does a living trust qualify for annual gift tax exclusion?

someone has recently stated that an annual gift must be made from a personal account, because a revocable living trust does not qualify for the annual gift tax exclusion. This does not sound right to me, as the IRS considers revocable living trusts to not exist for tax purposes.

any thoughts? any references?

I did a web search and found only one reference, but it refers to a trust (not specifically a revocable living trust) not qualifying.

thanks.

Reply to
inky dink
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"Gil Faver"

Reply to
Stuart Bronstein

Some gifts made within three years of the

Stuart, as long as we are on this subject, what under what circumstances are gifts included in the donor's estate? Is there any distinction here of gifts made personally, or from a living trust?

thanks. Not much I could find on this in my searching.

Reply to
Gil Faver

"Gil Faver"

The rule is in section 2035 of the Internal Revenue Code. It's pretty complex, but the basic rule is:

"(a) If ?

"(1) the decedent made a transfer (by trust or otherwise) of an interest in any property, or relinquished a power with respect to any property, during the 3-year period ending on the date of the decedent's death, and

"(2) the value of such property (or an interest therein) would have been included in the decedent's gross estate under section 2036,

2037, 2038, or 2042 if such transferred interest or relinquished power had been retained by the decedent on the date of his death, the value of the gross estate shall include the value of any property (or interest therein) which would have been so included.

"(b) Inclusion of Gift Tax on Gifts made During 3 Years Before Decedent's Death ? The amount of the gross estate (determined without regard to this subsection) shall be increased by the amount of any tax paid under chapter 12 by the decedent or his estate on any gift made by the decedent or his spouse during the 3-year period ending on the date of the decedent's death."

Subsection (e) of that statute could be what the "someone" was thinking of, though all it does is to state the general rule that revocable trusts are treated as though they don't exist. It says,

"For purposes of this section and section 2038, any transfer from any portion of a trust during any period that such portion was treated under section 676 as owned by the decedent by reason of a power in the grantor (determined without regard to section 672(e)) shall be treated as a transfer made directly by the decedent."

Stu

Reply to
Stuart Bronstein

so, this three year rule is true even if you are not using a living trust.

Does the IRS actually check this? I can't imagine most such gifts are put back into the decedent's estate tax calculation.

Reply to
Gil Faver

I'm confused by this statement. Please help me understand.

Example: Suppose an irrevocable trust owns and pays the premium on a life insurance policy. That premium is $12k annually. The insured/donor "gifts" $12k to the ILIT, the ILIT issues Crummey letters, and 30 days later the trustee pays the premium using the funds.

Does the $12k not qualify for the annual exclusion?

Reply to
kastnna

If it's a qualified Crummey trust, yes it does. Simply issuing Crummey letters is not sufficient. The trust must state that the beneficiary be given notice of any gift, and have a reasonable time to withdraw the gift. So for that time (generally 30 days minimum) the gift to the trust is revocable by the beneficiary.

Normally a gift to a trust is considered a future interest. But if the beneficiary has the immediate right to withdraw the gift, it's not considered a future interest, and as a result qualifies for the annual exclusion.

Stu

Reply to
Stuart Bronstein

Thank you for the well-put clarification. That makes perfect sense.

Reply to
kastnna

is an irrevocable trust even subject to the gift tax? I believe IRC 2501 states:

"A tax, computed as provided in section 2502, is hereby imposed for each calendar year on the transfer of property by gift during such calendar year by any individual resident or nonresident."

So, asuming the irrevocable trust permits gifts, are they subject to the gift tax?

Reply to
inky dink

Gil Faver wrote: > so, this three year rule is true even if you are not using a living trust.

Most certainly they do, and have done so for a long time. The Estate tax IRS is breed unlike the conventional IRS you deal wth from year to year. The leave no stone unturned. Likely, the payback per hour of their labor is much higher than the annual stuff.

Angelo Campanella

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Reply to
Angelo Campanella

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