Many of us want to gift our assets to our children, grandchildren, or friends after we’re gone. Using a gift trust is often an effective way to do so. After a lifetime of hard work, we enjoy the thought of blessing children or grandchildren with our hard-earned assets. Unfortunately, gift-giving isn’t a simple process. There are serious drawbacks to many of the options for giving children or grandchildren gifts outright. Using a well-structured gift trust can help you avoid these drawbacks.
If you are considering giving a monetary gift to your grandchildren, or other loved ones, it's wise to speak to an experienced estate planning lawyer. Attorney Christopher Heritage of Heritage Legal, PC has helped many Palm Springs residents utilize gift trusts as a means to give gifts to their loved ones. He will review your financial situation and goals and advise you as to whether creating a gift trust can help you with your estate planning goals. Contact our Palm Springs estate planning law firm today to schedule your initial consultation.
Challenges That Arise From Giving Gifts Outright
Our clients often tell us that they like to give all or most of their assets to their grandchildren or another loved one. Sometimes they assume that they'll be able to simply write a check or designate their grandchildren as their beneficiaries in their will. These methods are not always the best way to give another person a gift, however. For example, suppose you write a check to your grandchildren now. By doing so, you would lose control of your assets. If your grandchild is a minor, you may be concerned about how he or she will spend the money.
Additionally, giving someone a large gift outright can cause them difficulties. For example, if you give your grandchild a significant amount of income, it could have negatively affected their ability to secure financial aid for college. You also run the risk of triggering significant gift taxes by gifting your loved one a lump sum of money. You may be considering leaving all of your assets to a loved one or grandchild in your will, but using a gift trust could provide more benefits to you and your loved ones.
Creating a Gift Trust Gives You Control
If you're considering gifting some or all of your assets to your loved ones, it's wise to consider creating a gift trust. When you create a gift trust, you transfer money or assets into the gift trust to benefit your grandchild or grandchildren. The trustees that you appoint will manage the property owned by the trust for your beneficiaries’ benefit. You can appoint yourself as a trustee of the gift trust.
Your attorney can draft the trust agreement’s terms to limit access to the income generated by the assets in the trust and the principal assets of the trust for as long as you would like. In many gift trusts, the trust agreement will prohibit the grandchild from accessing the funds in the trust until he or she turns 21 or until he or she finishes college. The trust agreement can allow the beneficiary to draw a certain amount of income every month from the trust but not access the full amount of assets until they meet specific qualifications. You control the terms of the gift trust which will reflect your preferences and goals.
When you create a last will and testament, you lose control of your assets once the beneficiary inherits your assets. By creating a gift trust, you can control the terms of the trust agreement. The terms of the trust agreement will control the management of your assets after you’ve passed away. When you create a gift trust, you can manage the trust as a trustee and determine what type of investments you'd like to make using the principal, which allows the gift to grow under your careful watch for the benefit of your loved ones. As the assets in a trust keep growing, so does the total gift you'll eventually make to your grandchild.
The Financial Benefits of Creating a Gift Trust
Numerous financial benefits come with creating a gift trust. Creating a gift trust will help you reduce your estate’s size, which is vital for those concerned about paying excessive estate taxes. Any income that the trust earns through investments will not count towards your personal tax liability. Instead, earnings will be taxed to the gift trust.
Gift tax rates can be as high as 40 percent of the value of the gift. Thus, avoiding gift tax is an important priority when it comes to estate planning. A person can currently give away up to $15,000 to any individual without triggering a gift tax. In other words, you can gift $15,000 in property or cash to your son, daughter, or grandchild without the need to pay a gift tax. If you are married and give your spouse a gift jointly, the gift tax will not be triggered unless the gift is valued at over $30,000.
By creating a gift trust, you can avoid paying gift taxes the amount that exceeds the annual gift tax exclusion amount. When you make a gift to a qualifying gift trust, the beneficiaries can withdraw the gift amount for a limited amount of time. Doing so allows them to designate the gift as a present interest, making the funds eligible for the gift tax exclusion.
Contact a Palm Springs Gift Trust Lawyer Today
Creating a gift trust can go a long way to furthering your estate-planning goals. However, these types of trusts are complex, and it's essential that you hire an experienced estate planning lawyer to draft them. If you're interested in learning about effective estate planning tools, we can help. Contact Heritage Legal, PC today to schedule your initial consultation. |