With proper planning, you may be able to provide a financially secure future for your child or grandchild and limit the tax effect of a gift.

The federal gift-tax annual exclusion allows you to shelter gifts of up to $10,000 per recipient, per year ($20,000 if your spouse joins in the gift).

However, this tax break is not available for gifts of future interests in property. This fact generally causes concern among parents andgrandparents because they often are reluctant to give a child complete control of assets until the child is old enough to handle them responsibly. Tosidestep this problem, yet qualify for the gift-tax annual exclusion, consider the following strategies.

Establish a minor’s trust: The child benefits from the trust income and principal prior to turning age 21. At age 21 the child has unlimited access tothe trust, but for only a very short period of time. At a later daterestrictions can be reinstated and trust benefits can resume.

Open a custodial account: This account gives the child ownership of the assets but leaves full control of those assets with the custodian. However,be aware that when the child turns age 21 (in some states, age 18), he or she will receive the account assets. In some cases it may make more senseto keep assets safe in trusts for a longer period and address tax consequences with other techniques.

Please consult with your professional tax advisor before undertaking an investment strategy.

ALAN S. MOORE, who writes this column every Wednesday for L’Observateur,is a financial advisor of Legg Mason Wood Walker, Inc., a diversifiedsecurities brokerage and financial services firm that is a member of the New York Stock Exchange, Inc.

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