Crummey withdrawal power
Key takeaway
A Crummey withdrawal power is a beneficiary’s temporary right to withdraw contributed trust property, which can support the annual gift tax exclusion when the right provides an enforceable present interest.
How it works
Why does a trust include a Crummey withdrawal power?
A trust may include a Crummey withdrawal power to support the annual gift tax exclusion through an enforceable beneficiary right to demand contributed property. In Crummey, the trust granted temporary demand rights over additions, and the Ninth Circuit determined that the trustee could not legally resist a demand. The court allowed the claimed exclusions on those facts, even though no beneficiary had demanded or received a withdrawal. That result depended on the trust provisions and applicable law and does not mean that inserting a withdrawal clause automatically qualifies every contribution.
Is a Crummey power the only way to get a present interest?
No. An unrestricted right to the immediate use, possession or enjoyment of property or its income can qualify as a present interest without a withdrawal power. The exclusion cannot exceed the value of that interest. In the regulation’s example, an income right subject to the trustee’s discretion to withhold payment is not a present interest and does not qualify for the exclusion.
Can a minor’s demand right support the annual gift tax exclusion?
Yes, under the particular trust provisions and California law considered in Crummey, minority did not prevent the beneficiaries’ demand rights from supporting the exclusions. The court concluded that a minor could make the demand and that a legal guardian would then receive and administer the funds. This was a historical analysis of that trust and applicable California law, rather than a statement of current guardianship law or a rule for every state.
Reporting and GST exemption
A U.S. citizen or resident donor must report all gifts of future interests made during the calendar year to donees other than the donor's spouse, regardless of their value and whether any gift tax is ultimately due. The Form 709 instructions require those gifts to be entered even when no tax is payable.
Can a gift to a trust still be subject to GST tax later?
Yes. Certain transfers, particularly transfers to trusts, can escape gift tax and current generation skipping transfer (GST) tax reporting on Form 709 yet remain subject to GST tax later, even when the transfer is below the annual gift tax exclusion. Allocating GST exemption to the transfer on Form 709 or a Notice of Allocation may be appropriate. Automatic allocation may already apply if the receiving trust is a statutory GST trust.
For more on lifetime gifts, annual exclusions and GST exemption allocation, see the federal estate, gift and GST tax guide.
Withdrawal powers and estate tax rules
Can a withdrawal power be a general power of appointment?
Yes, an unrestricted withdrawal power exercisable by its holder alone for the holder’s own benefit falls within the estate tax definition of a general power of appointment, unless limited by an ascertainable standard relating to health, education, support or maintenance. This explanation addresses powers exercisable alone. Jointly exercisable powers require a separate analysis.
When does a lapse count as a release under the estate tax rule?
A general power’s lapse through nonexercise is treated as a release under the estate tax rule only to the extent that the value of the property that could have been appointed exceeds the greater of $5,000 or 5% of the total value, at the time of the lapse, of the assets, or their proceeds, from which exercise of the power could have been satisfied. The Form 706 instructions describe this estate tax lapse rule. Separate gift tax consequences of a withdrawal power’s lapse require their own analysis.