Previously we discussed Lifetime Giving. There are may ways to give a gift to a family member, here are a few:
An outright gift with no strings attached is the simplest method of making a lifetime wealth transfer. You simply deliver the asset directly to the donee. Again, remember, if the gift is less than $13,000 a Gift Tax Return will not have to be filed. Once in the hands of the donee, however, your gift may be taken away from them through a divorce, lawsuit or bankruptcy. More commonly, your gift may be squandered, because you have no further control over an outright gift once delivery is made. Fact: No one appreciates the value of a dollar like the person who earned it (and paid taxes on it). Fortunately, the law provides at least one simple alternative to protect gifts, particularly when made for the benefit of minors.
Custodial accounts established under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) are very popular methods of making transfers to loved ones who are minors. They are popular because they are convenient and inexpensive to create. Almost all financial institutions offer such arrangements.
Beware: The account becomes the unrestricted asset of the beneficiary upon reaching age 18 or 21, depending on applicable state law. In other words, it could be used for fast cars and stereos, instead of books and tuition.
In my next post I will discuss Crummey Trusts.