If you have minor children or grandchildren you may want to consider giving gifts to them during your lifetime to minimize tax liability for your estate and to protect your inheritance for future generations.

But lifetime gifting has some advantages and disadvantages. One advantage is that if one of your children or grandchildren has an immediate need, it would benefit them directly. On the other hand, it may cause an unanticipated dependency or a disincentive to work. And, if your estate is not impacted by federal estate taxes, you might inadvertently be disqualifying yourself from government benefits (like long term nursing home care) with no tax advantages to your heirs.

Another advantage is that if you give away your assets now the appreciation can be out of your estate when you pass away and thereby minimize estate tax consequences. On the other hand, you may need the assets you gave away later on in your lifetime.

Also, when you pass away your assets get a step-up in basis to the value at your date of death which can minimize taxes for your heirs.  But you lose this “step up” by giving assets away during your lifetime.  Remember, if you die within 3 years of making a gift it comes back into your estate for federal estate tax purposes (IRC 2035), and it is also includable for PA Inheritance tax purposes if you die within one year of the gift.

Bottom line?  Gifting is complicated and should be discussed with your lawyer and your tax advisor before you commit to anything.

 The chart below outlines the different ways you can make lifetime gifts to your young family members without using up your unified credit exemption of $11.4 million dollars.

Annual Exclusion

Lifetime Education and Medical Expenses

529 Account

UTMA Account


Crummy Trust & Irrevocable Trusts

$15, 000.00 gift tax free & appreciation out of your estate

Any qualifying education but must be paid directly to school

Tax exempt savings plan for college

bank account to transfer annual exclusion (and any other contributions)

Vehicle to transfer annual exclusion (and any other contributions)

no control over assets once given

Any qualifying medical expense

State specific

inexpensive to set up  and you can choose 1 custodian must be for benefit of child

expensive to set up trust/ administer trust/ crummy letters/ choose trustees

May need assets later in life; No step up in basis at death

can only be used for present need while you are still alive

Can only be used for  qualifying education

Ends at age 18 or 21 (state specific); Testamentary transfer age 25

Unlimited age limit; Any distribution scheme

Only one gift per beneficiary but unlimited beneficiaries


Can be transferred to another family beneficiary

Can have only 1 beneficiary

Unlimited beneficiaries

David M. Frees, III
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Attorney, Speaker and Author