What is a Crummey Trust?

When I suggest Crummey Trusts to clients, I often get a confused reaction: “Why would I want a crummy trust?” they ask. Despite the misleading name, Crummey Trusts are a valuable estate planning tool that allows individuals to make tax-efficient gifts in trust while still qualifying for the annual gift tax exclusion.

In this article, we will explore the key aspects of Crummey Trusts, including their benefits, requirements, and potential pitfalls.

Understanding the Annual Gift Tax Exclusion

In 2025, individuals can gift up to $19,000 per recipient annually without incurring gift tax. This amount is known as the annual gift tax exclusion and is periodically adjusted.

There is no limit on the number of recipients to whom you can give this amount. For example, if you have five children and ten grandchildren, you can gift each of them $19,000 per year, significantly reducing your taxable estate over time.

What are Crummey Powers?

To qualify for the annual gift tax exclusion, a gift must be of a “present interest”—meaning the beneficiary must have immediate access to and control over the gift.”

The IRS considers transfers to an irrevocable trust as future interest gifts, which do not qualify for the annual gift tax exclusion. However, a landmark case, Crummey v. Commissioner, established that giving beneficiaries a temporary right to withdraw the gift transforms it into a present interest, making it eligible for the gift tax exclusion.

This temporary withdrawal right is known as a Crummey Power, which typically lasts 30 to 60 days after the contribution is made. If the beneficiary does not withdraw the funds, the gift remains in trust, benefiting from asset protection and controlled distributions

Why Consider a Crummey Trust?

Crummey Trusts aren’t suitable for everyone, but are particularly useful for individuals who:

• Want to make tax-efficient annual gifts while keeping assets protected for their beneficiaires.
• Have minor beneficiaries and want to prevent them from accessing large sums of money too early.
• Want to protect assets from creditors or irresponsible spending habits of beneficiaries.
• Seek to reduce estate tax liability by gradually transferring wealth out of their estate.

While outright gifts also qualify for the gift tax exclusion, they do not offer the same level of protection and control as a Crummey trust.

How Crummey Trusts Protect Your Beneficiaries

Crummey Trusts include asset protection provisions which:

• Prevent beneficiaries from transferring their trust interest (e.g., selling or giving away their inheritance).
• Shield assets from creditors, ensuring they remain within the trust for the intended purpose.
• Allow a trustee to manage and distribute funds according to your predefined terms.

A trustee manages the assets and makes distributions according to terms that you establish. It is even possible for beneficiaries to serve as their own trustee at a later.

Assets held by the trust are protected by the spendthrift provisions, whereas assets distributed outright are not.

Can I Contribute More than My Annual Gift Tax Exclusion to the Trust?

Yes. Although the annual gift tax exclusion is 19,000 in 2025, those making gifts over $19,000 a year will not necessarily owe any gift tax. That’s because, in addition to the annual gift tax exclusion, Americans also have a federal estate tax lifetime exclusion of $13,990,000 million per person in 2025.

Any annual gifts exceeding $19,000 per recipient are deducted from this lifetime exemption before any gift tax applies.

Avoiding Pitfalls: How to Ensure a Crummey Trust Works

Because the IRS closely scrutinizes Crummey Trusts, it’s essential to follow proper procedures, including:

1. Sending written notices – Each time a contribution is made, the trustee must notify the beneficiaries in writing. If the beneficiary is a minor, the notice can be sent to a guardian or parent.
2. Maintaining proper documentation – Beneficiaries should sign and date a notice confirming receipt, and the trustee should keep these records.
3. Allowing a reasonable withdrawal period – Beneficiaries must have at least 30 days to withdraw the gifted amount.
4. Avoiding implied agreements – The grantor or trustee can explain the benefits of leaving the assets in trust, but there should be no direct or indirect agreements discouraging withdrawal.

Failure to follow these guidelines could result in the IRS disallowing the annual gift tax exclusion, leading to unintended tax consequences.

Can Crummey Trusts Fail?

The IRS views Crummey trusts with suspicion, so it is important to observe all formalities to preserve your annual gift tax exclusion:

• The trustee or person making the gift should notify the beneficiaries in writing immediately you make a contribution to the trust in the manner outlined by the trust agreement.  If a beneficiary is a minor or a disabled person, the trustee can deliver the notice to the beneficiary’s parent or guardian.
• The beneficiary should sign and date the notice, confirming receipt, and the trustee should maintain notices with the trust records.
• The period during which the beneficiary can exercise withdrawal rights should not be too short. The beneficiary should have the right to withdraw for at least 30 days from when they receive notice of the contribution.
• While a Trustee or Grantor can explain the benefits of retaining assets in trust, such as creditor protection, there should not be an express or implied agreement between the grantor and trustee or the beneficiaries not to exercise the withdrawal power.

Consult an Attorney to Set Up a Crummey Trust

Crummey Trusts are a powerful estate planning tool, but they require careful structuring and administration to be effective. If you’re considering a Crummey Trust or other estate planning strategies, consult an experienced estate planning attorney for personalized guidance.

This article was originally published on January 1, 2024 and updated on February 7, 2025.