THE CRUMMEY TRUST

When a parent, or any other person, makes a gift to another person, that gift must be a "gift of present interest" if it is to qualify to be an annual exclusion (from taxation) gift of $10,000 or less.

In other words, if you are trying to use your $10,000 annual exclusion from taxation, the gift must be a gift of present interest. It must be an outright present gift. The person must be able to go out and spend the gift that minute.

But, sometimes, a parent may want to put money into a trust for the future benefit of children or grandchildren. The parent may want to transfer money into a trust and state that the money is for college education ... or for some other future benefit.

When such a gift is made, it is a gift of future interest and the gift does not qualify for the $10,000 annual exclusion from gift taxation. Gift tax must be paid.

Enter the Crummey Trust, a trust named for the man who invented it.

He wanted to make gifts for the future benefit of family members and, after consultation with his attorney, decided to create a short-term trust in which the money would lose its "future interest" characteristics.

He created an instrument, the Crummey Trust, into which the funds would be temporarily deposited. When the money is put into the Crummey Trust, the donee is notified that the money is there and that he can come and get the money if he so desires.

But, if he does not lay claim to the money within a specified time frame, the money moves on into the permanent trust where is will serve a future benefit to the donee.

Of course, children or grandchildren recognize that the parent donor is doing them a favor and that he may continue to do that every year if they cooperate. So, they do not usually come and get the money. They allow it to serve the future interest.

Fortunately for the Crummey family ... and for all successive ones who wish to make gifts of future interest, the IRS approved the Crummey Trust ... and stated that a gift so treated would be deemed to qualify for the annual exclusion from taxation.

Therefore, the Crummey Trust, also called Crummey Power, has come to be a standard means of converting a gift of future interest into a gift of present interest. Literally, it excludes a $10,000 gift of future interest from gift tax.