What is a Crummey trust?


Quick Answer

A Crummey trust is an estate planning trust that allows parents to gift money or assets to their children without having to pay estate or gift taxes. As of 2014, parents are allowed to give up to $13,000 per year, adjusted for inflation, to each individual. In order for the gift to be tax-exempt, the recipient must have a "present interest" in form of access to the gifted amount.

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Full Answer

The recipient must have the right to withdraw the gift amount for at least 30 days after the gift is made. The trustee must send out an annual Crummey letter to each recipient informing him of his right to withdraw the gift amount within a specified window, otherwise the gift's tax-exempt status might be challenged by the Internal Revenue Service. Once the 30 days are over, the money is kept in the trust under the agreed terms. The gift amount allowed for a married couple is a maximum of $28,000 per recipient each year, which has no limits regarding the number of beneficiaries. A Crummey trust should have as many beneficiaries as possible to take full advantage of the annual tax exclusions. The trust specifies the age when its beneficiaries receive their gifted properties.

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