Tax Law Blog | IRS Tax Attorneys

Here’s how the game is played (most commonly with an insurance trust). The trust provides that any time the trustee receives a gift to the trust, a notice is to be sent to the beneficiaries designated in the trust instrument. Those beneficiaries then have a limited time period from the date of the notice (frequently 30 days) in which to demand the withdrawal of the money.

If the beneficiaries do not withdraw the money, it becomes the property of the trust (i.e., usually the trustee takes the money and pays the insurance policy’s annual premium). In the absence of the withdrawal right, at least some portion of a gift to a trust usually is not eligible for the gift tax annual exclusion. However, where Crummey powers exist, the beneficiaries had the right to withdraw the money and that right converts the gift to the trust to one fully subject to the annual gift tax exclusion. So, if the gift is $10,000 or less, no gift tax is payable
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One of the oldest and most common forms of taxation is the taxation of property held by an individual at the time of their death. Such a tax can take the form, among others, of estate tax (a tax levied on the estate before any transfers). An estate tax is a charge upon the decedent’s entire estate, regardless of how it is disbursed. An alternative form of death tax is an inheritance tax (a tax levied on individuals receiving property from the estate). Taxes imposed upon death provide incentive to transfer assets before death.

Gift tax laws are generally designed to prevent complete tax avoidance by this route. The Federal Estate Tax is integrated with the Federal Gift tax so that large estates cannot be shielded from taxation by lifetime giving. Many states also impose an estate tax.
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