In its most basic explanation, the Crummey provision was a means of making tax free gifts while retaining control of funds within a trust. Though challenges have occurred since 1968, the Crummey provision has been a potent estate planning tool.
Some estate plans have a provision for annual gifting to heirs. These gifts are offered/available through the trust. By having a Crummey provision, the beneficiary of the gift has a limited time to withdraw contributions to the trust. The limited time frame for withdrawal can be 30, 45 or 60 days from the date of notification. For this reason, the Crummey Trust is also known as a “right of withdrawal” trust. When the beneficiary does not exercise their “right” to withdraw funds, the funds remain in the trust. (Note: the beneficiary does not need to “reject” the funds. Simply allowing the 30, 45 0r 60 day right of withdrawal to lapse is sufficient.)
Thus, the Crummey provision (again in a simple explanation) has the potential to convert a future interest gift to a present interest…. Thereby taking advantage of any gift tax exclusions.
Another aspect of a Crummey trust is that while taking advantage of the gift tax exclusion, funds are retained in the trust until the beneficiary is mature enough to handle their legacy. Crummey trusts can provide children with gifts while sheltering the funds from gift taxes.
Note: The annual gift tax exclusion for 2019 was $15,000.
There are some critical steps concerning Crummey powers and notifications. It is beyond the scope of this article to discuss every individual aspect of this estate planning technique.
Consult your financial advisor and estate planning professional for advice.
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