The Crummey Trust: How to Give Tax-Free Using an Obscure Trust Strategy

For many families, gifting assets to children or grandchildren is an important part of long‑term financial planning. While annual cash gifts can be made, beneficiaries may use them immediately. Alternatively, trusts can be funded to provide oversight and protection, but gift and estate taxes can make those transfers more costly than expected.

Fortunately, there is a well‑established estate‑planning tool, the Crummey Trust, that allows you to transfer assets to loved ones without using your estate and gift tax exemption, while still maintaining control and structure around how and when the funds are used by beneficiaries. For multigenerational planning, Crummey Trusts strike an ideal balance between tax efficiency, asset protection, and responsible stewardship of family wealth.

What Is a Crummey Trust?

A Crummey Trust is an irrevocable trust designed to qualify contributions as present‑interest gifts, allowing those contributions to fall under the annual gift tax exclusion ($19,000 per donor/per recipient as of 2026¹). Normally, gifts placed into trust are considered future‑interest gifts, which means they do not qualify for the annual exclusion and use up part of your lifetime gift and estate tax exemption.

The Crummey Trust gets around this by giving each beneficiary a temporary right, known as a Crummey withdrawal power, to make distributions from assets placed in the trust. This right converts the gift into a present interest, making it eligible for the annual exclusion. After the withdrawal window closes, the beneficiary’s right lapses, and the funds remain in the trust, protected and available for long‑term planning.²

How the Crummey Withdrawal Right Works

Although the term “withdrawal power” may make some people nervous, in practice, beneficiaries seldom exercise it. If a beneficiary does choose to withdraw funds, additional annual gifts can be discontinued, which generally encourages beneficiaries to leave the contributions for future use.

Here’s the typical sequence:

1. You contribute funds to the trust.
2. Beneficiaries receive written notice (a “Crummey Letter”) informing them of their right to withdraw their share of the contribution.
3. A short window opens, usually 30–60 days, during which the beneficiary could withdraw the recently contributed funds.
4. The window closes, and the funds become subject to the trust’s terms.

By following these steps, you qualify the contribution for the annual exclusion by providing the opportunity to make an immediate withdrawal. For families with multiple children or grandchildren, these amounts add up quickly. A couple with two children and three grandchildren could move $190,000 this year into a Crummey Trust free of gift‑tax consequences given each spouse can gift $19k to each.

Why Families Use Crummey Trusts

Crummey Trusts provide a variety of benefits to families, both those making gifts and the recipients. The primary benefit is the easy, tax-efficient transfer of wealth. They offer the ability to make tax-free gifts year after year without filing gift tax returns or using your lifetime exemption.

Second, funds held in a properly drafted trust offer asset protection for the beneficiaries. This protects the assets from creditors, lawsuits, poor spending habits, financial mismanagement, or subjecting them to division in the event of divorce.

Third, the person making gifts has long-term control over distributions. Terms in the trust outline when and how beneficiaries receive trust assets. This includes options like staggering distributions by age or life milestones or keeping the assets in trust for a lifetime with limited, specific distributions.

Finally, a very common use is funding life insurance policies. These trusts are established as part of an Irrevocable Life Insurance Trust (ILIT) planning to allow annual exclusion-eligible gifts to pay insurance premiums. The death benefit can then distribute via the terms of the trust, which may include an estate tax bill.

Is a Crummey Trust Right for You?

Crummey Trusts are powerful tools, but they require careful drafting and administration, as mistakes such as failing to send annual notices can jeopardize their tax benefits. If you’re considering incorporating a Crummey Trust into your estate plan, working closely with an experienced estate planning attorney or financial professional can help ensure it’s implemented correctly and aligned with your long-term goals.  Start the conversation today.

Sources:

¹ https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill

² Crummey v. Commissioner, 397 F.2d 82 (9th Cir. 1968); See also, Rev. Rul. 73-405, 1973 2 C.B. 321.