The custodian then manages the gift property for the grandchild's benefit, transferring the property to the grandchild at the statutorily mandated age, which depending on state law is either 18 or 21. The trustee must distribute the entire trust principal and any accumulated income to the donee when the donee reaches age 21, although the trust can continue beyond age 21, if the donee is granted the right to withdraw the entire trust at age 21 but elects not to do so. The trustee must distribute the trust to the donee's estate should the donee die before reaching age 21, or pursuant to the terms of a general power of appointment granted to the donee in the trust. A third alternative is an irrevocable trust that meets the so-called Crummey trust rules. Beneficiaries must be given notice of any gift to the trust and have a right to immediately withdraw the gift, but typically for only 30 or 60 days.
IRAs provide a unique asset for gift giving.
This planning option is best illustrated by an example. Assume a husband owns an IRA and upon his death passes it to his wife as the primary beneficiary. The wife then names the sole grandchild as the beneficiary. The IRA is then distributed over the joint life expectancy of the wife and grandchild, subject to a special ten-year restriction. If the wife is age 70, this restriction will result in distribution based on 26.2 years.