A gift transfer device that combines the non-tax advantages of a trust with the annual gift tax exclusion is referred to as a “§2503(c) trust” or minor’s trust. The minor’s trust is more attractive than the traditional Uniform Gift to Minor’s Act or Uniform Trust for Minor’s Act custodianship arrangement because: (1) there are no restrictions on the property that may be transferred into, or the investments that may be held by, a minor’s trust and (2) the transferred property can remain in trust until the donee is age 21, even if the age of majority is less than 21.
Prior to the enactment of §2503(c), unless a minor was given a present interest in property or a present interest in the income from property transferred by gift, the donor was not entitled to claim the annual gift tax exclusion on transfers into a trust. A gift to a minor of an income interest in trust property does not qualify for the annual gift tax exclusion if the trustee has discretion to accumulate or distribute income until a future date. The income interest in a trust qualifies as a present interest only if the income is required to be distributed.
Congress enacted §2503(c) to help get around the problems associated with these rules, which provides a specific form of transfer that qualifies for the annual exclusion. Section 2503(c) provides a special exclusion for gifts for the benefit of persons less than 21 years of age that otherwise would be considered gifts of future interests not qualifying for the annual gift tax exclusion. If the statutory requirements are satisfied, the entire value of property transferred will be considered a gift of a present interest that qualifies for the annual exclusion. Under §2503(c), a transfer of property for the benefit of a minor will not be considered a gift of a future interest if certain requirements are met.