A "Crummey" Trust gets it's name from the case Crummey v. Commissioner. In a "Crummey" Trust, the grantor creates a trust where they deposit funds equivalent to the amount of a yearly gift exemption to pay for life insurance premiums in the event of the grantor's death. The funds deposited and the proceeds from the life insurance will be tax free for the beneficiary. However, the catch is that the proper procedural letters must be sent out to indicate that the trust funds can be withdrawn by the beneficiary in order for the premiums to be considered an exempt gift.
See, Robert W. Wood, "With Trusts, 'Crummey' Is Good," Forbes (October 9, 2011).
Posted by Shahzeb Gaziani, Senior Associate Editor, Wealth Strategies Journal.
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