What is a “Crummey Trust”? (Hint: It’s Better Than It Sounds)

Ever heard of a “Crummey Trust” and immediately thought it sounded… well, crummy? You’re not alone. Despite the name, which comes from D. Clifford Crummey, who first came up with this concept, this estate planning tool is anything but. Let’s break down what a Crummey Trust is and why it might be a smart move for your estate plan.

A Crummey Trust is a type of irrevocable trust designed to take advantage of the annual gift tax exclusion when transferring assets to your loved ones. For 2025, the IRS allows individuals to gift up to $19,000 per recipient, or $38,000 if the gift is made by a married couple, without triggering gift taxes. Like Washington’s updated estate tax exemption, the annual gift exclusion adjusts periodically for inflation.

Here’s how a Crummey Trust works:

• First, the grantor (who created the trust) establishes it, outlines its terms, and names the beneficiaries.
• Next, the grantor contributes assets to the trust. These contributions are considered gifts to the beneficiaries.
• Now for the “Crummey” part: each time a contribution is made, the beneficiaries are given a short window of time, typically 30 to 60 days, to withdraw their share. This is known as the “Crummey Power.”

Why is this necessary? Because, in order for the gift to qualify for the annual exclusion, the beneficiary must have a present interest in the gift – that is, the immediate right to access it.

To document this, the beneficiaries receive a formal notice, commonly called a “Crummey Letter,” letting them know a gift has been made and reminding them of their right to withdraw it. If they don’t exercise that right within the allocated time, the withdrawal right lapses, and the assets remain in the irrevocable trust.

So why go through all of this? A Crummey Trust allows a grantor to gradually move assets out of their taxable estate, potentially reducing estate taxes down the line while still supporting their beneficiaries.

Simply put, it may have a funny name, but a Crummey Trust can be a great strategy.