Many hard-working individuals naturally want to pass on their assets to
their family -- the people they care about the most. In this post, we
will discuss the Crummey Trust and how this trust can play an essential
role in a comprehensive estate planning strategy, as well as some of the
challenges presented to this type of trust by interested external parties.
The Crummey Trust Explained
A Crummey Trust is typically used by parents who want to extend
gifts to their children without the IRS imposing any gift tax penalty upon either the grantor
or the gift recipient. For the tax year 2018, the maximum gift amount
was $15,000 per recipient. For the tax exclusion to apply, the following
stipulations must be met:
- the beneficiary must have a "present interest" in the gift,
- those 18 and over must be granted immediate access to withdrawal of the gift,
- the withdrawal typically must be made within 30 to 60 days,
- any monies left after the withdrawal period are subject to withdrawal rules
set by the trust grantor.
In some cases, a parent may create this type of trust and regularly gift
to their minor children. These minor children are not allowed to withdraw
from the trust, thereby allowing the trust to continue to build in value.
The trust grantor (parent) will typically set up withdrawal rules during
the creation of the trust in order to stipulate at what age, 18 and beyond,
their child can begin to make actual gift withdrawals from the trust.
Challenges to the Crummey Trust
In a recent court case,
Mikel v. Commissioner, the IRS tried to make the argument that an in terrorem clause in a Crummey
Trust per se shows that withdrawal rights are illusory. Fortunately the
taxpayer won the case, thus protecting their trust from the reaches of
the IRS and any other potential creditors. If you would like to know more
about setting up a Crummey Trust for your beneficiaries, please
contact us! We can help with all your estate planning needs including living wills,
granting power of attorney, charitable trusts, advance directives and more.