IRS Questioning Legitimacy of Crummey Powerholders

Brody, Lawrence; Daiker, Stephen B.
October 1996
Journal of Financial Planning;Oct96, Vol. 9 Issue 5, p34
Academic Journal
The article analyzes the legitimacy of the Crummey powerholders. Practitioners have long used the technique of providing trust beneficiaries with the right, for a limited time to withdraw all or a portion of each transfer to an irrevocable trust. By using the Crummey withdrawal technique, donors have been able to fund irrevocable trusts for their descendants with significant annual amounts that pass, free of the gift tax. In 1991, the issue of which trust beneficiaries could be counted, for purposes of the Crummey withdrawal technique, received a favorable boost from the Tax Court. The Internal Revenue Service (IRS) allowed the individual's gift tax exclusions attributable to withdrawal rights given to the donor's children. Two recent IRS pronouncements have addressed the issue of which powerholders can be "counted" fur Crummey purposes. The IRS concluded that, as part of a prearranged understanding with the donor, all of the beneficiaries knew their rights were "paper" rights only, and that exercising them would result in unfavorable consequences.


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