CRUMMEY POWER
Back to GlossaryDefinition
Used to transform a transfer in trust into a present interest that qualifies for the annual exclusion, even though the holders of such powers rarely exercise the power of withdrawal.
Summary
A Crummey Power is a legal mechanism used in estate planning that gives beneficiaries the temporary right to withdraw money from a trust (usually 30-60 days). This withdrawal right transforms what would normally be a future interest (money they can't access now) into a present interest, allowing the gift to qualify for the annual gift tax exclusion. The power is named after the Crummey v. Commissioner court case. In practice, beneficiaries rarely actually withdraw the money, but having the legal right to do so is what matters for tax purposes.
Usage Context
Essential when studying gift and estate tax planning, particularly trust strategies, annual exclusion planning, and advanced estate planning techniques involving life insurance trusts.
Common Confusions
- Students often think the beneficiary must actually withdraw money for it to work
- Confusion about the difference between present and future interests
- Mixing up Crummey Powers with other withdrawal rights like 5 and 5 Powers
- Not understanding that the power must lapse (expire) to avoid gift tax consequences
- Thinking all trust contributions automatically qualify for annual exclusions
