Glossary term
Crummey Power
A Crummey power is a temporary withdrawal right that can help a gift to a trust qualify as a present-interest gift for annual gift tax exclusion purposes.
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What Is a Crummey Power?
A Crummey power is a beneficiary's temporary right to withdraw a contribution made to a trust. The right is designed to make the gift look like a present-interest gift, which can help it qualify for the annual gift tax exclusion if the legal requirements are met.
Crummey powers are common in life insurance trusts and other irrevocable trusts funded with recurring gifts. The power does not mean the beneficiary is expected to take the money. It means the beneficiary has a real, time-limited right to withdraw the contributed amount.
Key Takeaways
- A Crummey power gives a beneficiary a temporary withdrawal right over trust contributions.
- The withdrawal right can help a trust contribution qualify for annual gift tax exclusion treatment.
- The trust usually sends a notice so beneficiaries know the withdrawal window exists.
- Improper administration can weaken the intended tax result.
How the Withdrawal Right Works
Step | What Happens | Planning Purpose |
|---|---|---|
Grantor contributes to trust | Cash or property is transferred into the trust | Funds premiums, investments, or other trust purposes |
Beneficiary receives notice | The beneficiary is told they can withdraw the contribution for a limited time | Documents a present withdrawal right |
Withdrawal period expires | Beneficiary does not withdraw the funds | Trustee can use the assets under trust terms |
Gift tax reporting is evaluated | Advisor determines whether exclusion treatment applies | Coordinates trust funding with gift tax rules |
Where It Appears
Crummey powers often appear in irrevocable life insurance trusts. A grantor may contribute cash to the trust so the trustee can pay life insurance premiums. The withdrawal right can help the contribution qualify for annual exclusion treatment, while the trust continues to own the policy.
They can also appear in family trusts designed to receive annual gifts. The trust document, notices, beneficiary rights, and administration all matter. A clause in the trust is not enough if the process is ignored.
Administration Details
The trustee often sends written Crummey notices after each contribution. Those notices usually describe the amount contributed, the beneficiary's withdrawal right, and the deadline to act. Records are important because the tax result may depend on showing that the beneficiary had a real right, not just a theoretical one.
Crummey powers are technical. They can interact with minor beneficiaries, hanging powers, trustee discretion, gift tax returns, generation-skipping transfer tax planning, and trust accounting.
The Bottom Line
A Crummey power is a trust feature that turns a future-oriented trust contribution into a temporary present withdrawal right. It can be valuable in estate planning, but only when the trust language and administration support the intended gift tax treatment.