Avoiding Crummey Power Mistakes in Drafting Trust Documents

A useful tool in trust planning is the Crummey power, a provision contained in certain irrevocable trusts that allows subsequent-year gifts to the trust to qualify for the federal annual gift tax exclusion. Proper use of a Crummey power can help avoid gift taxes on any gifts to an irrevocable trust.

To qualify for the Crummey exclusion, the trust document must contain a provision that grants named beneficiaries of the trust a limited time to withdraw contributions made to the trust. This power has the effect of converting a future interest gift into a present interest gift, thus qualifying the contribution for gift tax exclusion, up to the statutory amount.

The IRS has frequently attacked the use of Crummey powers in court, so tax counsel, advisers, trustees and beneficiaries must closely adhere to the rules governing Crummey trusts to deter an IRS challenge and avoid reclassification of the trust.

Listen as our experienced panel details the key drafting language and notice requirements, as well as additional steps that prudent tax counsel can provide to trustees, beneficiaries and advisers to make sure the trust is immune from IRS disallowance of a Crummey power.

1. Drafting requirements in trust documents
2. Notice requirements to beneficiaries
3. Additional steps to protect against IRS challenge
4. “Hanging Crummey powers”

The panel will review these and other key issues:

• What language will suffice in the trust document to demonstrate that the withdrawal period and mechanics satisfy the requirement of the gift being a “present interest?”
• What is the notice to beneficiaries requirement to satisfy IRS requirements?
• What additional steps should tax counsel and advisers take to make sure trust documents and operations conform to IRS accepted practices governing Crummey powers?

Learning Objectives

After completing this course, you will be able to:

• Identify required Crummey provisions for trust documents
• Establish IRS notice requirements to beneficiaries of the Crummey trust
• Discern potential IRS challenges to a trust with Crummey provisions
• Recognize “hanging Crummey powers”

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ advisory or public firm experience drafting complex trust documents at mid-level within the organization, supervising other preparers/accountants. Specific knowledge and understanding of IRC present-interest gift tax rules; working familiarity with Crummy powers, irrevocable trust structures, and complex trust regulations.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.