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Crummey Trust

Named after the taxpayer who established the tax treatment of this kind of trust in tax court, a Crummey trust is a special kind of non-charitable irrevocable trust. The trust is designed to give its beneficiary just enough access to its assets that contributions made to the trust on the beneficiary's behalf qualify for the annual gift tax exclusion. The annual gift tax exclusion in 2015 is $14,000.

A Crummey trust enables the trust's creator and his or her spouse to give up to $14,000 each to the trust each year without making a taxable gift.  If the trust has more than one beneficiary, children for example, then each year each contributor can give up to $14,000 multiplied by the number of trust beneficiaries without making a taxable gift.

For example, a husband and wife could add up to $78,000 each year to a Crummey trust that benefits their three children without making a taxable gift.

             2 x 3 x $13,000 = $84,000

One way that contributions to a Crummey trust can qualify for the annual gift tax exclusion is to give the trust beneficiaries the right to withdraw principal from the trust during only the first 30 days of each calendar year.

A common use of the Crummey trust is for parents to fund the trust with a life insurance policy that benefits their children. The parents make contributions to the trust each year to cover the insurance premiums.  These contributions are sheltered from gift tax by the annual gift tax exclusion. In addition, since the trust is the owner of the insurance policy, the proceeds of the policy will not be subject to estate tax.

 

 

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