Many parents and grandparents want to help their children and grandchildren out financially and not have to put the money into a trust for later use.
Gifting thousands of dollars is easy to do when your children are grown adults and know how to handle money. But what is the best way to gift large sums of money to minors, those under age 18, for immediate use, but without incurring the gift tax?
The basic rule is that you can give $14,000 to each of your children annually. But the catch is that it needs to be a present interest. The receivers of the money cannot put it away to save for later use, especially when the sum is not in the hundreds, but in the thousands of dollars and you want to avoid paying gift taxes on that gifted money. (In most cases the donor, or person giving the money pays the gift tax).
In the case of gifting the annual limit of $14,000 (or less) to a child or grandchild, the donee (receiver of the money) has to have immediate use, possession and enjoyment of the gift. Here is where a gift differs significantly from a trust.
But handing over $14,000 to a twelve year old is not always feasible. So if the child is a minor then the gift needs to be put into a Uniform Transfer to Minors account at a bank or other financial institution.
Of course, older minors, for example teenage children and grandchildren, may have immediate financial needs- purchasing a car or an expensive travel situation- and in that case you may choose to simply give the child or grandchild cash so that they can start spending immediately.