passing on $ 12,000

It depends. You can arrange for a trust, this can be costly to set up $2000-$3000 depending on the lawyer, and maybe a cost for the trustee. You are then passing along the investment decisions to the trustee, and not the child, although if the trustee is close to the family, they'll work closely with you. If it's a truly disinterested third party, they will follow 'prudent man' standards of investing which you may or may not agree with. The child still needs to have access to the gift each year, but can let it stay in the trust. If they are a minor, it's smoke and mirrors, you sign the letter saying the money stays in the trust. It they are an adult, they actually sign the right to the immediate money. This is called a "Crummy Letter". If they want your continued gifts and your ongoing love, they will sign.

Joe

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Your question is a little sloppy, so hard to answer precisely. Couple of points: there is no "gift limit", rather there is a record-keeping requirement (via IRS Form 709) if the annual amount is over $12K per person (unless you are talking about gifts approaching or exceeding the

Second, a gift means, no strings attached. Assuming they are adults, your children could turn around and hand the money over to the first homeless person they meet, or gamble it all away in a wild night at the casino, or let their spouse invest it for the future, and you have no say. If you want some continued control over the money, then it's not really a gift.

Third, in the case of a divorce, it's not a given the ex-spouse "will end up with half of it". Even if it isn't already spent by the time a divorce happens, there are so many possible outcomes that it's impossible to predict.

If your goal is to "not worry", then consider alternatives such as a loan instead of a gift, or passing on the money via inheritance.

-Mark Bole

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And a cost for annual preparation of a trust tax return (even though the trust income may be pass-through to the beneficiary).

Even worse is the fact that the [beneficiary of the trust] / [recipient of gift] will most likely *have* taxable income each year, over which they have no control.

I saw one client who was actually not very happy that her personal income taxes were being pushed into higher brackets each year due to a trust set up by her still-living parents, not to mention her spouse's reaction (which I can only guess at). All of the downside, with none of the benefit.

-Mark Bole

Ah yes, I do love a good Crummey Provision.

But I wanted to point out to the group that in early April '08 the Senate Finance Committee concluded a series of three meetings regarding estate tax reform. One reform specifically mentioned, and being considered, was the elimination or drastic reduction of Crummey withdrawal powers and their qualification for the annual gift exclusion. That would be a heavy blow to numerous estate trusts.

I can only speculate what will eventually precipitate, but I sure would hate to lose this valuable estate planning tool. Stay tuned for updates...

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