Wednesday, May 27, 2015

Crummey Trusts Continue to Be Approved By Tax Court

The U.S. Tax Court recently held in Mikel v. Commissioner, T.C. Memo 2015-64 that so called "Crummey" gifts of $12,000 each to 60 trust beneficiaries qualified for the annual gift tax exclusion as present interest gifts.  The IRS argued that although the trust beneficiaries had legally enforceable rights of withdrawal over those funds, they were unlikely to assert those rights under the trust's no-contest clause.  The Tax Court disagreed, and found the withdrawal demands could not be legally resisted by the Trustee of the trust and that the in terrorem provisions would not necessarily deter the beneficiaries from pursuing judicial relief as a practical matter.

This favorable view of the trust's Crummey provisions provides further solace to estate planners and their clients that the use of Crummey trust gifts to multiple trust beneficiaries will be accorded present interest status per gift to enable the donor to make larger annual exclusion gifts to family trusts.  This case is a major positive case law development for practitioners and their clients.