Crummey power
Also: Crummey power, Crummey withdrawal right, Crummey letter
A beneficiary's temporary right to withdraw a contribution to an irrevocable trust, usually 30 to 60 days. Converts an otherwise-future-interest gift into a present-interest gift that qualifies for the annual gift tax exclusion.
A Crummey power is a beneficiary’s right, typically lasting 30 to 60 days after notice, to withdraw newly contributed trust funds. The power transforms what would otherwise be a future-interest gift (not eligible for the annual exclusion) into a present-interest gift that qualifies. The beneficiary almost always chooses not to exercise the withdrawal, letting the contribution stay in the trust. The power’s existence, not its exercise, controls the tax treatment. Annual Crummey notices to beneficiaries document the grant of the withdrawal right.
Example: a couple funds a life-insurance trust (ILIT) with a $60,000 premium payment for a policy naming their two children and three grandchildren. Each beneficiary receives a Crummey notice granting a 30-day withdrawal right up to their pro rata share ($12,000 each, within the $19,000 annual exclusion). None withdraws. The $60,000 counts as five annual-exclusion gifts, with no use of the lifetime exemption.
Common mistake: failing to document Crummey notices annually. At audit, the IRS may require proof that each beneficiary received written notice of their withdrawal right.
Crummey powers matter in life insurance trust funding, dynasty trusts, and 2503(c) minor’s trusts.