• Patrick D. Newton is a North Carolina Board Certified Specialist in Estate Planning and Probate Law.

Do I have to file Gift Tax returns for the gifts to my Insurance Trust?

Filing a gift tax return for an Irrevocable Life Insurance Trust (ILIT), even if not technically required because all gifts are below the annual exclusion, is a good idea. Benefits:

  • Filing starts the statute of limitations running on the IRS to audit the gift.
  • Filing allows you to decide affirmatively whether Generation Skipping Transfer Tax (GST) exemption is allocated.

Allocation of GST to an ILIT
The GST Annual Exclusion does not apply to a gift in trust, unless very strict and unlikely criteria are met (only one beneficiary, must be includable in that beneficiary’s taxable estate). So to create an ILIT that is a fully GST Exempt Trust, GST exemption must be allocated.

Automatic Allocation of GST Exemption
Now that the automatic allocation of GST exemption for lifetime gifts to a trust has been made permanent, I am more comfortable relying on those rules. Therefore, if your trust would qualify, you are probably OK not filing a gift tax return just for annual exclusion gifts to the trust.

Comments are closed.