To avoid estate taxes, some Louisiana families utilize special trusts known as Crummey trusts in making annual gifts to family. Currently, each individual may gift up to $15,000 per gift recipient without negatively impacting their lifetime estate and gift tax exemption. We call this amount the annual gift tax exclusion amount. Gifting this amount to trust is especially wise when the gift recipient is young. Most grandparents would rather not hand over $15,000 in cash directly to an 18 year old grandchild. They’d probably rather invest and grow those gifts for the grandchild’s future. A gift into trust allows for this outcome.

However, one must execute annual gifts into trust properly. In order to qualify for the annual gift tax exclusion, a gift must be a present interest. A gift into trust that the trust beneficiary will only receive at a later date is a gift of a future interest. So how can we make a gift into trust a present interest. This is where the Crummey Trust concept comes into play. With a Crummey Trust, from the date of the gift into trust, the trust beneficiary has 30 days to request withdrawal of those funds from the trust. This withdrawal window makes the gift a present interest.

When making gifts, the giver must notify the beneficiary of their withdrawal right. This notice is called a Crummey letter. If no Crummey letter issues, the gift does not qualify for the annual gift tax exclusion. This means the value of a gift without a Crummey letter is deducted from the givers lifetime estate and gift tax exemption. In other word, a gift to trust without a Crummey letter, does not avoid any estate tax.

In practice, trust beneficiaries rarely if ever exercise their withdrawal right. They know an early withdrawal may mean no more gifts for them in the future. If you are Louisiana resident concerned about Estate tax, maybe a Crummey Trust is right for your family. To learn more, call Legacy Law Center at (504) 274-1980 in Metairie, New Orleans, and surrounding areas or call (985) 246-3020 in Mandeville, Covington, Slidell, Houma , and Thibodaux.