A Crummey Trust is a specialized estate planning tool designed to allow individuals to make annual gifts to an irrevocable trust while still qualifying for the annual gift tax exclusion. Although the term “Crummey Trust” may sound unusual, it simply refers to an irrevocable trust that includes a Crummey Power—a temporary right granted to beneficiaries to withdraw contributions made to the trust. This withdrawal right converts what would otherwise be considered a future interest gift into a present interest gift, which is necessary for the contribution to qualify for the annual exclusion under federal gift tax rules.
The annual exclusion allows an individual to gift up to a certain amount each year to any number of beneficiaries without triggering gift tax or using their lifetime estate and gift tax exemption. For 2025, this exclusion is $19,000 per donee, and couples can effectively double this amount by making joint gifts. Without Crummey Power, contributions to an irrevocable trust are typically deemed gifts of future interests, which do not qualify for the exclusion. By providing beneficiaries with a short-term, enforceable right to withdraw contributions, for 30 to 60 days—the trust satisfies the present-interest requirement.
Once the withdrawal period expires, the beneficiary’s right lapses, and the trustee retains full control of the assets. At that point, the funds can be used for long-term planning objectives, such as paying premiums on a life insurance policy inside an Irrevocable Life Insurance Trust (ILIT), accumulating investment assets, or supporting education and other future needs of the beneficiaries. The Crummey Power is rarely exercised in practice, but it must be a real and legally valid right to withstand IRS scrutiny.
One of the primary advantages of a Crummey Trust is the ability to fund the trust each year without reducing the donor’s lifetime exemption. This allows significant wealth to be transferred outside of the donor’s taxable estate over time. The death benefit of life insurance held inside an ILIT, often funded through annual exclusion gifts, can pass entirely free of estate tax. This makes Crummey Trusts particularly valuable for families with large estates, business owners, or individuals seeking to create a tax-efficient legacy for future generations.
Beyond tax benefits, a Crummey Trust offers meaningful asset protection. Because the trust is irrevocable, the assets inside it are generally shielded from creditors, lawsuits, and marital claims affecting the beneficiaries. The trust structure also allows the grantor to establish clear distribution standards, ensuring assets are used responsibly and preserved for long-term family goals. Even though beneficiaries technically have withdrawal rights, they do not control the trust’s management, safeguarding the assets from impulsive decisions.
Proper administration is essential. Trustees must provide timely written notice to beneficiaries informing them of their withdrawal rights each time a contribution is made. These Crummey Notices, along with proof of delivery and documentation of the withdrawal window, serve as critical evidence of compliance. Without proper administration, the IRS may challenge the exclusion and reclassify the contributions as taxable gifts.
In summary, Crummey Trust is a highly effective estate planning strategy that blends tax efficiency with long-term wealth protection. By leveraging the annual exclusion through properly structured withdrawal rights, families can fund trusts significantly over time, maintain estate tax advantages, and ensure assets are preserved and managed for future generations.