Pioneers and nationally recognized leaders in estate planning.

650.493.8070 local

800.244.9424 toll-free

Crummey trusts can maximize benefit of annual exclusion

The annual exclusion to gift taxes is rather straightforward: tax-free, someone can give away up to $14,000 per year. Spouses, through gift-splitting, can effectively double that annual exclusion to $28,000. As a basic precondition, the gift must consist of present interest (or an asset that the recipient can immediately use), such as cash.

Gifts given to many types of trusts do not satisfy this requirement. However, there is one means of employing the annual exclusion to fund trusts while meeting the “present interest” requirement. It is often called a “Crummey trust.”

First, gifts are made to an irrevocable Crummey trust. Children or other designated beneficiaries are given the right to withdraw the gifts from the trust for perhaps 30 to 60 days. Often, the beneficiaries do not withdraw the gifts, instead leaving them in the trust until reaching a (much older) designated distribution age. Crummey trusts can be a great planning tool when used in conjunction with life insurance policies and life insurance trusts.

Every year, trustees must send a notice to the beneficiaries to remind them of their right to withdraw their share of annual gifts made to the trust. That notice, called a Crummey notice, is named for the plaintiff in a 1968 Ninth Circuit Court of Appeals case that sanctioned the use of the process to circumvent the present interest requirement.

Because these trusts allow tax-avoiding gifts to trusts, the Obama administration has proposed their elimination as a way to increase tax revenue and help meet the government’s budget. But for the time being, Crummey trusts remain viable. Anyone considering a Crummey trust must consult with an experienced estate-planning attorney — like those at Gilfix & La Poll Associates.