Avoiding Crummey Power Mistakes in Drafting Trust Documents

Protecting Against IRS Challenges to Gifts to Irrevocable Trusts

Recording of a 90-minute CLE/CPE webinar with Q&A


Conducted on Wednesday, January 31, 2018

Recorded event now available

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Program Materials

This CLE/CPE webinar will provide counsel with a detailed review of best practices in drafting and maintaining Crummey provisions in trust documents. The panel will discuss the key language that must be included in all trusts that utilize Crummey “present interest” withdrawal provisions to qualify for the annual gift exclusion and will detail additional steps for tax counsel and trustees to ensure that Crummey provisions withstand IRS scrutiny.

Description

A useful tool in trust planning is the Crummey power, a provision contained in certain irrevocable trusts that allows subsequent-year gifts to the trust to qualify for the federal annual gift tax exclusion. Proper use of a Crummey power can help avoid gift taxes on any gifts to an irrevocable trust.

To qualify for the Crummey exclusion, the trust document must contain a provision that grants named beneficiaries of the trust a limited time to withdraw contributions made to the trust. This power has the effect of converting a future interest gift into a present interest gift, thus qualifying the contribution for gift tax exclusion, up to the statutory amount.

The IRS has frequently attacked the use of Crummey powers in court, so tax counsel, advisers, trustees and beneficiaries must closely adhere to the rules governing Crummey trusts to deter an IRS challenge and avoid reclassification of the trust.

Listen as our experienced panel details the key drafting language and notice requirements, as well as additional steps that prudent tax counsel can provide to trustees, beneficiaries and advisers to make sure the trust is immune from IRS disallowance of a Crummey power.

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Outline

  1. Drafting requirements in trust documents
  2. Notice requirements to beneficiaries
  3. Additional steps to protect against IRS challenge
  4. “Hanging Crummey powers”

Benefits

The panel will review these and other key issues:

  • What language will suffice in the trust document to demonstrate that the withdrawal period and mechanics satisfy the requirement of the gift being a “present interest?”
  • What is the notice to beneficiaries requirement to satisfy IRS requirements?
  • What additional steps should tax counsel and advisers take to make sure trust documents and operations conform to IRS accepted practices governing Crummey powers?

Faculty

Lazo, Christiana
Christiana M. Lazo

Counsel
Ropes & Gray

Ms. Lazo’s practice consists of representing ultra-high net worth individuals, their family offices, and closely...  |  Read More

Francisco Garcia, Jr., Esq.
Francisco Garcia, Jr., Esq.
Henderson Caverly & Pum

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