A Crummey power refers to the privilege granted to a trust beneficiary to withdraw a specific sum of money from the trust as a gift. Typically, this power remains valid for a period of 30 days following the gift and can amount to either $5,000 or 5% of the trust’s total value. The individual has the option to decline utilizing this power. The purpose of this provision is to circumvent taxes and facilitate the process of giving modest presents.
Crummey power is the term used to describe the ability of a beneficiary in a Crummey trust to withdraw gifts made to the trust up to a certain maximum amount for a specific period of time after the gift is given. This maximum amount is usually determined by either the annual exclusion or the value of the gift made to the trust, whichever is lower. The person who establishes the Crummey trust, known as the settlor, determines the specific details of the Crummey power. Typically, the power can be exercised within 30 days of the gift and allows for withdrawals of up to $5,000 or 5% of the trust’s value. However, the beneficiary also has the option to let the power expire without making any withdrawals. For instance, if a parent creates a Crummey trust for their child and gives $20,000 to the trust, the child may have the right to withdraw up to $10,000 of that gift within 30 days. If the child chooses not to exercise the Crummey power within that time period, the right to withdraw will no longer be available. The purpose of the Crummey power is to enable the donor to utilise the annual exclusion for gift tax purposes while still maintaining some control over the gifted assets. By allowing the beneficiary to withdraw the gifted amount, the donor can ensure that the gift is not considered a transfer upon death and therefore not subject to estate tax.
Crummey Power refers to the ability of a beneficiary to withdraw a gift made to a trust for a limited period of time, typically 30 to 60 days.
When a gift is made to a trust, the trustee notifies the beneficiary of their right to withdraw the gift within a specified time frame. If the beneficiary does not exercise this right, the gift becomes part of the trust.
The purpose of Crummey Power is to qualify gifts to a trust for the annual gift tax exclusion, allowing the donor to make tax-free gifts up to a certain amount each year.
Crummey Power is typically used in irrevocable trusts, such as life insurance trusts or education trusts, to take advantage of the annual gift tax exclusion.
Yes, there are limitations to Crummey Power, including the need for the beneficiary to be given a real opportunity to withdraw the gift and the requirement that the withdrawal right be limited in duration.
Once the beneficiary has exercised their withdrawal right, the gift becomes part of the trust and cannot be revoked.
If the beneficiary does not exercise their withdrawal right, the gift becomes part of the trust and is subject to the terms and conditions of the trust.
Crummey Power can be used as part of an estate planning strategy to reduce the donor’s taxable estate by making tax-free gifts to a trust.
One potential drawback is that the beneficiary may feel pressured to withdraw the gift, which could strain family relationships.
It is important to work with an experienced estate planning attorney to properly set up Crummey Power in a trust and ensure compliance with tax laws and regulations.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
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