lawyers have working knowledge of the applicable laws and rules governing gift trusts. Our trustworthy advice will hold you in good stead if you are considering gifting as part of a comprehensive estate plan. When you become our client, we can help to create a gift trust that will preserve your legacy and protect your loved ones.

What is a gift trust?

A gift trust is an irrevocable trust that is structured so that transfers to the trust are not treated as a taxable gift. The gift tax exclusion under Internal Revenue Code Section 2503(b) allows each individual to give an unlimited number of people $15,000 each year, tax-free. The annual exemption for a married couple is $30,000.

In a gift trust, the annual gift tax exclusion applies to each recipient, so multiple gifts up to that amount can be made to children, grandchildren, or other individuals, which can result in significant estate tax savings. To qualify for the exemption, a gift must be of “present interest.”
This means that the recipient must have the immediate right to use the proceeds.

Gifts of a present interest are not taxable, as long as the trust is properly structured. In particular, beneficiaries of a gift trust must have the power to make withdrawals within a set period of time (generally 30 days) after the gift has been transferred to the trust to ensure that it is considered a present interest rather than a future interest. If none of the beneficiaries exercise their withdrawal power, the assets remain in the trust and will not be subject to tax or included in the donor’s taxable estate.

A beneficiary’s withdrawal power is known as a “Crummey Power,” which is derived from a landmark tax case, Crummey v. Commissioner of the IRS (1968). In that case, a taxpayer established a trust with an immediate withdrawal right that expired after a short time period.

The IRS argued that deposits to the trust were not of present interest because the withdrawal right expired. However, the court found that the withdrawal right was the present interest, even if the beneficiary did not exercise that right. Since the landmark ruling in Crummey, gift trusts have become a commonly used estate planning tool.

What are the benefits?

Creating a gift trust has a number of advantages. In addition to the gift tax exclusion, the trust assets are protected against creditor claims. If a beneficiary experiences financial problems, for example, or becomes the defendant in a personal injury lawsuit, creditors and the court cannot go after the trust assets. Trust assets are also protected in the event of a divorce because the gift is considered separate property and not subject to division. Finally, trust assets generally avoid probate as long as the trust names successor beneficiaries and provides instructions for future distributions.

The main disadvantage to a gift trust is that the trust is irrevocable. The creator of the trust cannot modify the trust by changing or adding beneficiaries. Ultimately, irrevocable gift trusts are well suited for individuals having estates that exceed the federal estate tax exemption.

How The Law Office of Carey Thompson Can Help You Establish a Gift Trust

When you consult with us, we will take the time to understand your financial circumstances and determine whether a gift trust is the right option for you. Our long-term planning strategies can help to preserve your wealth for future generations. We will guide you through the process of setting up a gift trust, including:

  • Preparing the irrevocable trust
  • Establishing separate trusts for each beneficiary
  • Preparing the required notice to the beneficiaries (the “Crummey” letter)

In addition, we will also consider other estate planning tools, such as creating a custodial account for your minor children under the Uniform Transfers to Minors Act (UTMA). Above all, we will work to help you preserve your wealth and provide for your loved ones. To learn more about the benefits of gift trusts in Texas, contact our office today for a free consultation.