Highly appreciating assets may be transferred into an irrevocable inter vivos trust to minimize transfer tax liabilities. Depending on how the trust document is structured, potential benefits include minimization of gift tax liabilities, federal and state estate tax liabilities, generation skipping transfer tax liabilities, and / or inheritance tax liabilities.
Generally, transfers into an irrevocable inter vivos trust represent completed gifts from the grantor to the trust, unless the grantor retains an interest in the trust assets at death or within 3 years preceding death. Future appreciation of gifted assets occurs within the trust and outside of the gross estate of the grantor. Any future appreciation in fair market value then benefits trust beneficiaries without future transfer tax implications for the grantor.
While gifts of a future interest are not eligible for the annual gift tax exclusion, a Crummey power may be included within the trust document to convert gifts of a future interest to gifts of a present interest, thus allowing the grantor to benefit from the annual gift tax exclusion at the time of transfer into the trust.