Gift Trust

Do you want to invest in an MPI® Strategy, but you also want to make sure your child, grandchild or other loved one doesn’t waste it? A frequent concern clients have is that they will invest their hard earned money into a MPI® Strategy only for their loved one to spend it foolishly. In addition to preventing the loved one from spending the MPI® Strategy unwisely, a MPI Gift Trust also allows you to reduce your Federal Estate Taxes.

Control of the MPI® Strategy

Rather than create a MPI® Strategy in your child’s or grandchild’s name, a MPI Gift Trust is created. The MPI Gift Trust then purchases and continues to invest in the MPI® Strategy on the life of your loved one. (There are advantages and disadvantages to creating a single MPI Gift Trust for all of your loved ones and you may wish to consider creating a MPI Gift Trust for each loved one too.)

The person who is in charge of the MPI Gift Trust is a trustee you choose. Further, you can elect to place age and other restrictions on when or how your loved one may receive funds from their MPI® Strategy. Some clients choose to set an age when their loved one may be serve as trustee too.

Tax Advantages of a MPI Gift Trust

Each United States citizen receives a certain amount that he or she may gift during their lifetime or transfer upon his or her death. This amount is called the Federal Estate Tax Exemption and the Federal Lifetime Gift Tax Exemption. Under 2023 tax law, each person may gift $12.92 million during their lifetime or upon death, but not both. (A married couple enjoys a combined $25.84 million.)

However, a citizen may gift up to $17,000 per year to as many people as he or she wishes without declaring the gift and using any of their exemptions. For example, a parent or grandparent may invest $17,000 per year per child or grandchild. ($34,000 a year for a married couple.) This allows you to minimize your Federal Estate Taxes without ever reducing the amount you may gift during your life or upon death. It is a win-win for everyone.

What if you need to invest more than $17,000 in a single year? (Perhaps the two initial lump sum payments for the MPI® Strategy exceed $17,000.) You will simply need to report anything in excess of $17,000 as a gift when you file your income taxes the following year. (Your loved one does not pay taxes on this gift either.) This simply informs the IRS that you have used part of your $12.92 million Federal Lifetime Gift Tax Exemption. Under current tax law, the $12.92 million exemption amounts will be reduced to $5 million, adjusted for inflation, on January 1, 2026. Any gifts you make on or before December 31, 2025 will be grandfathered. This means you may gift approximately $7 million before such date and still enjoy the entire $5 million, adjusted for inflation, remaining after January 1, 2026.

Beware of the Limitations of a MPI Gift Trust

The MPI Gift Trust isn’t a solution for everyone because there are serious limitations. Please be aware of the of the following:

• The MPI Gift Trust is irrevocable. You cannot change the recipients of the gifts or the amount that he or she will receive after the MPI Gift Trust is created.
• You cannot serve as trustee of the MPI Gift Trust you create. In order to make a qualifying gift under Federal tax law, you must release all possession of the gift. This means you cannot control the MPI Gift Trust you create. Typically married couples will each create a MPI Gift Trust and appoint one another as trustee of their MPI Gift Trust. However, if your spouse dies, you will need to name someone other than yourself to serve as trustee.
• You cannot be a beneficiary of the MPI Gift Trust you create. Another requirement to make a gift under Federal tax law is that you cannot benefit from the gift. In other words, you cannot be the recipient of your own gift. Of course this makes sense when you think about it, but be aware you are creating a MPI Gift Trust for the benefit of someone else and not yourself. (You can name your spouse to be a beneficiary.) If you need the ability to receive income from the MPI® Strategy, you will need to choose a different type of Legacy Trust.
• All gifts to the MPI Gift Trust are irrevocable. Please be aware that you cannot change your mind later and get your gift back. Just like any other gift, once you give it you cannot expect to receive it back.
• Your loved one will have a right to withdraw your gift for 30 days. Lastly, in order to make a gift that qualifies under IRS guidelines, your loved one must have the right to receive your gift immediately. Typically this right expires after 30 days. A letter must be given to each loved one that is over 18 years of age and signed by him or her each time a gift is made to the MPI Gift Trust. (The parent or legal guardian of any one under 18 will sign the letter.) Your loved one must understand that if he or she withdraws the gift, you will not make any future gifts. In my experience, I have not seen a loved one bite the hand that is gifting him or her. But the notice letter (called a crummey letter) is a requirement that must be followed.

A MPI Gift Trust is heavily discounted to $3,500. This price includes a MPI Gift Trust for both spouses too. If you choose to create a MPI Gift Trust for each loved one, each additional MPI Gift Trust is an additional $500. Mr. Skabelund will meet with your for 30 minutes to design your MPI Gift Trust and answer any questions you may have.