To qualify for the annual exclusion from gift tax, a gift to a minor must satisfy these conditions:

• The recipient must receive the property outright by age 21. This means that if you set up a custodianship for your child, it must end when the recipient turns 21. That said, the property and its income may of course be spent by, or for the benefit of, a recipient who isn't 21 yet. Similarly, if you create a trust for the child, the trust document must state that the property will be turned over to the recipient by his or her 21st birthday. (But you may also give the recipient the right to extend the trust.)
• If the recipient dies before age 21, the remaining property must go to the recipient's estate or to someone the recipient named -- for example, in a will. (Internal Revenue Code § 2503(c).)

Think Before You Give

An ambitious program of gift-giving is not for everyone. If parting with assets makes you feel vulnerable or fearful that you will someday be without money you need, don't do it. Or you may decide that your children or grandchildren are not ready yet to appreciate your generosity. But helping a 21-year-old get an education, or the head of a new family buy a house, can give you great satisfaction.

One reason that planned gift-giving has gained in popularity is that people live so much longer than they used to. If you wait until you die to transfer your wealth, the recipients -- for most people, their children -- may be nearing old age themselves. Your financial help may be more useful when they are younger.

If you want to learn more about the gift tax and other estate planning strategies, read Plan Your Estate (Nolo) by attorneys Denis Clifford and Cora Jordan.