Viewing Question: What is a Crummey Trust?

1 Response

  1. For wealthy families, a lot of estate planning can center around getting as much out of your estate as possible, using trusts, using insurance, and using gifts. This is done to avoid steep estate taxes.

    There are limits to what you can give though. You’re only allowed to give gifts of up to a certain amount (currently $5.45 Million) during your entire life before it starts getting subjected to a gift tax.

    However, the IRS does not care about little gifts. You should be able to give a friend $20 without it being counted towards your gift exemption! The IRS caps the annual gift tax exemption at $14,000 per individual per year, or $28,000 per couple per year. As such, if a couple has three children and two grandchildren, they can give away $140,000 in total per year to their descendant’s tax free.

    The downside of this however, is that you can’t control what happens to the money once you give it away. A trust may hold the money until your children reach 21, but do you want a 21 year old suddenly inheriting getting control of a 6 or 7 figure sum of money?

    The magic of a Crummey trust is that it allows the annual gifts to be held in trust, and to grow for a much longer period. To do this, the trust gives the beneficiaries the opportunity to take each year’s gift for a short window, after which time it gets placed into a trust, which they can inherit at an older age.

Leave a Reply