Trust Agreement for Minor Qualifying for Annual Gift-Tax Exclusion; Beneficiary has Option to Continue Trust Past Age 21; Income Must be Paid to Beneficiary After Age 21
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FAQ
A 2503(c) trust, or minor's trust, is a trust established to hold gifts for one child until he or she attains age 21. A gift to this type of trust qualifies for the annual federal gift tax exclusion.
The trust vs. mistrust stage is the first stage of psychologist Erik Erikson's theory of psychosocial development. This stage begins at birth and lasts until a child is around 18 months old.
If you gift more than the exclusion to a recipient, you will need to file tax forms to disclose those gifts to the IRS. You may also have to pay taxes on it. If that's the case, the tax rates range from 18% up to 40%. However, you won't have to pay any taxes as long as you haven't hit the lifetime gift tax exemption.
What is the 21-year rule? Family trusts created during someone's lifetime are deemed to dispose of their property every 21 years. Although the trust is deemed to have disposed of property for tax purposes, an actual disposition typically does not occur.
Trust can provide financial support for minors, and they provide more flexibility than other means of financial support, such as under the Uniform Transfers to Minors Act ( UTMA ), or the older, more restrictive Uniform Gifts to Minors Act ( UGMA ).
Once the child reaches a specified age set by the state, the child will have full control over the property. Gifts to the minor are exempted up to $15,000 a year from Federal taxes, but the minor will be required to pay taxes beyond this amount.
Do gifts to a Gift Trust qualify for the annual exclusion? As previously mentioned, to qualify for the annual exclusion, a gift must be a gift of a ?present interest,? which simply means that the recipient must either receive or have the right to receive the gifted property at the time of the gift.
There are several types of minor trusts, including special needs trusts, education trusts, and children's accounts. Read on to learn more about the different types of minor trusts and how they work.