Is a Crummey Trust Right for My Situation?

Considering a Crummey TrustA Crummey trust can be an efficient, tax-saving way to transfer your assets incrementally, potentially avoiding both estate taxes and gift taxes. Depending on the value of your assets, your tax savings can be significant, especially if your trust operates as planned for a number of years.

How does a Crummey trust avoid gift taxes?

Most people know gift taxes apply to gifts in excess of the yearly gift tax exemption. What many don’t know is that you can use a Crummey trust to take advantage of the yearly gift tax exemption — without handing over a chunk of your assets directly to the beneficiary. Your chosen beneficiaries can benefit from the trust in the amounts and frequency you designate, with some limitations.

The trust holds the assets, not the beneficiaries

The beauty of a Crummey trust is that you don’t have to worry about whether your intended heirs have the capacity or maturity to properly manage a growing asset portfolio. In addition, the trustee you designate has a duty to manage trust assets responsibly for the beneficiaries’ best interests.

A Crummey trust can be established for multiple beneficiaries, even those over 21 years old. The way the trust works is that each year you transfer a portion of your assets to the trust. The total of your yearly contributions must be within the yearly gift tax exemption.

The right to withdraw each contribution is the defining element

The key to keeping a Crummey trust exempt from gift or estate taxes is that you must give the beneficiary the right to withdraw each year’s gift within 30 days after the assets are transferred to the trust. This allows the trust to maintain its special tax status. There is the risk that the beneficiary will withdraw the gift within 30 days, so you should consider the likelihood of the beneficiary doing so before you set up a Crummey trust.

If the child does not withdraw the contribution within 30 days, the right to withdraw the asset lapses and the money remains in the trust until the child reaches the distribution age you designated.

You can elect to stop making contributions to the trust at any time and the trust can still continue in effect until the beneficiary reaches the distribution age you selected when you set up the trust.

For more information about a Crummey trust, minor’s trust or any other estate planning need, call the experienced lawyers at Peterson Law Group.  Our Conroe, Texas attorneys are here to guide you in developing comprehensive estate plans. Call us at 936-337-4681 or 979-703-7014 or contact us online to arrange an appointment.

About Chris Peterson

Chris Peterson is an attorney and the owner and founder of Peterson Law Group, a Texas law firm with offices in Bryan/College Station and Kingwood. He mainly practices in the areas of Estate Planning and Business Planning. Chris is also a Certified Estate Planner. Besides his law practice, Chris is a serial entrepreneur and community volunteer. He is known for his cutting edge law practice that utilizes technology to deliver efficient, excellent work.