The Crummey Trust: Not So Crummy

Traditionally, estate-planning trusts contained “Crummey” withdrawal powers to ensure that contributions qualify for the annual gift tax exclusion.  Today, the exclusion allows you to give up to $14,000 per year, and $28,000 for married couples, to any number of recipients. 

Although fewer people must worry about gift and estate taxes, for many, the annual exclusion is still an important estate planning strategy.  Consequently, Crummey powers are still relevant and useable. 

There are two important reasons to make annual exclusion gifts: if your wealth exceeds the exemption amount and if annual gifting guarantees that the amounts you give are permanently removed from your taxable estate. 

The annual exclusion is obtainable only for gifts of “present interests.”  However, a contribution to a trust is a future interest.  Thus, to bypass this obstacle trusts provide beneficiaries with Crummey withdrawal powers. These powers give beneficiaries the right to withdraw trust contributions for a limited period of time (30-60 days), making it possible to convert a future interest into a present interest, even if the withdrawal rights are never exercised. 

A trust must give beneficiaries real withdraw powers in order to effectuate Crummey powers.  This means you cannot have an agreement with your beneficiaries—express or implied—that will not exercise their withdraw rights.  The trust should also contain sufficient liquid assets so beneficiaries can exercise their withdraw rights.

See E. Hans Lundsten and Joseph Marion, III, The Crummey Trust: Still Relevant After All These Years, Insight on Estate Planning, October/November 2014.