# Gift in Trust: What It Is, How It Works, Pros and Cons

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*— skynesher / Getty Images*

> **Definition**
>
> A gift in trust is an indirect way to give assets to a beneficiary.

## What Is a Gift in Trust?

A gift in trust is an [estate planning tool](https://www.investopedia.com/how-to-do-smart-estate-planning-11697787) that allows someone (the grantor) to transfer assets to a beneficiary indirectly by placing them in a trust. Instead of giving the gift outright, the grantor sets conditions for how and when the beneficiary can access the assets.

The purpose of a gift in trust is to avoid gift/estate taxes, as there is a [lifetime gift/estate tax exemption](https://www.investopedia.com/terms/a/annual-exclusion.asp) limit. For 2025, that limit is $13.99 million. There's also an annual gift exclusion limit, which is $19,000.

### Key Takeaways

*   A gift in trust allows assets to be passed to heirs without immediate access.
*   It can help avoid or reduce federal gift and estate taxes.
*   In 2025, the lifetime gift/estate tax exemption is $13.99 million, and the annual gift tax exclusion is $19,000 per recipient.
*   Crummey trusts are commonly used to qualify gifts as present interests, making them eligible for the annual exclusion.
*   Without proper limitations, beneficiaries may access large amounts too soon, potentially undermining long-term goals.

## Understanding a Gift in Trust

Gifts in trust are commonly used by parents or grandparents who want to establish a [trust fund](https://www.investopedia.com/terms/t/trust-fund.asp) for their children or grandchildren. Establishing a trust is an [estate planning](https://www.investopedia.com/terms/e/estateplanning.asp) strategy that can be used to pass assets or wealth from the [grantor](https://www.investopedia.com/terms/g/grantor.asp)—the owner of the [assets](https://www.investopedia.com/terms/a/asset.asp) creating the trust—to a beneficiary who receives the wealth.  

### Gift Tax Rules for 2025

Typically, the [Internal Revenue Service (IRS)](https://www.investopedia.com/terms/i/irs.asp) taxes the distribution of assets from an [estate](https://www.investopedia.com/terms/e/estate.asp) if the value of the assets is more than a specific amount called the annual estate tax exemption amount.

*   **Annual Gift Tax Exclusion:** You can give up to $19,000 per person in 2025 without needing to report it to the IRS.
*   **Lifetime Gift/Estate Tax Exemption:** You can give a total of $13.99 million over your lifetime (or leave it at death) without incurring federal taxes.

Anything above these amounts is taxable and must be reported using IRS Form 709.

### What Is a Crummey Trust?

A gift in trust is a viable method of avoiding gift/estate taxes. By establishing a trust, such as a [Crummey Trust](https://www.investopedia.com/terms/c/crummey-trust.asp), you can give assets to beneficiaries in excess of the annual gift tax exclusion amount without it counting against your lifetime exemption amount.

A gift to a Crummey trust allows a beneficiary to withdraw the assets for a limited time, which makes the gift considered to be a present interest and eligible for the gift tax exclusion. If the gift did not have these limited-time withdrawal rights, it would be considered a future interest and be subject to [gift taxes](https://www.investopedia.com/terms/g/gifttax.asp).

Example: A parent contributes $19,000 to a Crummey trust for their child. The child has 60 days to withdraw the money. If they don’t, the funds remain in the trust under the parent’s terms (e.g., “available at age 21”). The gift qualifies for the annual exclusion, and the parent retains control.

> **Important**
>
> A Crummey provision can also be housed within another type of trust. Traditional life insurance trusts often contain a Crummey provision.

## Advantages and Disadvantages of a Gift in Trust

In addition to tax benefits, a gift in trust is one method of establishing a financial cushion for future generations. [Transferring wealth](https://www.investopedia.com/financial-advisor/transition-planning-include-whole-family/) from one generation to the next via a [will](https://www.investopedia.com/terms/w/will.asp) or other means of inheritance is a complicated endeavor. At the same time, these rules can bring enormous benefits to individuals, families, and communities. Understanding the nuances of gifting can bring added value to both grantors and beneficiaries.

One potential drawback to a gift in trust is that providing beneficiaries, in particular, children, [with immediate access to sizable sums](https://www.investopedia.com/articles/investing/102915/5-common-mistakes-when-creating-trust-fund-your-child.asp) may jeopardize the fund's ability to accumulate long-term wealth. Some families bypass this by setting restrictions, such as limiting the amount or frequency of withdrawals or ending future gifts to recipients who withdraw funds immediately.

## What Is the 2025 Gift Tax Exclusion Amount?

The most amount of money that you can give to another person in 2025 without reporting it to the IRS is $19,000. (In 2024, it was $18,000.) This is also the maximum amount you can give without the gift counting against your lifetime exemption amount.

## What Is the 2025 Lifetime Gift Tax/Estate Tax Exemption Amount?

The most amount you can give during your lifetime or leave to beneficiaries in your estate after you die without paying lifetime gift / estate taxes is $13.99 million in 2025. (In 2024, it was $13.61 million.)

## What Is a Trust?

A trust is a legal arrangement where a grantor entrusts a trustee with assets for a beneficiary. At some point, typically upon the grantor's death, the assets are distributed to the [beneficiary](https://www.investopedia.com/terms/b/beneficiary-of-trust.asp).

## The Bottom Line

A gift in trust allows you to give generously while keeping control and protecting your assets—and it’s a powerful strategy for reducing estate taxes. However, trusts come with legal complexity. If you're considering this route, especially for sizable gifts or estate planning, consult with an [estate planning attorney](https://www.investopedia.com/articles/personal-finance/070815/10-questions-ask-your-estate-planning-attorney.asp) to ensure the structure aligns with your goals.

> **Article Sources**
>
> 1.  Internal Revenue Service. "[IRS Releases Tax Inflation Adjustments for Tax Year 2025](https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2025)."
>     
> 2.  U.S. Congress. "[Description of Revenue Provisions Contained in the President's Fiscal Year 1999 Budget Proposal](https://www.congress.gov/committee-print/105th-congress/joint-committee-print/46548)."