The name itself might appear strange to you but the concept is great.
So, what is a Crummey trust?
Keep reading the article to know about it.
Did you know that a person can gift up to $14,000 in a year without incurring any gift tax liability? Well, that’s true but there are some limitations.
Limitations
The gift should be for the unlimited, present usage of the interest being conveyed.
Such limitations create various issues for the people.
What if someone wants to convey $14,000 to a minor in a year but does not have the same money handed over to the minor as a whole when the minor becomes 21?
Well, Crummey trust is the right tool to use here.
What to do?
If you want to a trust for a minor with the intent that they would not withdraw the money in its entirety when they reach the ae of 21, so that they can get the benefit of compound trust, you can use the Crummey trust.
Four Criteria for Crummey Trust
Here are the four factors, considered by IRS (In Letter Ruling) to qualify as a Crummey trust.
- The trust is required to give the beneficiary the reasonable notice in which to exercise the withdrawal right
- The beneficiary is given adequate time following notice in which to exercise the withdrawal right
- Upon exercising the withdrawal right, the beneficiary will have the immediate and unrestricted right to an amount equal to the amount contributed to the trust
- There is no understanding or agreement, expressed or implied, that the withdrawal will not be exercised.
Crummey trust can act as a powerful bar to hamper the creditors from accessing the funds.
If you want to know more about the Crummey trust, feel free to contact us.