Gift In Trust

What Does Gift In Trust Mean?

A gift in trust is a gift given to a beneficiary, with ownership transferred to a trust. Assigning ownership to the trust can help avoid the gift tax, which would otherwise apply if the gift-giver exceeds $13,000 in gifts within a single year.

Insuranceopedia Explains Gift In Trust

Gifts in trust are often set up by parents or grandparents who wish to give substantial gifts to their children or grandchildren without incurring excessive gift taxes. Permanent life insurance is one of the more common assets people use to fund a gift in trust, since the death benefit from a permanent life insurance policy can pass to children or grandchildren through the trust.

For example, if someone wants to give a $50,000 gift to their grandson, giving it directly—by check or in cash—would typically make it subject to the gift tax. However, by establishing a gift in trust, they can avoid the gift tax, allowing the beneficiary to access the funds during designated withdrawal periods. How and when the beneficiary actually receives the money depends on the trust’s terms, which work differently than the standard life insurance beneficiary rules that apply when a person is named directly on a policy.