Crummey Trust: A Comprehensive Guide to Its Legal Definition and Functionality

Definition & Meaning

A Crummey trust is a type of trust designed to take advantage of the annual gift tax exclusion while maintaining control over the funds placed in the trust. It allows the beneficiary, typically a child, to withdraw a limited amount of money for a short period after each gift is made. This withdrawal right is crucial because it qualifies the gift as a present interest, making it eligible for the gift tax exclusion.

In essence, parents can contribute money to the trust and grant their child the right to withdraw that money for up to 30 days. If the child does not withdraw the funds within this timeframe, the right lapses, and the money remains in the trust until the child reaches a specified age for distribution. This structure helps parents manage their gifts while also ensuring that the assets grow in the trust until they are needed.

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Legal Use & context

Crummey trusts are commonly used in estate planning to minimize gift taxes. They fall under the broader category of trusts in family law and tax law. Legal professionals often recommend these trusts to clients who wish to provide financial support to their children while preserving the benefits of tax exclusions.

Users can find legal forms related to Crummey trusts through platforms like US Legal Forms, which offer templates drafted by attorneys to help individuals create and manage these trusts effectively.

Key legal elements

Real-world examples

Here are a couple of examples of abatement:

Example 1: A parent contributes $15,000 to a Crummey trust for their child. The child has 30 days to withdraw this amount. If the child decides not to withdraw, the money stays in the trust and continues to grow until the child turns 25.

Example 2: A grandparent sets up a Crummey trust for their grandchild, allowing them to withdraw up to $5,000 annually. If the grandchild does not withdraw the funds within the 30-day window, the money remains in the trust for future use. (hypothetical example)

State-by-state differences

Examples of state differences (not exhaustive):

State	Key Differences
California	Allows for specific provisions regarding the age of distribution.
New York	May have different requirements for notifying beneficiaries.
Texas	Has unique rules regarding the management of trust assets.

This is not a complete list. State laws vary, and users should consult local rules for specific guidance.

Comparison with related terms

Term	Definition	Key Differences
Revocable Trust	A trust that can be altered or revoked by the grantor during their lifetime.	Crummey trusts are irrevocable once established, while revocable trusts can be changed.
Irrevocable Trust	A trust that cannot be modified or terminated without the beneficiary's consent.	Crummey trusts allow for specific withdrawal rights, while irrevocable trusts do not.

Common misunderstandings

Some people believe that the beneficiary can withdraw the entire trust amount. In reality, they can only withdraw the amount of the most recent gift.
Another misconception is that the withdrawal right is automatic. It must be communicated to the beneficiary for it to be valid.
Many think that once the withdrawal period lapses, the beneficiary loses all rights to the funds. In fact, the funds remain in the trust until the designated distribution age.

What to do if this term applies to you

If you are considering setting up a Crummey trust, it is advisable to consult a legal professional who specializes in estate planning. They can help you understand the implications and ensure that the trust is set up correctly.

You can also explore US Legal Forms for templates and resources that can guide you through the process of creating a Crummey trust.

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Quick facts

Typical fees: Varies by attorney and complexity of trust.
Jurisdiction: Governed by state law.
Possible penalties: None for the trust itself, but tax penalties may apply if not properly managed.