Crummey Trust
A Crummey Trust is an irrevocable trust that allows beneficiaries to receive annual gifts from the trust creator while still qualifying for the annual gift tax exclusion. It’s commonly used for estate tax reduction, wealth transfers, and funding life insurance policies while preserving tax benefits.
Key Features Of A Crummey Trust
- Tax-Free Annual Gifting: Enables tax-exempt gifts up to the annual exclusion limit ($19,000 per beneficiary in 2025).
- Estate Tax Reduction: Keeps assets out of the grantor’s taxable estate, reducing estate tax exposure.
- Withdrawal Rights for Beneficiaries: Beneficiaries can temporarily withdraw gifted funds, making the gifts qualify for the gift tax exclusion.
- Irrevocable Structure: Once created, the trust and its assets cannot be modified or revoked.
- Often Used for Life Insurance: Frequently funds Irrevocable Life Insurance Trusts (ILITs) to cover estate taxes or provide financial security for heirs.
Our Crummey Trust Services
Looking to protect assets while maximizing tax benefits? We can help.
- Trust Formation: We create Crummey Trusts tailored to your estate planning needs.
- Gift Tax Compliance: Our team ensures all contributions qualify for the annual gift tax exclusion.
- Trust Administration: We assist with ongoing management, withdrawals, and legal compliance.
We ensure your Crummey Trust is structured properly for maximum tax benefits and wealth protection.
Who Should Consider Setting Up a Crummey Trust?
A Crummey Trust is ideal for individuals looking to make tax-efficient gifts while protecting family wealth.
Key Indicators You Should Consider a Crummey Trust:
- You Make Large Annual Gifts: If you gift money to children or grandchildren, a Crummey Trust ensures these gifts qualify for tax exclusion.
- You Want to Fund a Life Insurance Policy Tax-Efficiently: ILITs with Crummey powers help pay premiums while avoiding estate taxes.
- You Have a High Net Worth: A Crummey Trust helps reduce estate tax liability by shifting assets out of your estate.
- You Want to Provide for Future Generations: Allows structured asset distribution for heirs.
- You Need Asset Protection: Protects gifted funds from lawsuits, creditors, and financial mismanagement by beneficiaries.
How to Set Up a Crummey Trust
Setting up an Asset Protection Trust involves clear steps to secure your assets. Here’s our process:
- Initial Consultation: We assess your financial situation and determine if an APT suits your goals.
- Custom Trust Drafting: Our attorneys draft a trust tailored to your unique needs and preferences.
- Review and Approval: We walk you through the details, ensuring the trust meets your expectations.
- Trust Funding: We guide you in transferring your assets into the trust for maximum protection.
- Finalization: The trust is formally established, and we provide all relevant documents for your records.
- Ongoing Support: We assist with amendments, compliance, and ongoing trust management as needed.
Disadvantages of Crummey Trusts
While Crummey Trusts offer significant tax advantages, they also have some limitations:
- Beneficiary Cooperation Required: Beneficiaries must receive and acknowledge Crummey notices.
- Potential IRS Scrutiny: The IRS may challenge improper use of Crummey powers, requiring strict compliance.
- Irrevocable Structure: Once assets are gifted, they cannot be taken back or modified.
- Complex Administration: Requires annual notices and careful record-keeping to qualify for tax benefits.
- Limited Withdrawal Window: If a beneficiary withdraws funds immediately, the trust loses long-term asset protection.
Crummey Trust FAQ
By allowing annual gifts that qualify for the gift tax exclusion, a Crummey Trust helps remove assets from your taxable estate while keeping them protected in trust.
Beneficiaries must be given a temporary right to withdraw gifted funds, usually for 30 days. This allows the gifts to qualify for the annual gift tax exclusion.
They have the legal right to withdraw, but in practice, beneficiaries usually leave the funds in the trust for long-term protection and growth.
Yes! Many Irrevocable Life Insurance Trusts (ILITs) use Crummey provisions to pay premiums tax-efficiently.
No. Once assets are transferred into the trust, they cannot be reclaimed by the grantor.
Best Alternatives to a Crummey Trust
If a Crummey Trust isn’t the right fit, consider these alternatives:
- Irrevocable Life Insurance Trust (ILIT): Designed specifically for tax-efficient life insurance planning.
- Dynasty Trust: Protects wealth across multiple generations.
- Grantor Retained Annuity Trust (GRAT): Allows structured gifting with potential tax advantages.
- Direct Gifting: If you don’t need trust protection, direct annual gifts may be a simpler option.
We Can Help You Set Up Your Crummey Trust
Our team specializes in Crummey Trust formation, ensuring your estate plan is structured for maximum tax savings and asset protection.
If you’re considering a Crummey Trust, contact SJF Law Group today to get started.