How Much Can You Put in a Trust Fund?

Trust funds are financial arrangements designed to hold assets for the benefit of designated individuals or entities. They serve various purposes, including asset management, protection, and the structured transfer of wealth to future generations. For individuals considering a trust, understanding federal tax regulations and reporting requirements is key to determining how much can be placed into one.

Understanding Gift and Estate Tax Exemptions

Assets placed into a trust without incurring federal gift or estate tax are determined by specific tax exemptions. These provide annual and lifetime thresholds for tax-free transfers.

The annual gift tax exclusion allows individuals to give money or property to any person each year without incurring gift tax or using their lifetime exemption. For 2024, this is $18,000 per recipient. Gifts within this limit do not require IRS reporting. If a gift exceeds this exclusion, it counts against the donor’s lifetime gift and estate tax exemption.

Married couples can “split” gifts, doubling the annual exclusion per recipient. In 2024, a couple can collectively gift $36,000 to an individual without tax implications or reporting, even if only one spouse provided funds. To split gifts, both spouses must consent by filing Form 709. This allows for more substantial annual transfers.

Federal law provides a unified lifetime gift and estate tax exemption. This exemption covers the total value of assets an individual can transfer during their lifetime or leave at death without federal gift or estate tax. For 2024, this is $13.61 million per individual. Gifts exceeding the annual exclusion reduce this exemption, but do not trigger immediate gift tax unless total lifetime gifts surpass this threshold. For married couples, the combined exemption is $27.22 million in 2024.

This federal exemption amount is subject to change. Current law indicates amounts are scheduled to revert to significantly lower levels after 2025. Planning ahead is relevant for large transfers. While this article focuses on federal rules, some states may impose their own estate or inheritance taxes, affecting wealth transfer planning.

Funding Different Types of Trusts

Trust type influences how contributions are treated under federal gift and estate tax laws. Trusts are categorized as revocable or irrevocable, with distinct implications for asset transfers.

When assets are transferred to a revocable living trust, the grantor retains control and can modify or revoke it. Because the grantor maintains control, funding a revocable trust is not a completed gift for tax purposes. Contributions to revocable trusts do not trigger gift tax or reduce the grantor’s lifetime gift and estate tax exemption. Assets held within a revocable trust remain part of the grantor’s taxable estate upon death.

Conversely, funding an irrevocable trust is a completed gift for tax purposes. Once assets are transferred, the grantor relinquishes control. Contributions to an irrevocable trust utilize the annual gift tax exclusion or reduce the grantor’s lifetime exemption. Irrevocable trusts offer benefits such as asset protection from creditors, potential estate tax reduction, and eligibility for government benefits.

Irrevocable trusts often include a “Crummey power” to maximize annual gift tax exclusions. A Crummey power grants beneficiaries a temporary right to withdraw trust contributions. This transforms a “future interest” gift, which does not qualify for the annual exclusion, into a “present interest” gift that does. The gift can still qualify for the annual exclusion even if beneficiaries do not exercise this right, provided proper notice is given.

Specialized trusts have unique funding considerations. Special Needs Trusts, for example, hold assets for individuals with disabilities without jeopardizing government benefits. Funding rules vary based on whether established with the disabled individual’s own funds (first-party) or by another person (third-party). Charitable trusts, such as Charitable Remainder Trusts or Charitable Lead Trusts, offer specific income or estate tax deductions when funded. These trusts allow donors to support charitable causes while potentially receiving income or other tax benefits, distinguishing their funding from family wealth transfer trusts.

Additional Tax Considerations and Reporting

Beyond gift and estate tax rules, other tax implications and reporting requirements arise when transferring assets into trusts.

The Generation-Skipping Transfer (GST) tax applies to wealth transfers to “skip persons,” typically grandchildren or beneficiaries at least 37.5 years younger than the transferor. The GST tax is separate from, but can apply concurrently with, federal gift and estate taxes. Its purpose is to ensure wealth transferred across multiple generations does not avoid transfer taxes at each generational level. The GST tax rate is a flat 40%.

A GST tax exemption exists, similar to the gift and estate tax. For 2024, the GST tax exemption is $13.61 million per individual, aligning with the federal lifetime gift and estate tax exemption. Transfers to skip persons are exempt from GST tax up to this amount. Any unused GST exemption does not transfer to a surviving spouse, unlike the estate tax exemption, highlighting timely planning.

When gifts exceed the annual exclusion or involve certain transfers, Form 709 (U.S. Gift (and Generation-Skipping Transfer) Tax Return) must be filed with the IRS. This applies even if no gift tax is due because gifts fall within the donor’s lifetime exemption. Form 709 serves as an informational return, allowing the IRS to track an individual’s lifetime gift and estate tax exemption use. The form requires donor and donee information, gifted property description, and its valuation. It must also be filed if spouses elect to split gifts. The deadline for Form 709 is April 15th of the year following the gift. An income tax return extension can automatically extend the Form 709 deadline.