Crummey Trusts

Supposed Grandmother with a taxable estate

wants to leave $100,000 to be divided among
3 Grandchildren

Tax Consequences if:

1. She leaves property by will:
$100,000 taxes at 40% rate = $40,000
tax

Crummey Trusts

Supposed Grandmother with a taxable estate
wants to leave $100,000 to be divided among 3
Grandchildren

Tax Consequences if:

2. She makes gift during lifetime over 3 years:

$14,000 annual exclusion x 3 gc x 3 years =
No tax

Crummey Trusts

Supposed Grandmother with a taxable estate
wants to leave $100,000 to be divided among 3
Grandchildren

Tax Consequences if:

3. She creates inter vivos trust, with income to gc
until age 30, then distribution of principal:

Annual exclusion inapplicable. Gift charged
against grandmothers estate. Ultimate Tax
=$40,000 (at grandmothers death)

Crummey Trusts

Supposed Grandmother with a taxable estate
wants to leave $100,000 to be divided among 3
Grandchildren

Tax Consequences if:

4. She creates inter vivos trust, with income to gc
until age 30, then distribution of principal, and
provides that GC has right to withdraw $14,000 in
each of 3 years:

Annual exclusion applicable. No tax due.
Decedent has $20,000,000 estate, surviving spouse,
and two children by previous marriage

Decedents options:
1. Leave all to spouse
Tax consequences:
a. Decedent has no taxable estate
b. At spouses death, taxable estate after
both exclusions = $10,000,000. Tax = $4,000,000

Non-tax consequences: Are children
protected?
Decedent has $20,000,000 estate, surviving spouse, and two
children by previous marriage

Decedents options:
2. Create support trust for spouse (trustee has discretion), with
principal to children at spouses death
Tax consequences:
a. Decedent has $15,000,000 taxable estate. Tax
= $6,000,000
b. Trust principal during spouses lifetime is only
$14,000,000; less income and less growth potential

Non-tax consequences: Are children protected?
Decedent has $20,000,000 estate, surviving spouse, and two
children by previous marriage

Decedents options:
3. Create QTIP trust for spouse, guaranteeing spouse right to
income
Tax consequences:
a. Decedent has no taxable estate. Spouse has
$10,000,000 taxable estate. Tax = $4,000,000
b. Trust principal during spouses lifetime is
$20,000,000; more income and more growth potential

Non-tax consequences: Are children protected?