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Walt Shurden Elder Law

Understanding the Rules for Gift Taxes on Items in Irrevocable Trusts

Walt Shurden
Board Certified Elder Law Attorney
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You may have heard that placing your assets in an irrevocable trust will prevent you from having to paying taxes on them. While this is true with regard to estate taxes, it may not apply to gift tax. The government considers any assets that are placed into a trust as a “gift” from you to the trustees, since you no longer have legal claim to the property. In some circumstances, you may be required to pay gift taxes on cash and assets in the trust when you file your yearly return.

Will I Have to Pay Gift Tax on the Assets I Place in Trust?

Generally speaking, a person can transfer up to $14,000 per person into a trust per year without owing gift taxes. This limit is called the annual exclusion from the gift tax. However, there are several qualifications and exceptions for paying gift taxes on trust assets, including:

  • Present Interest

    In order to be excluded from taxes, your gift must have “present interest” to the beneficiary—that is, he or she has immediate control over the full amount of the gift. For instance, if you transfer a check for $10,000 and stipulate that your spouse cannot cash it until your death, this will not be a present interest gift and is taxable. However, if you transfer $10,000 in cash and the funds are available to the beneficiaries immediately, this is considered a present interest gift.
  • Right to Withdraw

    As trusts are generally created to hold money for a specific amount of time, it can be difficult to establish an amount as a present interest gift. You may avoid gift taxation if your trust beneficiary is given the right to withdraw the funds after the gift is made (whether he chooses to do so or not). As long as your deposits remain with annual limits and your beneficiaries are notified each time a transfer is made, your transfers should qualify as an annual exclusion gift.
  • Lifetime Limits

    While you may be limited to gifts under $14,000 per person per year to avoid gift tax, you are also allowed to transfer assets valued at up to $5 million over the course of your lifetime without paying gift taxes. This can be useful for people who wish to bundle stocks, property, or real estate holdings into a trust, as these items may later appreciate in value.

How to Pay Gift Taxes on a Transfer to Your Trust

If you have met the requirements, you will usually not be liable for gift taxes on your transfers. However, if you made transfers over $14,000 per person or have placed assets into a “generation skipping” trust, you will be required to report the amounts on your annual tax return.

It can be difficult to make the choices that will decide you and your family’s financial future. That is why the staff at the Law Office of Walter B. Shurden explains your options to you step-by-step, ensuring that you create a plan that will provide for you and your loved ones even after your death. Call our Clearwater offices today at 877-241-1230 or email us at [email protected] to get started.

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