908 / When will a gift of property to a minor qualify for the gift tax annual exclusion?

A gift of property to a minor, whether in trust or otherwise, is not considered a gift of a future interest in property, so that it will qualify for the gift tax annual exclusion, if the terms of the transfer satisfy all the following conditions:

(1)     Both the property itself and its income may be expended by or for the benefit of the donee before he attains the age of 21 years;

(2)     Any portion of the property and its income not disposed of under (1) will pass to the donee when he attains the age of 21 years; and

(3)     Any portion of the property and its income not disposed of under (1) will be payable either to the estate of the donee or as he may appoint under a general power of appointment if he dies before attaining the age of 21 years.¹

A gift to a minor under the Uniform Gifts to Minors Act or under the Uniform Transfers to Minors Act generally is a gift of a present interest and qualifies for the annual exclusion.² Most states in recent years have adopted the later Uniform Transfers to Minors Act, which allows for any kind of property, real or personal, tangible or intangible, to be transferred under the Act. Other states have amended their Uniform Gifts to Minors Act to provide for gifts of various kinds of property ranging from real estate to partnership interests and other tangible and intangible interests in property. Originally, the Uniform Act provided for gifts of only money or securities. The allowance of the exclusion is not affected by the amendment of a state's Uniform Act lowering the age of majority and thus requiring that property be distributed to the donee at age 18.³ The revenue rulings cited in this paragraph base the allowance of the exclusion on the assumption that gifts under the Uniform Act come within the purview of IRC Section 2503(c). Gifts to minors under IRC Section 2503(c) must pass to the donee on his attaining age 21. If a state statute varies from the Uniform Act by providing that under certain conditions custodianship may be extended past the donee's age 21, gifts made under those conditions would not qualify for the exclusion. For a state-by-state summary of the types of property which can be given under, and the adult age for purposes of, the Uniform Act, see www.TaxFactsUpdates.com.