subject: Trust Arrangements and Gifts [print this page] Trust Arrangements and Gifts Trust Arrangements and Gifts
TRUST ARRANGEMENTS AND GIFTS
Trust arrangements likewise are extremely useful in conserving an estate. A man who really wants his wife to haveeverything can virtually accomplish this, and without creatingthe risk of double taxationonce on his estate and once onhis wife's. Assume for example that John Testator has a netestate of $250,000. If he leaves it all to his wife, he gets thebenefit of $185,000 in exemptions, $125,000 for the maritaldeduction and $60,000 for his own exemption, leaving a nettaxable estate of only $65,000. However, when his wife passes away, assuming that she has left the principal intacta secondand larger tax bill will have to be paid, this time on the entireestate except the $60,000 representing her personal exemption.
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On the other hand, if John Testator gives his wife $125,000tax-free under the marital deduction and with the remaindersets up a trust which provides for his wife to receive theincome during her lifetime and the principal then to pass toother named heirs, the wife's estate, at her death, is taxableonly on $65,000the $125,000 which she received outright less the $60,000 personal exemption to which she is entitled.
In this way, John Testator may conserve more of the estatefor his children or other heirs without depriving his wife ofthe use of the income from the second half of the estatethroughout her life.
Gifts made during one's lifetime, as long as they are notmade in contemplation of death, are another way of avoidinga sizable estate tax. In general, the gift tax regulations aremore liberal than the estate tax regulations.
You may give up to $3,000 a year to as many individualsas you desire without the gift being subject to gift tax. Whenmade by you and your wife jointly, you may give $6,000 tothe same individual. Thus, if you have four married children,you and your wife may actually give away $48,000 in one year without paying any gift tax and without using up anypart of your $30,000 lifetime exemption (see below). Youmay accomplish this by giving $6,000 to each of your childrenand to each of the spouses of your children. If you havesixteen grandchildren, you may actually give away as much as$96,000 in a year without paying an estate tax or a gift tax and without having you or your wife lose or use up your$30,000 lifetime exemption.
During your lifetime, you may make gifts in excess of$3,000 to an individual in a single year, up to $30,000,without incurring any gift taxation. If you and your wife joinin the gift, you may make a gift of $66,000 in one year:$30,000 from you, and $30,000 from your wife for yourlifetime exemptions, and $3,000 from you and $3,000 fromyour wife for your one-year exemption.
