This Crummey Trust Savings Option is ideal for families with more than one child and wants to secure their future financial status at any age! The Crummey Trust allows beneficiaries of any age to receive gifts. Donors can pay the premiums on life insurance policies to avoid gift and estate tax liability.
How it works:
When a property is given to the trust, the beneficiary has the right to withdraw the donation within 30 or 60 days. If the beneficiary does not remove the property, the gift becomes final and is enclosed in the trust until the trust terminates.
The trust has a separate taxpayer identification number and submits an annual tax return, but the beneficiary still needs to pay income tax on the trust’s income.
Advantages
Disadvantages
The right to withdraw the donation makes it a present interest, and therefore qualifies for the gift tax exclusion.
The recipient has no right to receive the property when 18 or 21 years old. The trust continues until the specified end date in the trust agreement.
The trust can have numerous recipients (even if a beneficiary is already 21 years old).
The maximum amount that a recipient can take out is the annual contribution, not the whole trust.
When the beneficiary forgoes the right to withdraw any contributions, the trustee would then take control over the donations. The trustee has the right to take money from the trust for the benefit of the recipient.
The trust can be joined with 2503(c) Minor’s Trust to allow the annual gifts to remain eligible for gift tax exclusion after the child reaches the age of 21.
High setup and administration costs (an attorney is needed to write the trust document). The annual waiver must be in writing.
When applying for financial aid, the trust is treated as an asset of the child.
If the donor is also the trustee, then the trust would be in donor’s gross taxable estate. So it is encouraged that the trustee is neither the donor nor the donor’s spouse.
There is a possibility that the recipient will not cooperate.
Note:The beneficiary has the right to withdraw all donations, however not many would do so because if he or she does, the donor could stop future contributions.
How it works: