Printer Friendly

An update on Crummey powers.

The IRS recently issue Letter Ruling (TAM) 95320 addressed the proper use of Crummey powers. The Service sought to prohibit a trust beneficiary from waiving his right to receive future Crummey notices and waiving his right to withdraw any future gifts. Essentially, without the proper Crummey notices, future additions into the trust would no longer be considered gifts of present interests qualifying for the annual $10,000 gift tax exclusion under Sec. 2503(b).

In this ruling, a trust was created for the benefit of nine grandchildren, granting each beneficiary the right to withdraw a portion of the value of the trust. The trust also provided that if there were any additions to the trust, the beneficiaries would have the right to withdraw a portion of the gift for up to 75 days after the gift was made. (This is a typical power that was upheld a long time ago, in Crummey, 397 F2d 82 (9th Cir. 1968).

However, when the trust was created, each beneficiary also signed a statement waiving his right of withdrawal from the initial contribution and all future gifts, as well as the right to be notified of any future gifts. The beneficiaries also reserved the right to revoke their waivers.

Citing Fondren, 324 US 18 (1945), the IRS held that "a donee must have current notice of any gift in order for that gift to be a transfer of a present interest." Since the beneficiaries waived their rights to be notified and were not. notified of any future gifts, only the initial gift was considered to be a present interest gift.

When a gift to a trust is not a present interest gift, the donor is required to file a gift tax return and reduce his unified tax credit, or pay the resulting gift tax.

This ruling does not attack irrevocable life insurance trusts per se, but it certainly demonstrates that the administrative procedures that have been recognized by the courts must be followed. The benefits of an irrevocable life insurance trust are too great to lose by shortcutting any administrative procedures.
COPYRIGHT 1995 American Institute of CPA's
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1995, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
Printer friendly Cite/link Email Feedback
Author:Lusby, Roger W., III
Publication:The Tax Adviser
Article Type:Brief Article
Date:Dec 1, 1995
Previous Article:Power to appoint successor trustee does not subject trust property to estate tax - again.
Next Article:Basis adjustment for gift tax paid - amendment to regs. sec. 1.1015-5.

Related Articles
Lapsing Crummey powers and the GST tax.
Inadvertant use of beneficiaries' unified credit on gifts in trusts.
Contingent beneficiaries and the annual gift tax exclusion.
Annual exclusion gifts require special care when using Crummey powers.
Significant recent developments in estate planning.
The Crummey Road.
Will a Crummey beneficial interest qualify for an annual gift tax exclusion?
Crummey GST tax trap.
Crummey Tax Trap.
IRS curbs use of Crummey powers.

Terms of use | Copyright © 2018 Farlex, Inc. | Feedback | For webmasters