Making gifts to minors under a Montgomery County estate plan can be achieved in a variety of ways, including:
- Custodial transfers under the Uniform Transfers to Minors Act (UTMA)
- Transfers to a 2503© Minor’s Trust
- A Crummey Trust
- Transfers to a Section 529 plan
Custodial Transfers in PA – Uniform Transfers to Minors Act (UTMA)
A custodial transfer to a UTMA account is simple and enjoys the same advantages as an outright gift, meaning that the transfer qualifies as a present interest, thereby qualifying for the annual gift tax exclusion. For PA estate planning, the annual gift exclusion is important because no gift tax is paid on a gift. The custodian exercises complete control of the account until the child reaches the age of 21. UTMA accounts are very useful for transferring small amounts of money to a child since the child has full access to the account at age 21.
Section 529 Plans
Section 529 plans are advantageous for higher education purposes and are limited to that purpose. A Section 529 plan is: (1) exempt from income tax so that the income earned can grow tax-free; (2) exempt from income tax on the withdrawal for qualified higher education purposes; and (3) gifts by a donor can qualify for the annual gift tax exclusion plus the generation-skipping tax exclusion.
Minor’s Trust Attorneys
Minor’s Trusts, which can include a Crummey Trust or Internal Revenue Code (IRC) Section 2503© Trusts, are another alternative for making gifts to minors under a Montgomery County estate plan. Generally, the annual gift tax exclusion is not available for a transfer to a trust since such transfer is a gift of a future interest. There are two exceptions to this rule: (1) a statutory exception for trusts created under IRC 2503©; and (2) a type of trust with “Crummey” withdrawal rights.
Under IRC 2503©, transfers to this type of Minor’s Trust qualify for the annual gift tax exclusion under the following conditions:
- Property and related income must be available for the benefit of the minor while he or she is under 21;
- Any undistributed property must be distributed to the minor upon he or she attaining the age of 21; and
- If the donee dies before, all the remaining income and principal must be payable to the donee’s estate or pass as the donee chooses under a general power of appointment.
Often, donors wish to extend the trust beyond the age of 21. A delayed distribution beyond the age of 21 may be accomplished with a 2503© Minor’s Trust, but the child will have a right to withdraw all of the principal at age 21. Even though this right to withdrawal may lapse, the principal of the trust is still subject to withdrawal at the age of 21, which is perhaps the 2503© Minor’s Trust’s greatest drawback. It is for this reason why many people choose to utilize a Crummey Minor’s Trust instead of the 2503© Minor’s Trust as part of a comprehensive PA estate plan.
Contact a Wills and Trusts Attorney in Montgomery County, PA
Montgomery County estate planning and the use of trusts involves complex tax considerations and other planning issues that must be addressed. Individuals, partners, or families should always seek the assistance of an experienced Montgomery County Wills and Trusts attorney when seeking to develop an estate plan in PA.
The skilled Wills and Trusts attorneys at The Martin Law Firm represent clients in Montgomery County, PA and the surrounding areas for all aspects of PA estate planning, including the development and implementation of Minor’s Trusts. Contact a knowledgeable Montgomery County, PA Wills and Trusts attorney at The Martin Law Firm at 215-646-3980 for a free case evaluation.