For federal gift tax purposes, the transfer of property to a trust is not a gift of a present interest unless the trust beneficiary has notice that:

  1. a gift has been made, and
  2. the beneficiary has the right to withdraw the property within a certain time period.

A Crummey Power is a provision in a trust agreement which grants the beneficiary the right to withdraw a contribution within a certain time frame. The trustee is responsible for providing notice to the beneficiary and receiving the request to withdraw, if exercised.

Why is this Important for Federal Tax Purposes?

An individual may gift up to $17,0001 per year per donee without using any of their lifetime gift & estate tax exemption. However, the gift must be a transfer of a “present interest” to leverage the annual exclusion. In general, gifts to a trust do not qualify as a gift of a present interest.

A transfer of a present interest may occur in two ways:

  1. Outright Gift. An outright gift of property creates a present interest because the beneficiary has complete access to the funds or property. For example, Jane Doe gives her son James a cash gift of $17,000. James deposits the cash in his bank account and has full access to use the funds in whatever manner and for whatever purpose he chooses.
  2. Transfer to a Trust with Crummey Power. Generally, a transfer to a trust is not a gift of a present interest to the beneficiary. However, if the trust agreement grants the beneficiary the right to withdraw the funds, it will be a gift of present interest, even if the beneficiary elects to not withdraw the funds and leave them inside the trust.
Trustee Must Provide Adequate Notice

In general, the IRS and the courts have accepted a notice and withdrawal period of 30 days as sufficient notice. If the notice period is too short, the courts will argue the beneficiary never had enough time to receive the notice and adequately assess whether they want to withdraw the property, which makes it impossible for the transfer to be a gift of a present interest.

Example Crummey Powers Fact Pattern

John Doe has one daughter, Emily Doe, who is 19. John sets up an irrevocable nongrantor trust, naming Emily as the beneficiary and a local attorney as the trustee. Under the trust agreement, the trustee may distribute to the beneficiary for her general health, education, maintenance, and support. Once the beneficiary turns 30, the trustee shall distribute all remaining income and principal to the beneficiary.

Under the trust agreement, when John Doe makes a gift to the trust, the beneficiary has the right to withdraw the gift amount within 30 days. John plans to make a cash gift to the trust each year. Under the terms of the trust agreement, each yearly gift would be a gift of a present interest even if Emily does not withdraw the funds after receiving notice of the contribution.

Other Information

Taxpayers can find more information about gift taxes by visiting the IRS website.

  1. The annual gift tax exclusion for 2022 is $16,000, 2023 is $17,000, 2024 is $18,000 ↩︎