Trustees of Crummey Trusts Must Provide Notices to Beneficiaries

When a person has a large estate, he or she may decide to create an estate plan that is set up to minimize potential estate taxes. One way of doing this is to make annual gifts up to the annual gift tax exemption amount, currently $14,000 per year. These gifts can be made without incurring gift or estate tax. For individuals that do not want their beneficiaries to have access to the gift right away, a Crummey trust can be used to limit the beneficiaries’ right to withdraw the gift amount while still maintaining the tax benefits of making a completed gift for IRS purposes. A crucial element in this type of plan requires the trustee to provide beneficiaries with Crummey notices when gifts are made.

5 Requirements for Crummey Notices During Trust Administration

The following is an overview of how to provide Crummey notices that satisfy the requirements of the IRS:

  1. A notice must be sent by the trustee to the beneficiaries when a gift is made to the trust.
  2. The notice must state the amount of the gift.
  3. The notice must state that the beneficiaries have a right to withdraw the amount of each gift for up to 30 days after the gift is made.
  4. The right to withdraw begins immediately after the gift is made.
  5. The notice should state that if the beneficiary does not withdraw the gift within the 30-day period, the withdrawal right lapses. The money then remains in the trust until it is distributed according to the trust terms.

Crummey notices are a crucial part of the administration of a trust because they are necessary in order to classify the gift as a “completed gift” for tax purposes. Unless a gift is considered “completed,” it will not qualify for the annual gift tax exclusion. Fortunately, trustees are allowed to seek assistance when drafting Crummey notices and for the administration of Crummey trusts. To learn more, we encourage you to contact us today at (714) 459-5481.

 

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