Crummey Trust

What Is a Crummey Trust?

A Crummey trust is part of a estate planning technique that can be employed to exploit the gift tax exclusion while transferring money or assets to someone else while holding the option to place limitations on when the beneficiary can access the money.

Figuring out Crummey Trusts

Crummey trusts are regularly utilized by parents to give their children lifetime gifts while shielding their money from gift taxes for however long the gift's value is equivalent to or not exactly the permitted annual exclusion amount.

For the tax year 2021, that amount is $15,000 per beneficiary, rising to $16,000 in 2022. A Crummey trust permits a family to keep making the annual $15,000 gift while putting the money in a protected fund. The protected fund safeguards from gift taxes forced by the Internal Revenue Service (IRS).

The annual gift tax exclusion as a rule doesn't matter to gifts made to trusts. The IRS requires the gift beneficiary to have a "present interest" in the gift for the exclusion to kick in. The beneficiary must be conceded immediate access to the gift for however long they are not a minor younger than 18. Numerous assortments of trusts give beneficiaries a "future interest" in the trust's assets.

The utilization of a Crummey trust permits an eligible beneficiary to make withdrawals of the gift inside a set span of time, like inside 30 or 60 days after the transfer. Past that point, the gift funds held in the trust fall under the stipulated withdrawal rules as set by the trust's grantor.

History of the Crummey Trust

The Crummey trust is named for Clifford Crummey, the first fruitful taxpayer to utilize this technique. After he laid out up a trust as such in 1962, the Internal Revenue Service (IRS) endeavored to deny him and his family the annual gift tax exclusion. The IRS contended that the trust didn't meet the immediate interest provision of the gift tax exclusion.

The case delayed for a long time. At last, in 1968, the courts differ and decided for the Crummey family.

Subsequently, the Crummey trust keeps on being a practical option for families wishing to make lifetime gifts to their children while protecting against gift taxes.

Disadvantage of the Crummey Trust

One likely drawback to the Crummey trust is that giving beneficiaries, in particular minors, with immediate access to sizable gifts might risk the fund's ability to amass earnings long-term. A few families sidestep this by setting certain limitations, for example, restricting the amount or frequency of withdrawals or ending future gifts to beneficiaries who pull out funds immediately.

For instance, a parent can assign that a child can't access trust money until arriving at the age of 25. However, even assuming the beneficiary chooses to tap into the trust immediately, they just approach the latest gift. All previous gift funds stay protected inside the trust account.

Features

• The Crummey trust is named after Clifford Crummey, who was the first person to utilize the technique.
• A Crummey trust is utilized to exploit gift tax exclusions.
• Crummey trusts are frequently utilized by parents for their children's gifts.