Crummey Powers and Estate Planning: Historical Background and Annual Gift Tax Exclusion
Learn how trusts utilizing the Crummey technique allow taxpayers to maintain control over their gifts to beneficiaries.
Internal Revenue Code § 2503(b) affords taxpayers an incremental method to reduce their gross estate for federal estate tax purposes by making annual exclusion gifts. A special problem develops when a taxpayer wishes to make annual exclusion gifts in trust. The rules require that, to qualify for an annual exclusion gift, the gift must be of a “present interest.” Structurally, a gift in trust is a gift of a “future interest” that would not otherwise qualify for the annual exclusion from federal gift tax. Without something more, taxpayers would be unable to make gifts in trust for their beneficiaries without triggering a gift tax or a reduction in their lifetime unified tax exemption. This white paper reviews how the decision in the Crummey case upheld a planning technique that allows taxpayers to make gifts into trust that qualify as a “present interest” and thus are entitled to the annual exclusion.
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