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UNIFORM TRANSFERS TO MINORS ACT AND TAX BENEFITS OF GIFTS |
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I am married and have minor (under 18) children. My parents are well-to-do, in their early 60's, and in good health. They wish to provide for me, and also provide for my children now, instead of waiting until they die. What is a good means of my parents making gifts to my children and me? |
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Isn't there a "gift tax"? |
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Does the gift have to be in cash? |
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Can a gift be made directly to a minor? |
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My wife's parents, during my marriage to my wife, set up custodian accounts for our children, and I am the custodian. We are now divorced and I continue to retain the custodian accounts, which are of substantial value. (A) Can my in-laws revoke the custodian accounts? (B) Can I use these funds for the benefit of the children, for example, taking them on vacation, or paying their tuition at a private school? |
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Can there be a tax on gifts to my spouse? |
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What is the Illinois Uniform Transfers to Minors Act? |
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Can the custodian use the money for himself? |
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Can the custodian use the money to fulfill a legal support obligation? |
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When can the minor use the money? |
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Why should I gift to my children under the Illinois Uniform Transfers to Minors Act? |
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My marital settlement agreement requires me to transfer property to my former spouse. Do I have to pay gift tax? |
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Are gifts taxable? |
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Can I exceed $11,000 per person? |
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What if I give one person more than $11,000? |
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What are the consequences of a taxable gift? |
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What are the tax benefits of yearly gifts? |
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What is the generation skipping transfer tax? |
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Do I have to pay generation skipping transfer tax on every gift to grandchildren? |
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| Q: |
I am married and have minor (under 18) children. My parents are well-to-do, in their early 60's, and in good health. They wish to provide for me, and also provide for my children now, instead of waiting until they die. What is a good means of my parents making gifts to my children and me? |
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Your parents are planning wisely. By a plan of gift making they can reduce the size of the estates they leave upon their deaths, thus reduce or eliminate estate taxes. The means will be discussed below. |
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| Q: |
Isn't there a "gift tax"? |
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Yes, but the first $11,000 of a gift, per recipient, is excluded from tax. If your father and mother both make a gift during the year, the exclusion is $22,000. Your parents (collectively) could therefore make gifts to each of your children of $22,000, a gift to you of $22,000 and a gift to your wife of $22,000, and none of these gifts would be subject to a gift tax. At the same time these gifts would reduce, or eliminate, your parents' estate tax. |
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| Q: |
Does the gift have to be in cash? |
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No. The gift may be of any type of property. |
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| Q: |
Can a gift be made directly to a minor? |
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Yes, but it is unwise to do so. The better way to make a gift to a minor is under the Illinois Uniform Transfers to Minors Act. |
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| Q: |
My wife's parents, during my marriage to my wife, set up custodian accounts for our children, and I am the custodian. We are now divorced and I continue to retain the custodian accounts, which are of substantial value. (A) Can my in-laws revoke the custodian accounts? (B) Can I use these funds for the benefit of the children, for example, taking them on vacation, or paying their tuition at a private school? |
| A: |
(1) To qualify as a gift under the Illinois Uniform Transfers to Minors Act, the gift must be irrevocable. (760 ILCS 20/5)
(2) Gifts cannot be revoked. A gift is not complete until the donor (gift maker) parts with dominion or control over the transfer of property or property interest [Internal Revenue Regulation ' 25.2511-2(b)].
(3) Regarding the use of the custodian account for the benefit of the child, the Illinois Uniform Transfers to Minors Act states that the custodian may "expend for the minor's benefit so much of the custodial property as the custodian considers advisable for the use and benefit of the minor, without court order and without regard to (I) the duty or ability of the custodian personally or of any other person to support the minor." (750 ILCS 20/15) The custodian, however, must keep the custodian account (the minor's property) separate and distinct from his own and must keep records of all transactions. |
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| Q: |
Can there be a tax on gifts to my spouse? |
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No. There is no tax on gifts between spouses regardless of size. |
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| Q: |
What is the Illinois Uniform Transfers to Minors Act? |
| A: |
The Uniform Transfers to Minors Act allows transfers to be made to another person as "custodian" for a minor. The act makes it easier to protect assets transferred to a minor without having to go through the hassle of creating a trust. |
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| Q: |
Can the custodian use the money for himself? |
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No. Though the custodian has legal title to the assets, he has a duty to protect the assets and expend them only for the minor. |
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| Q: |
Can the custodian use the money to fulfill a legal support obligation? |
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Yes. The custodian may use the money without regard to the ability or duty of himself or any other person to support the child. |
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| Q: |
When can the minor use the money? |
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The custodian has the discretion to spend the money for the benefit of the minor. At age 21, the custodian must transfer the property to the minor. |
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| Q: |
Why should I gift to my children under the Illinois Uniform Transfers to Minors Act? |
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By naming a trusted custodian, you can be assured that the assets will be protected and used for the benefit of the child. In addition, the assets will no longer be in your estate and income from the assets will not be attributed to you. |
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| Q: |
My marital settlement agreement requires me to transfer property to my former spouse. Do I have to pay gift tax? |
| A: |
No. Transfers to a former spouse required by the marital settlement agreement within one year of the divorce are generally not subject to gift tax |
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| Q: |
Are gifts taxable? |
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Yes. However, there is an annual exclusion of $11,000 per donee. |
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Can I exceed $11,000 per person? |
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Yes. If you are married, you may elect to split the gift between you and your spouse. When splitting, it does not matter whose property the gift is made from and you can give each individual up to $22,000. |
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What if I give one person more than $11,000? |
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You will likely need to file a gift tax return. You may have to pay tax on the amount in excess of $11,000 if your lifetime taxable gifts have exceeded $1 million. |
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What are the consequences of a taxable gift? |
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Every time you give a taxable gift, you reduce the amount that you can transfer without tax consequences at your death. |
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What are the tax benefits of yearly gifts? |
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Regular giving slowly decreases the value of your estate, limiting your estate tax liability. In addition, the income from the assets is attributed to the donee, reducing your income tax. Finally, lifetime giving can often be accomplished tax free. |
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| Q: |
What is the generation skipping transfer tax? |
| A: |
The generation skipping transfer tax applies to all gifts, whether during life or at death, that skip the generation immediately below the gift giver. Simply put, it applies when you give taxable gifts to your grandchildren. |
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| Q: |
Do I have to pay generation skipping transfer tax on every gift to grandchildren? |
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No. Like gifts, there is a $11,000 annual exclusion per donee. |
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