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 Tax

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

    A federal tax applied to an individual giving anything of value ...
  4. Estate Planning

    The collection of preparation tasks that serve to manage an individual's ...
  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. Professionals

    Tips for Spreading the Wealth to Relatives

    There are many ways that your clients can move money or other assets to relatives in order to reduce their tax bills. Here's a primer on best practices.
  8. Professionals

    Tips for Handling Client Inheritance

    When clients leave or receive an inheritance, be prepared to deal with much more than mere paperwork or financial transactions.
  9. Professionals

    Advice on Dealing with Unequal Inheritances

    When it comes to inheritances, the concept of equal versus equitable can be hard to navigate, even when all parties are reasonable.
  10. Professionals

    Top Tips for Family Wealth Transfers

    Essential tips for tackling family wealth transfers.

You May Also Like

Hot Definitions
  1. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  2. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  3. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  4. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  5. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
  6. Absorption Costing

    A managerial accounting cost method of expensing all costs associated with manufacturing a particular product. Absorption ...
Trading Center