Crummey Rights: A Fresh Look

Written by Griffin Bridgers, JD, LLM

Gift tax can be a complex subject, even for advanced practitioners. Confusion often reigns supreme when balancing reporting obligations on Form 709, using lifetime gift tax exemptions and annual exclusions, and determining gift tax values. 

The gift tax annual exclusion allows a donor to give up to $19,000 per recipient in 2025. This exclusion can be doubled for married couples through joint gifts or the gift-splitting election. Yet, this annual exclusion does not apply to all gifts. Per Internal Revenue Code (I.R.C.) § 2503(b), this annual exclusion is not available for gifts of “future interests.” Future interests are contrasted with “present interests” in Treas. Reg. § 25.2503-3(b), under which present interests are defined as any “unrestricted right to the immediate use, possession, or enjoyment of property or the income from property.” This requirement of immediate possession or enjoyment is a central focus of this article, as it is a prerequisite to creating a present interest that qualifies for the gift tax annual exclusion.

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This issue is often encountered when making transfers to irrevocable trusts, which, in many cases, result in an indirect gift to trust beneficiaries for gift tax purposes. The ability of a trust beneficiary to receive possession or enjoyment of trust property is often subject to the discretion of a trustee—even if the trustee and the beneficiary are the same person—and thus is not immediate. As a result, most transfers to irrevocable trusts do not automatically qualify for the gift tax annual exclusion unless the terms of the trust are structured to meet this requirement of immediate possession or enjoyment. 

To solve this issue, many drafters create temporary withdrawal rights in trusts. These rights are often colloquially referred to as Crummey withdrawal rights, based on the Ninth Circuit’s holding in Crummey v. Commissioner. This case is often cited as being the genesis of Crummey withdrawal rights, but its holding focused on whether and to what extent a beneficiary—especially a minor—had the power under state law to exercise their withdrawal right. In Crummey, the Ninth Circuit concluded that, as long as there is no legal impediment to a minor exercising a withdrawal right under either state law or the terms of the trust, the requirement of immediate possession or enjoyment will be deemed satisfied. 

Given this legal background, let’s look at the basic structure of Crummey withdrawal rights.

Common Structures of Crummey Rights

Most Crummey withdrawal rights give an individual—usually a trust beneficiary, but possibly someone whose only right under the trust is the Crummey withdrawal right itself—a temporary window of time to withdraw their proportionate share of any lifetime contributions made by a donor to a trust. By necessity, these withdrawal rights apply only to contributions subject to gift tax with respect to the donor. The requirement for a present interest, i.e., immediate possession or enjoyment, is created by giving an individual the power to withdraw their proportionate share of trust contributions. Because both beneficiaries and nonbeneficiaries may be given Crummey withdrawal rights, we will refer to them as powerholders for the purposes of this article. 

Creating a present interest permits the donor to apply their gift tax annual exclusion to the trust contribution. The donor can apply the gift tax annual exclusion amount for each Crummey beneficiary (so, for example, if there are 10 Crummey powerholder beneficiaries, the donor can make trust contributions in 2025 of 10 times the annual gift tax exclusion amount, or 10 ✕ $19,000 = $190,000). However, a contribution in excess of the donor’s annual gift tax exclusion with respect to any one powerholder results in using the donor’s lifetime gift tax basic exclusion amount and may invoke a gift tax filing requirement under I.R.C. § 6019. To avoid such a possibility, there is often a cap on the amount that the powerholder can withdraw of the lesser of (1) the powerholder’s proportionate share of the contribution when compared to all other powerholders having similar withdrawal rights over the contribution or (2) the gift tax annual exclusion amount available to the donor for the contribution. 

Subject to notice requirements (discussed below), in most cases, creating a Crummey withdrawal right is sufficient to allow the donor to use their gift tax annual exclusion amount for contributions to the trust. Depending on the terms of the trust, a donor may also be able to double their annual exclusion amount (and possibly double the powerholder’s withdrawal right) through a gift-splitting election with a spouse. 

But, as noted, the Crummey withdrawal right is usually temporary to preserve the tax and creditor protection objectives common to many irrevocable trust transfers. This limitation can lead to unintended and often unknown consequences for the powerholder. Many Crummey withdrawal rights must be exercised by the powerholder within a certain window of time, often 30–60 days or by the end of the calendar year (if less than 30–60 days). 

Lapse of Crummey Withdrawal Rights

Crummey withdrawal rights are, by their nature, presently exercisable general powers of appointment. Whenever a presently exercisable general power of appointment has an expiration date, the limitation is known as a lapse of the power. This lapse is subject to gift tax under I.R.C. § 2514(e), where it is treated the same as a “release” of the power, which is treated as a transfer of the property subject to the power under I.R.C. § 2514(b). 

In the worst case, the expiration of the Crummey withdrawal right (the lapse) is treated as a gift by the powerholder to the other trust beneficiaries. This gift is usually classified as a gift of a future interest, which, as noted, does not qualify for the use of the powerholder’s gift tax annual exclusion. This scenario then means that the powerholder must use their own lifetime gift tax basic exclusion amount for the lapsed power and must also file a gift tax return, as previously noted. 

But I.R.C. § 2514(e) has an important exception to avoid this outcome. . . 

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