Crummey Trust

AAA

DEFINITION of 'Crummey Trust'

An estate planning technique that can be employed to take advantage of the gift tax exclusion when transferring money and/or assets to another person, while placing limitations on when the recipient can access the money. A Crummey trust allows a parent to make lifetime gifts to his or her children, free from gift or estate taxes as long as the amount is equal to or less than the permitted amount (currently $13,000 per year), while protecting the money in a trust. With the Crummey trust, the family can continue making the annual $13,000 gift while placing the money in a protected fund that the child cannot access until a specified age.

INVESTOPEDIA EXPLAINS 'Crummey Trust'

In order for the $13,000 gift tax exclusion to apply, the recipient (for example, the child) must have a "present interest" in the gift. A present interest implies that the child can spend the money immediately. The Crummey trust allows the gift to be placed in a trust in which the gift recipient has access to that particular gift for 30 days after the gift is made. In doing so, the recipient has a present interest in each gift (since he or she can access the money for 30 days). After that point, the money goes into the trust and falls under the specified withdrawal rules (for example, that the child can access the money upon reaching age 25). Even if the recipient decides to use the money, he or she only has access to the most recent gift; all the previous gifts remain protected in the trust.

The Crummey trust is named after Clifford Crummey, who was the first successful taxpayer to use this technique. After setting up a trust in this manner, the Internal Revenue Service attempted deny them of the annual gift tax exclusion; the courts ruled in favor of the Crummey family and the method continues to be a viable option for families wishing to make lifetime gifts to their children to save on estate taxes.

RELATED TERMS
  1. Generation-Skipping Transfer Tax ...

    A tax incurred when there is a transfer of property by gift or ...
  2. Estate Planning

    The collection of preparation tasks that serve to manage an individual's ...
  3. Estate Tax

    A tax levied on an heir's inherited portion of an estate if the ...
  4. Gift Tax

    A federal tax applied to an individual giving anything of value ...
  5. Crummey Power

    A technique that enables a person to receive a gift that is not ...
  6. Laughing Heir

    A distant relative who has inheritance rights despite not having ...
Related Articles
  1. Retirement

    Estate Planning: 16 Things To Do Before You Die

    Find out what you need to prepare to avoid serious estate planning mistakes.
  2. Personal Finance

    Protect Your Personal Assets

    A family limited partnership (FLP) can go a long way toward securing your family's property.
  3. Options & Futures

    Getting Started On Your Estate Plan

    With some preparation, you can save your heirs from paying a hefty estate tax. Here are some tips.
  4. Options & Futures

    An Estate Planning Must: Update Your Beneficiaries

    Life changes make it time to rewrite your plan's designations.
  5. Retirement

    Get A Step Up With Credit Shelter Trusts

    Don't let unexpected taxes eat away at your inheritance or burden your heirs.
  6. Retirement

    Estate Planning Basics

    Deciding what will happen to your assets when you pass away is a must - no matter how wealthy you are.
  7. Taxes

    How are savings bonds taxed?

    Learn who is responsible for reporting U.S. EE savings bond interest for taxation and when the interest can be reported for proper taxation.
  8. A new Supreme Court ruling has some financial advisors rushing to set up trusts to help protect inherited IRAs. Is that necessary?
    Investing Basics

    How Advisors Can Protect Inherited IRAs

    A new Supreme Court ruling has some financial advisors rushing to set up trusts to help protect inherited IRAs. Is that necessary?
  9. Retirement

    What's the difference between a financial advisor and a financial planner?

    Seeking professional advice from a financial advisor may involve asking for financial help from a certified financial planner, stockbroker or an accountant.
  10. Personal Finance

    Top 10 Money Mistakes New Parents Make

    Although having a child is an exciting and exhilarating experience, it is very easy to lose track of finance or make unwise decisions with money.

You May Also Like

Hot Definitions
  1. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  2. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  3. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  4. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
  5. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
  6. Law Of Supply And Demand

    A theory explaining the interaction between the supply of a resource and the demand for that resource. The law of supply ...
Trading Center