What gifts do not qualify for the annual exclusion?

Direct gifts to a more remote grandchild or descendant up to the annual exclusion amount are non-taxable gifts and are generally not subject to GSTT. Unfortunately, donations made to a trust for a grandchild do not qualify for this treatment. The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule.

Usually, the following gifts are not taxable. Only gifts with a present interest qualify for the annual gift tax exclusion. The recipient must be granted immediate and unrestricted use, possession or enjoyment of the property. Conversely, gifts of future interest (such as gifts of remaining interest or other types of deferred interest) do not qualify for the annual gift tax exclusion.

If you make the gift of XYZ shares to a gift trust with this grantor trust power, then you have the ability to replace these shares with cash or high-base assets at any point in your life, provided that the value of the replacement assets is equal to the fair market value of XYZ shares at the time of replacement. A regular annual exclusionary grant strategy combined with increased compound investment can help donors transfer substantial amounts of wealth from their properties over time without using any of their lifetime grant exemptions. If the gift is for a minor, a second way is to make the donation to a custodian of your choice under the Florida Uniform Transfer to Minors Act. This is not a problem for direct gifts or gifts under the Uniform Transfers to Minors Act, and the tax law specifically states that contributions to Section 529 plans qualify, but may be an issue for donations in trust.

Certain states (such as Alaska and Nevada) have enacted laws that allow you to make donations to a specially drafted Irrevocable Gift Trust that allows an independent Trustee to have the ability to return Trust distributions to you at its discretion, while hopefully eliminating any assets non-distributed fiduciaries of your taxable assets. This rule states that you can give everything you own to your spouse, whether during his life or death, without incurring gift or inheritance taxes on the value of that property. At this point, the accrued gifts must, under Florida law, be distributed directly to the child at once. The IRS will provide a copy of a gift tax return when Form 4506, Request for Copy of Tax Return, is successfully completed and submitted with justification and payment.

Annual Exclusion Giving can be a powerful wealth transfer strategy and your advisor can help determine strategies that are right for you and your family. Floridians may use these special gift trusts, as long as applicable state statutes are respected. The Internal Revenue Code (IRC) considers a gift to be any property that is transferred to a non-spouse payee without receiving cash or other monetary value in return and when no exclusion applies. If the beneficiary does not exercise this right, it expires and the gift remains in the Trust irrevocably.

The cost of a grant trust will vary depending on the complexity of its provisions and the planning involved. We strongly recommend that an attorney who specializes in estate planning and taxation be hired to draft your Trust. The value of the transfer for gift tax purposes is reduced and may even be eliminated in some cases because of this withheld interest. When a married person makes a gift to a third party, the donor's spouse may allow the gift to be treated as if each spouse had made it halfway.