Annual exclusion gifts require special care when using Crummey powers.

• Author: Rhine, David S.
• Position: Brief Article

Annual exclusion gifts are an important part of many estate plans. But to qualify for the annual exclusion, the gift must be a present interest. Donors who do not want beneficiaries to obtain immediate access to the transferred property may create arrangements to satisfy the statutory requirement while still protecting the property.

To obtain the annual gift tax exclusion, beneficiaries may be granted rights (Crummey powers) to withdraw additions to the trust for a limited period. If the beneficiary fails to make the withdrawal, the power lapses, and the addition remains in the trust. This type of gift typically requires the steps shown in the exhibit below.

Additionally, the trust instrument may require the donors to specify how much each beneficiary is allowed to withdraw as each addition is made.

However, a recent letter ruling could spell trouble for donors to certain kinds of these trusts.

Normally, beneficiaries must be notified each time an addition is made. But, to...