Since the unification of the federal estate, gift and generation-skipping transfer tax exemption amounts in 2011 to $5 million and the signing of the American Taxpayer Relief Act of 2012, making the exemption amounts (adjusted for inflation) permanent, the historically large lifetime gift tax exemption has been the focus of estate planning. However, another significant component to a robust wealth transfer program is annual gifts that are eligible for the gift tax exclusion. In 2013, the annual gift tax exclusion amount increased from $13,000 to $14,000 (or $28,000 if spouses elect to split gifts). With this increase, parents and grandparents can make annual gifts to their children and grandchildren that easily exceed $100,000 per year without paying a gift tax or reducing the lifetime gift tax exemption amount.1 Over time, annual gifting can effectively reduce the donor’s gross estate by not only removing the value of the gifts but all the future appreciation associated with those gifts.
When making annual gifts, the donor must decide what gifting method to utilize. The least complicated method is an outright gift. However, when dealing with a minor, an outright gift of any substantial size is almost always inappropriate. Thus, the donor must evaluate alternative methods that include some level of continued control to preserve the gift and let it grow for the benefit of the minor. This article discusses commonly utilized methods for making annual exclusion gifts to minors and when a particular gifting method is most appropriate.
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