Is a Crummey Trust a Good Idea for You?

9:00 pm Asset Protection, California Trusts, Estate Planning

trust e1318453161124 Is a Crummey Trust a Good Idea for You?As noted in the Wall Street Journal recently, there is nothing crummy about a Crummey Trust – a trust that is typically used to shelter life insurance and other assets from federal estate taxes.

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 an ideal vehicle for making 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 evaporate in two years or Congress could decide to “claw back” the savings from this year and 2012.

A California estate planning attorney 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 aspect to 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.

Usually, beneficiaries leave the money in the trust, but the annual letter is a critical aspect of maintaining the trust protections – something trustees sometimes overlook.  This is when it pays to have a California estate planning attorney paying attention to those all-important details.

Get started by contacting our Orange County asset protection estate planning law firm as soon as possible.

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