3 Things to Know About Crummey Trusts in Estate Planning

A will, durable power of attorney, and designation of health care agent are the basic building blocks of a Florida estate plan. However, there may come a point in your life that you need to consider additional strategies to protect your assets, family, and other interests. One option that may appeal to you if you want to take advantage of IRS annual gift tax exclusion rules is creating one or more Crummey trusts. With proper structuring, you won’t have to pay gift taxes when giving money to the recipients.

Crummey trusts involve complex tax issues, so they can be just as difficult to understand – let alone draft. You can trust your Florida trusts and estate planning lawyer to explain the key concepts and provide helpful advice for your situation. A look at three top considerations may also be informative. 

1. Basic Crummey Trust Structure: This estate planning arrangement enables you to transfer up to a designated amount every year, to as many recipients as you want, without incurring gift tax liability. Another advantage is that, since you’re essentially spending down the value of your estate, you may save on estate taxes when you pass away.

However, the IRS allows this advantageous arrangement only if you’re giving a gift of a “present interest.” In other words, the recipient must have the right to immediate access to the funds. Otherwise, it’s not a gift in the truest sense of the word – and you WILL incur gift tax consequences.

2. The 30-Day Withdrawal Period: Based upon factor #1, you might have concerns about a recipient being able to use Crummey trust funds without any restrictions. Fortunately, there is a 30-day withdrawal rule that applies to withdrawals. You can take advantage of the benefits of a Crummey trust AND impose restrictions, as long as you allow the recipient at least 30 days’ unfettered access to the funds. After this point in time, the gift funds are held according to the rules you establish in the Crummey trust – such as provisions regarding the recipient’s age or education.

Another concern relates to the recipient taking the funds within that 30-day period against your wishes. The best solution is to end all future gifts if that person does access and spend the funds before the withdrawal period expires.

3. Annual Gift Tax Exclusion: The amount you can give without incurring gift tax liability varies, increasing every few years to allow for economic factors. For 2018-2020, the annual exclusion amount is $15,000 per individual, per recipient. Married couples can double their gift amount to give up to $30,000 tax-free to a Crummey trust.
   

Learn More by Consulting with a Florida Trusts and Estate Planning Attorney 

Of course, there are numerous important issues involving Crummey trusts – far more than these five points can cover. To learn more about them and other options that might help you achieve your estate planning goals, please contact a Dade City trusts lawyer at The Law Office of Laurie R. Chane. You can call 352-567-0055 or visit our website to set up a consultation with an experienced lawyer. Our team serves Pasco County clients in a wide range of estate planning matters, so we’re happy to help.

Resource:

irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes#5