HOW THIS MONEY ACTUALLY MOVES

ALTHOUGH IT MAY not look like it when you walk into your artist friend's Cobble Hill brownstone, there are limits to how much a parent can bestow on their child.

- Katie Arnold-Ratliff

Designed to thwart the wealthy's attempts to circumvent the estate tax, which after death gobbles up to 40 percent of one's assets over $13.99 million, the IRS's "gift tax" stipulates that each taxpayer can give only $19,000 per year to any individual, including their kids. Any more than that and a parent must file Form 709, which alerts the IRS that the giver is eating into the lifetime maximum (which is also $13.99 million) they can grant to one person tax free. Yet rich parents often want to give more. Here are the (sometimes barely legal) ways they get it done.

ESTABLISH A TRUST

A trust distributes parents' assets to a child according to conditions they set, and it can give parents control over how their assets are used, too. "You can add a spendthrift clause," says Kitty Ritchie of Drucker Wealth, "so the child can only spend a certain amount of trust income per year, or an age-terminating clause, which says they'll only get the funds at certain ages." However, not every trust works as an estate-taxmitigation strategy: An irrevocable trust is the only one that moves assets out of a parent's estate without triggering estate taxes, she adds. But the money in it must still be less than the lifetime exemption threshold to avoid a gift tax.

OFFER A BELOW-MARKET LOAN

"Say you wanted to help your child buy an apartment," says Avani Ramnani, managing director and partner at Francis Financial. "You say, Here, I'm giving you a million dollars.' But it must be a loan to avoid the gift tax. It must be documented, with terms and a promissory note, and carry an interest rate corresponding to the applicable federal rate, set by the IRS, which tends to be lower than what you would get in the market." Fail to charge interest and the IRS will tax you on the earned income you should have received by doing so. It will also reclassify the loan as a gift.