“Crummey Notice” Reminder for 2011 Gifts

Title:
“Crummey Notice” Reminder for 2011 Gifts
Publication:
From the October 2011 Riker Danzig Tax and Trusts & Estates Update
Practices:

We want to remind you again that many of you have created a trust or trusts that contain what are commonly known as "Crummey powers." Virtually all irrevocable life insurance trusts contain Crummey powers. Generally, a Crummey power is a right granted to some or all of the beneficiaries of the trust to withdraw from the trust an amount limited by your available gift tax annual exclusion (currently up to $13,000 per donee, or $26,000 in the aggregate for a married couple). These withdrawal rights allow gifts to your trust to qualify for this gift tax annual exclusion, but only if the beneficiaries are aware of their rights. Thus, written notice (known as a "Crummey notice") should be given by the trustee to the beneficiaries (or in the case of a minor beneficiary, to their guardian or parent). If we prepared a trust for you that contains Crummey powers, we would have provided you or your trustee with a form of Crummey notice that could be issued to beneficiaries as needed. We want to remind you again that, in each year that any contributions are made to the trust, these notices should be given. The notice should be delivered at the same time as or shortly after a contribution is made to the trust, but in no event later than the end of the year in which the contribution is made, and copies of notices issued should be retained by the trustee in the trust records.

It should be noted that the direct payment of premiums on life insurance owned by the trust constitutes an indirect contribution to the trust. In a recent U.S. Tax Court Memorandum decision, Estate of Turner v. Comm'r., T.C. Memo 2011-209 (Aug. 30, 2011), where the insurance trust at issue contained Crummey powers over direct and indirect transfers to the trust, the court held that the direct payment of insurance premiums qualified for the gift tax annual exclusion even though no Crummey notices were given to the beneficiaries. Despite this favorable decision, the best practice is to contribute the funds to the trust and have the trustee pay the premiums, but if the premium payments are inadvertently paid directly to the insurance company, still provide the Crummey notices to the beneficiaries.

So, if you made contributions in 2011 to or on behalf of any trust that contains Crummey powers and you have not already done so, please send - or remind your trustee to send - the required notice before the end of this year to each of the trust beneficiaries who has a Crummey power. If you have any questions about these Crummey notices or the procedures to be followed, please feel free to contact your Riker Danzig attorneys or other advisors.