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Home >> Estate Planning Articles >> Gifts to Minors: Sharing Your Wealth the Smart Way

Gifts to Minors: Sharing Your Wealth the Smart Way

November 25, 2015 by Robert Kulas.

Compliments of Our Law Firm,
Written By: The American Academy of Estate Planning Attorneys

One way to reduce your estate tax bill is to give money away during your lifetime. If you are a parent or a grandparent, giving to the children in your life is a great way to accomplish this. By doing so, you can help your children or grandchildren build their financial futures, with tax savings as a natural by-product. With a top estate tax rate of 40%, this by-product can be quite significant.

IRS rules limit how much you can give away each year without reducing your overall gift and estate tax exclusion of $5 million (adjusted for inflation, $5.34 million in 2014). Through 2014, the annual exclusion is $14,000. This means that an individual can give up to $14,000 each year to any other individual without reducing their lifetime exclusion. Parents or grandparents can combine their annual exclusions to give $28,000 annually per couple.

UGMA/UTMA Accounts

This situation gets complicated if your children are still minors. Until they reach adulthood, the law requires that minors have someone manage their money for them. Many parents fulfill this requirement by establishing a Uniform Gifts to Minors Act (UGMA) or a Uniform Transfers to Minors Act (UTMA) account. This is a simple, efficient arrangement that allows you to manage funds on behalf of your child until your child is legally able to take control of the account.
The problem with these accounts is that you are required to turn the entire balance over to your child when he or she reaches age 21 (18 in some jurisdictions). As every parent knows, children mature at different ages and not every young adult is ready to manage a large sum of money at that age.  A great way to address this issue is to set up an Irrevocable Trust.

Irrevocable Trusts

An Irrevocable Trust is one alternative to an UGMA/UTMA account. Estate planning attorneys often recommend this option because an Irrevocable Trust can be tailored to the needs of an individual child. There is no set age at which Trust assets must be distributed to a beneficiary; instead, the assets can be held in Trust for as long as the parents wish. Trust funds can be distributed at periodic intervals instead of in one lump sum. The distribution of assets can even be tied to the achievement of goals such as college graduation or maintaining full-time employment.

An Irrevocable Trust carries greater up-front and administrative costs than an UGMA/UTMA account; however, when deciding between the two options parents should consider the potential risks of handing over a large sum of money to their child at a young age.

As you plan your estate, it is important that you consult with an experienced estate planning attorney. He or she can help you balance the needs of your family with the latest in tax and estate planning law and strategy.

Kulas & Crawford

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Everyone treated us extremely well.  Robert explained how a trust works and the benefits of having one.  We decided to move forward and complete the process.  He was very kind and knowledgeable.  Julie was also very helpful and very patient with our questions.  We felt very comfortable with this firm handling our affairs.  We would highly recommend this firm to our friends and family.

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"Everyone treated us extremely well.  Robert explained how a trust works and the benefits of having one.  We decided to move forward and complete the process.  He was very kind and knowledgeable.  Julie was also very helpful and very patient with our questions.  We felt very comfortable with this firm handling our affairs.  We would highly recommend this firm to our friends and family."

Janice M
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Robert Kulas and staff made making a will an easy to understand process. They were very knowledgeable and attentive to my wishes. All my documents were provided in an organized binder which will be a great asset to my family. I would definitely recommend them.

Krissy L.
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I have worked with Mr. Kulas & staff before. And they are very professional. I am very satisfied with Mr. Kulas and his staff and give them the highest satisfaction and 5 star rating.

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Mr. Kulas and his staff have been extremely helpful & knowledgeable for the over 3 years we have been associated. They are easy to talk to and explain everything without feeling rushed. Very competent and professional.

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I have known Robert Kulas for 20 years since I was co-executor for friends who had Mr. Kulas prepare a Trust for them. When I felt I needed a trust also, I came to him. I have always been completed satisfied with his work and that of his charming, competent staff.

Joan C.
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We began our estate plan process in 2004 (12 years ago) and have been pleased with the periodic reviews we have gone through and when changes have been needed the firm has been thorough and professional in making those changes.

L.G.K.
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