A Crummey Trust
Not So Crummeya Crummey Trust is a trust that is typically used to shelter life insurance and other assets from federal estate taxes.It's a special trust named after D. Clifford Crummey, a Methodist minister who won a fight with the IRS in 1968 over an irrevocable trust for his four children. A Crummey Trust can be the best method to make gifts to minors. Some wealth advisors say that a Crummey Trust makes sense even in a period of higher exemptions for gift and estate taxes, especially since those high exemptions could disappear in a few years, or Congress could decide to “roll back” the savings from prior years. An estate planner can help you set up a Crummey Trust to purchase a life insurance policy, funding the premiums with annual gifts. This removes the money from the estate without incurring gift taxes. Since the policy is owned by the trust, the death benefit eventually goes to the trust, eliminating federal estate taxes. There is one important requirement of a Crummey Trust - Every year, the trustee must send out “Crummey letters” to beneficiaries, notifying them that they have the right to withdraw the gifted amount during a specified window of time (usually 30 days). This is because the IRS only considers it a tax-free gift if the beneficiary has the right to take it in the short term (and the letter provides them with that right). The beneficiaries usually leave the money in the trust, but the actual letter is critical proof of maintaining the trust protections. See more...
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