Often, a person with an estate of tremendous value will want to take steps to reduce the amount of taxes their beneficiaries will owe to the IRS. There are federal estate taxes and gift taxes to contend with, and there are certain trusts that can help shelter assets from being taxable.
One of these is known as a Crummey trust. Reverend D. Clifford Crummey was the name of the person who successfully prevented the assets in his trust against being taxed. In Crummey v Commissioner [397 F2d (9th Circuit 1968)], the Ninth Circuit held that a gift in trust qualified for the gift tax annual exclusion because the trust’s beneficiaries had the power to withdraw a portion of the gifted assets.
Here is a simplified overview of how a Crummey trust works. Under the requirements of a Crummey trust, a gift is made to the trust (an amount under $14,000 per year is not taxable). The trust beneficiary then has the right to withdraw that gift amount within a 30-day period. If the gift is withdrawn, it is automatically taxable. If it is not withdrawn, it becomes part of the trust and may not be touched until beneficiary reaches the age specified by the terms of the trust.
A Crummey trust may sound ideal on paper, but generally it is most useful to people whose estates have a total value over $5.25 million. Estates over that amount are subject to federal taxes.
Should you be interested in learning more about how a Crummey trust, or other kind of trust, might benefit your estate plan, I hope you will contact me to set up a meeting. Even if you just want to update your will or other elements of your estate plan, or have questions, I am here to help. Just contact me at your convenience, at 818.956.9200.
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