What is 'Crummey Trust'

A Crummey Trust is part of an estate planning technique that can be employed to take advantage of the gift tax exclusion when transferring money or assets to another person, while retaining the option to place limitations on when the recipient can access the money.

BREAKING DOWN 'Crummey Trust'

Crummey trusts are typically used by parents to provide their children with lifetime gifts while sheltering their money from gift taxes as long as the gift's value is equal to or less than the permitted annual exclusion amount. For the tax year 2018, that amount is $15,000. A Crummey trust allows a family to continue making the annual $15,000 gift while placing the money in a protected fund. The protected fund protects from gift taxes imposed by the Internal Revenue Service. The gift tax exclusion usually doesn't apply to gifts made to trusts. The IRS requires the gift recipient to have a "present interest" in the gift for the exclusion to kick in. The beneficiary must be granted immediate access to the gift as long as they are not a minor, under the age of 18. Many varieties of trusts provide beneficiaries with a "future interest" in the trust's assets. 

The use of a Crummey trust allows an eligible recipient to make withdrawals of the gift within a set span of time, such as within 30 or 60 days after the transfer. Beyond that point, the gift funds held in the trust fall under the stipulated withdrawal rules as set by the trust's grantor. For example, a parent can designate that a child can't access trust money until reaching the age of 25. But, even if the recipient decides to tap into the trust immediately, they only have access to the most recent gift. All previous gift funds remain protected within the trust account.

History of the Crummey Trust

The Crummey trust is named for Clifford Crummey, the first successful taxpayer to use this technique. After setting up a trust in this manner, the IRS attempted to deny him and his family the annual gift tax exclusion. The IRS argued that the trust did not meet the "immediate interest" provision of the gift tax exclusion. However, the courts disagreed and ruled in favor of the Crummey family. Following the 1960s court case, the Crummey Trust continues to be a viable option for families wishing to make lifetime gifts to their children while protecting against gift taxes. 

One potential drawback to the Crummey trust is that providing recipients, in particular children, with immediate access to sizable gifts may jeopardize the fund's ability to accumulate long-term wealth. Some families bypass this by setting certain restrictions, such as limiting the amount or frequency of withdrawals or ending future gifts to recipients who withdrawal funds immediately. 

RELATED TERMS
  1. Gift in Trust

    A gift in trust is an indirect bequest of assets to a beneficiary ...
  2. Crummey Power

    Crummey power is a technique that enables a person to receive ...
  3. Gift

    A gift is something of value that is given tot another party ...
  4. Gift Letter

    A gift letter is written correspondence explicitly stating that ...
  5. Gift Inter Vivos

    A gift inter vivos, which is Latin for between the living, is ...
  6. Gift of Equity

    A gift of equity is the sale of a home made to someone with whom ...
Related Articles
  1. Taxes

    What Are Gift Taxes?

    If you're not sure what gift taxes are, read on and we'll explain.
  2. Insights

    Gift-Giving Etiquette

    Here's a look at how much you should spend and what you should give this holiday season.
  3. Taxes

    What the Gift Tax Rules Mandate

    The lifetime maximum for gift taxes is now $5.6 million. Here's how the gift tax works.
  4. Personal Finance

    How To Get Gift Cards At A Discount

    Use these tips whether you're buying someone a gift or just want to score a discount at your favorite stores.
  5. Investing

    How Safe Are Discounted Gift Card Websites?

    Could you buy a gift card online and find out it's worthless? Here's how to protect yourself (and whether you need to).
  6. Investing

    Charles Schwab Gives the Gift of Financial Literacy

    Charles Schwab Foundation offered tips about giving gifts tied with financial know-how this holiday season.
  7. Taxes

    Keep Gifts Simple and Meaningful This Season

    Sometimes simple gift ideas are the best.
  8. Retirement

    Top 10 Retirement Gift Ideas for That Special Day

    The age-old traditional gold watch has not gone out of style, but it's only one of many appropriate gifts to give a retiring employee.
  9. Retirement

    Estate Planning Law Changes You Need To Know

    When organizing your affairs, you'll need to be aware of tax rates and other regulations.
Hot Definitions
  1. Business Cycle

    The business cycle describes the rise and fall in production output of goods and services in an economy. Business cycles ...
  2. Futures Contract

    An agreement to buy or sell the underlying commodity or asset at a specific price at a future date.
  3. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  4. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  5. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  6. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
Trading Center