You may want to set up a trust that lets you make a gift
of $12,000 each year that beneficiaries can remove and
use for health, education, maintenance and support. Thanks
to a taxpayer named Crummey who petitioned the court,
you can, but with some provisions.
Most trusts are
set up for the benefit of children, grandchildren, or other
relatives, and the Grantors may each wish to give up to $12,000
every year to the trust. While the trust often provides for
payments for health, education, maintenance and support, and
the beneficiaries receive their share of the trust's
assets when they reach age 25, 30, or some other age, most
trusts don't qualify for the $12,000 per year gift tax exemption.
To qualify, the gift must be considered by the Internal
Revenue Service as a gift of "present interest."
Such a gift is one given to the recipient right now without
any restrictions, or, with some restrictions, locked up
until the beneficiary reaches age 21. If the gift is one
that is locked up until age 21, it is a gift of "future
interest" and won't qualify for the $12,000 per year
To get the trust to qualify for the $12,000 per year gift
tax exemption, Crummey provisions must be placed in the
trust when it is established. These provisions permit
the beneficiary a limited period of time (such as thirty
days) to revoke the trust and remove the current gift.
If the beneficiary fails to revoke the trust and remove
the gift during this window, he or she may not do so later.
This feature, the period of time when the beneficiary
can remove the $12,000 gift, changes the future gift to
a present gift and qualifies it for the annual $12,000
In the example of our hypothetical couple, John and Ann Smith,
they establish an irrevocable trust for their three children
with a friend named as the trustee.
Every year they each gift $12,000 to each child for a total
of $72,000. The trustee notifies the children after the gifts
are received, letting them know they have thirty days to notify
the trustee and revoke the gift or their right to do so will
expire. If the beneficiary doesn't exercise the temporary revocation
of the trust, the gift will remain in the trust until it goes
to the child at age thirty-five.
With these deposits, over a ten year period the parents can
gift a total of $720,000 and over $300,000 can be saved in total
estate or "death" taxes. Irrevocable trusts with Crummey
provisions are one tool that can be used in estate
planning and work very well in certain situations, but may
not be ideal for everyone.
THE MAMOLA LAW FIRM, APC is conveniently located throughout Orange County. For additional information, please contact us at (949) 333-6543.
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