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Saving for a Child's Future


Giving money to children or grandchildren is a planning strategy that benefits donors and beneficiaries. You can make annual gifts of up to $15,000 each to an unlimited number of recipients in 2021, free of gift and generation-skipping transfer tax, without using any of the lifetime gift exemption. But consider your options for holding gifted assets carefully.

Custodial Accounts

Custodial accounts established under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) allow you to set aside money for any activities that benefit your child. But custodial accounts may not be your best option. Your child will be able to access the funds at a young age -- often 18 or 21, depending on state law -- and may not have the maturity to use the funds wisely.

Crummey Trust

With a Crummey trust, you specify how the money in the trust should be used and when the beneficiary can receive the assets. If desired, the trust can continue for the beneficiary's entire lifetime. However, to avoid forfeiting the gift tax annual exclusion, you must notify the beneficiary when you make an annual gift to the trust and give the beneficiary a limited amount of time (e.g., 30 days) to withdraw those funds. A Crummey trust allows more control over the funds, since a beneficiary may be reluctant to go against a donor's wishes.