Tax Court Ruling on Crummey Withdrawal Procedures

A recent Tax Court decision held that when a grantor of an irrevocable life insurance trust makes direct payments to an insurance company (instead of transferring premium payments to the trust to remit the proceeds to the insurance company) the present interest annual exclusion is still available.  The Tax Court held that the key factor is whether beneficiaries have the "legal right to demand" the withdrawal.  Relying on the holding in Crummey, the Tax Court stated that just because "the beneficiaries may not have known they had the right to demand withdrawals from the trust does not affect their legal right to do so." 

See Estate of Turner v. Comm'r, T.C. Memo. 2011-209 (Aug. 30, 2011).

See also Crummey v. Comm'r, 397 F.2d 82 (9th Cir. 1968).

Posted by William Alan Nelson II, Associate Editor, Wealth Strategies Journal