Dear Liza: Does a gift to a living trust (with children and grandchildren – total of 9 beneficiaries) take a total of $13k annual exclusion or is the annual exclusion based on the beneficiaries? Good question. Before I answer it, a little background for my loyal readers: the annual exclusion is the amount of money you are allowed to give to someone free of gift tax. As we reach the end of the year, now is a good time to make such gifts, since each year you get a new exclusion to use. These annual gifts are in addition to the amount of money you are also allowed to give away free of gift tax over your lifetime (currently $5 million). By skillfull use of the annual exclusion, you can transfer a lot of money to those you love without ever having to use up that lifetime exclusion–it’s a great idea, if you can afford it.
You are allowed to give $13,000 free of gift tax to EACH recipient each year. So, one person could, if they wanted to, give each person in their city $13,000 (or less) without having to report any of the gifts. However, if any one gift is more than $13,000, all of the gifts would have to be reported on a gift tax return by April 15th of the following year. And, a gift has to be a completed gift to count–a gift to a living trust is not a completed gift (because the donor could always revoke the trust at a future point). That’s why, if a person wants to make annual gifts to children and grandchildren in trust, that trust has to irrevocable and has to be what’s called a “Crummey Trust”–which means that each beneficiary has a certain amount of time to withdraw that annual gift after it is made. If they don’t (and, of course, they don’t), the money stays in trust and the donor gets to use that annual exclusion from gift tax for each trust beneficiary.