Tuesday, January 25, 2011 NEET Tips
NEET Tips answers questions posed online to the NEET website
What are Crummey Powers?
Crummey powers are often used in conjunction with Irrevocable Life Insurance Trusts (ILIT) to make a gift to a trust qualify for the gift tax annual exclusion. In order for a gift to qualify for the gift tax annual exclusion, it must be a gift of a present interest. In the context of ILITs, the Grantor makes a gift to the trust, which the trust beneficiary has the power to withdraw. If the beneficiary does not exercise the power to remove the contribution within a stated time period, often 30 days, the power lapses and the contribution can be used to pay a life insurance premium or for other purposes. It’s important that there not be a written understanding or other agreement between the Grantor and the beneficiary that the beneficiary will not remove the Grantor’s gift to the trust, because then the IRS will find that the Grantor’s contribution was not a present interest gift.
For more information on ILITs, see the articles:
Doubling Life Insurance Proceeds with an ILIT
Uses of Life Insurance in Estate Planning |