There are many different ways to facilitate the transfer of assets to loved ones while trying to reduce or avoid taxation that can result from the transfer of wealth. One of the possible options available is to give a gift. Although gift taxes can be charged on certain gifts, there are gift tax exclusions that make it possible for assets to be transferred to new owners without any IRS obligations being triggered. One of the possible ways that a gift could fall within a gift tax exclusion is using a technique called a Crummey power.
Zimmer Law Firm can provide you with help understanding what a Crummey power is and can assist you in taking steps to ensure that you are able to effectively use this technique or other appropriate legal tools to make gifts without paying taxes on the transferred wealth. To find out more about how our firm can assist you, give us a call today.
What is a Crummey Power?
Crummey power is a specific technique that is able to transfer a gift that isn’t eligible for gift tax exclusions into a gift that is eligible. It is very common for a Crummey power to be applied to a contribution that has been made to an irrevocable trust.
Crummey power was named after a wealthy trust creator named Clifford Crummey. Crummey hoped to take advantage of the yearly gift tax exemption that allows for wealth to be transferred onto beneficiaries without taxes being triggered. However, Crummey also wanted to create a trust fund for his children.
A Crummey power made both possible. When using this technique, a contribution is first made to an irrevocable trust. Beneficiaries of the trust are next provided with a notification that they have funds available to withdraw within a designated time frame. This time frame generally must span at least 30 days.
When and if beneficiaries do not withdraw the gift — which is permissible — the trust grantor becomes eligible to exercise the Crummey power. The person who provides the financial gift provides notice to the beneficiaries of the intent to utilize this power. When this power is used, the assets that were transferred as part of the gift become subject to the annual gift tax exclusion. This effectively changes the gift that wasn’t eligible for a gift tax exclusion into one that is eligible.
There are specific requirements for the Crummey power technique to work, including a requirement that the person giving the gift must stipulate it’s part of the trust when drafted. There is also a limit on the annual value of the gift provided to each beneficiary.
Crummey powers can benefit heirs or beneficiaries who stand to inherit and who may want to avoid owing taxes on the wealth they receive. Those who want to use an irrevocable trust to get substantial protection for personal assets can also use the Crummey power to ensure that they are able to transfer wealth without triggering an obligation to pay taxes to the IRS.
Getting Help from an Estate Planning Attorney
An estate planning attorney at Zimmer Law Firm can work with you to determine if you should make use of the Crummey power technique to facilitate the transfer of assets by turning a gift that wouldn’t be eligible for the gift tax exclusion into an eligible gift. Our dedicated and experienced legal team can also help you to explore all of the different options and techniques that could potentially help you to reduce the amount that you owe in taxes while facilitating the timely and cost-effective transfer of wealth to loved ones.
To find out more about the different ways that Zimmer Law Firm can assist you, join us for a free seminar. You can also give us a call at 513-721-1513 at any time to learn more.