Don and Barb visit their financial professional and discuss their goals. Their financial professional explains that Don and Barb can each give up to $19,000 (2025) a year to each of their children and grandchildren, without any reporting to the IRS. This type of gift is called an “annual exclusion gift.” Their financial professional continues to advise that it is as easy as writing a check to each child or grandchild. It’s that simple. Since Don and Barb have three children and four grandchildren, they can give up to $266,000 every year. Based on this scenario, this is the maximum they can give on an annual basis without any IRS reporting.

Their financial professional also explains that one of the pitfalls of gifting directly to their children and grandchildren is that the gifts will be subject to their kids’ future potential creditors. Therefore, she suggests that instead of gifting directly to them, Don and Barb can create an irrevocable trust and make the gifts to that trust. An irrevocable trust can provide instructions to a trustee as to how Don and Barb would like the money distributed to their children and grandchildren as well as help protect these gifts from any of their future potential creditors. They can choose to create one trust, with separate shares for each beneficiary, or create a separate trust for each child and grandchild. The end result is that Don and Barb can make the gifts they desire and set up controls to prevent their children and grandchildren from spending foolishly while providing creditor protection.¹ Don and Barb should discuss this strategy with the attorney drafting the trust to help ensure the trust includes language that specifies the procedures the trustee must follow to qualify the gifts made as annual exclusion gifts.