DEFINITION of 'Gift In Trust'

An indirect bequest of assets to a beneficiary by means of a special legal and fiduciary arrangement. The purpose of a gift in trust is to avoid taxes on gifts that exceed the annual gift tax exclusion amount. Gift taxes are almost always paid by the gift giver and if they exceed $13,000 in one year the excess is taxable.

BREAKING DOWN 'Gift In Trust'

Gift givers can give gifts in excess of the annual exclusion without paying taxes by establishing a special type of trust, such as a Crummey trust. A gift to a Crummey trust allows the beneficiary to withdraw the gift for a limited time, which makes the gift a present interest and makes it eligible for the gift tax exclusion. If the gift did not have these limited-time withdrawal rights, it would be considered a future interest and it would be subject to gift taxes. That being said, it is generally understood that the beneficiary will not actually withdraw the funds during the withdrawal period. Gifts in trust are commonly used by parents or grandparents who want to establish a trust fund for their children or grandchildren.

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