The document summarizes annual gifting and estate tax rules. It notes that individuals can gift up to $13,000 per year to an unlimited number of people gift-tax free under the annual exclusion. Any gifts over $13,000 to one person in a year will start reducing the $1 million lifetime gift tax exclusion. Upon death, individuals have a $3.5 million estate tax exemption that is reduced by lifetime gifts over annual exclusion amounts. The document reviews various gifting methods and strategies like Crummey trusts to leverage annual exclusions as well as zero estate tax planning using charitable gifts and irrevocable life insurance trusts.

1. By Ward J. Wilsey, JD, LLM 3655 Nobel Dr. Suite 345 San Diego, CA 92122 (858) 764-2672 Please send an email to wardwilsey@wilseylaw.com if you’d like a copy of these slides The Wilsey Law Firm www.wilseylaw.com Annual Gifting

2. Gift Taxes You are required to pay a 45% tax on transfers you make to other people for less than full and adequate consideration during your lifetime Unless an Exclusion applies Annual Exclusion Lifetime Gift Tax Exclusion

3. Annual Exclusion You can give up to $13,000 to a many different people as you’d like We generally do this in the context of gifting to children and grandchildren Spouses can each gift up to $13,000 to each of their children and grandchildren

4. Lifetime Gift Tax Exclusion You can gift up to $1,000,000 during your lifetime Cumulatively, not to as many different people as you’d like Reduces your estate tax exemption Gifts above the $13,000 to any one person figure eat into the this $1,000,000 Lifetime Gift Tax Exclusion

5. Estate Tax Exemption $3,500,000 at death Reduced by any lifetime gifting not covered by the annual exclusion Each spouses receives this exemption Unless they fail to use an A-B Trust (Bypass Trust)

6. Review You can gift up to $13,000 to as many different people as you’d like under the Annual Gift Tax Exclusion If you gift more than $13,000 to any on person, or if they don’t have immediate use of that gift, you’ll start to use your $1,000,000 Lifetime Gift Tax Exclusion Any use of your $1,000,000 Lifetime Gift Tax Exclusion will reduce your $3,500,000 Estate Tax Exemption

7. Methods of Gifting Outright 529 Plans You can gift up to 5 years worth up front UGMA or UTMA Irrevocable Trust

8. Advantages of Gifts to a Trust Control Leverage Asset Protection

9. Gifts to a Trust Gifts to a Trust generally do not qualify for the annual exclusion Meaning the client must instead use part of their $1,000,000 Lifetime Exclusion Gifts only qualify for the annual exclusion if the “donee” has the unfettered right to use the gift Solution is to use a “Crummey Trust”

10. Crummey Trust Irrevocable Trust Gifts are made on behalf of Trust beneficiaries Trustees must have the right to withdraw the contributions for a set period of time 30 to 45 days is safe At the end of the time period, the assets are owned by the trust Because the beneficiary has the right to withdraw the assets, it is a present gift

11. Crummey Notices Very misunderstood Crummey Notices provide EVIDENCE that the trust beneficiaries: Knew a gift was being made on their behalf; and Knew they had the right to withdraw the gift The lack of a Crummey Notice does not mean: The trust assets are in the clients estate The client loses any chance of having the gift qualify for the annual exclusion

12. Correcting Failure to Obtain a Crummey Notice RECAP All that is required for gifts to a trust to qualify for an annual exclusion is that the beneficiary must: Know a gift was being made on their behalf; and Know they had the right to withdraw the gift Ways to provide evidence that this is the case: Crummey Letters Emails A signed Affidavit by the beneficiary, even if signed years after the fact Smoke signals Whatever

13. RECAP Crummey Notices are best, but anything that provides conclusive evidence of the gift is sufficient

14. Self-Trusteed Gifting Trust According to case law, when you gift assets to a trust and serve as trustee The retention of the ability to make unfettered, discretionary distributions will make those assets includible in your estate Distributions limited by an “ascertainable standard”, meaning for Health, Education, Maintenance and Support, will make those assets not includible in your estate

15. Self-Trusteed Gifting Trust So, according to case law, you can serve as the trustee of your own Irrevocable Gifting Trust as long as you limit your ability to make distributions to the Health, Education, Maintenance, and Support of your Beneficiaries I have some concerns about this Should not be used in many cases Alternative is to pick independent trustee and allow grantor the right to remove and replace the trustee

16. Zero Estate Tax Plan Computation of Estate Taxes on $5,000,000 estate $5,000,000 Less $3,500,000 Estate Tax Exemption Equals $1,500,000 taxable estate Multiply by 45% Estate Tax IRS gets $675,000 (Estate Tax) Beneficiaries get $4,325,000 (Remainder)

17. Zero Estate Tax Plan If you give taxable estate to charity, then there is no estate tax Computation of Estate Tax $5,000,000 Less $3,500,000 Estate Tax Exemption Equals $1,500,000 taxable estate Taxable Estate to Charity IRS gets $0 (Estate Tax) Beneficiaries get $3,500,000 (Remainder) They got $4,325,000 before They lose out on $825,000

18. Zero Estate Tax But you’ve got this Irrevocable Trust If the Irrevocable Trust invests in part in a life insurance policy with at least a $825,000 death benefit, the Beneficiaries get just as much as they would have had you done nothing But the IRS gets nothing