Trusts are fast becoming a popular means of protecting assets from taxation and probate while benefitting heirs, and there are many different types of legal trusts available for achieving this. One such example is a Crummey Trust. Here is some insight into this useful tool, from a leading estate planning attorney in New Jersey.
What is a Crummey Trust?
This is a trust that allows a parent to make gifts to his or her children that are excluded from gift or estate taxation as long as they are equal or less than the permitted value. At the moment, this is $13,000 per year, but is subject to change at any time.
What are the advantages of this type of trust?
While gifting is a great tool for benefitting your heirs during your lifetime in a tax-free way, the problem is that for minor children, $13,000 is far too much for them to handle responsibly. Most parents would prefer that this money goes to their child at a more suitable age where they can use it well, but would also like to get the benefits of starting the tax-free gifting process as early as possible.
The Crummey Trust solves this issue by allowing parents to gift the annual amount to their children every year, tax-free, but stipulate at exactly which age their child or children are allowed to access the funds. The trustee is able to invest the money within the trust and the children will have the full benefit of the asset at an age designated by you.
In traditional trusts, the child has a “present interest” in the gifts which can mean that they can withdraw and spend funds as they wish, and the Crummey Trust negates this. This is done by giving the child 30 days in which to withdraw the money and use it (in order to maintain the “present interest” of the child), but once this time period lapses, the money can only be withdrawn when the child reaches the designated age. In addition, if the child does decide to withdraw the funds, they can only access the most recent amount deposited within that time period, not the full amount of the trust.
Find the trust that’s the right fit for your needs – Speak to your NJ estate planning attorney
You deserve a legal solution that is uniquely tailored to your needs, so speak to New Jersey estate planning attorney Frank R. Campisano today. Whether you want to create a Crummey Trust for your child, a Last Will and Testament or are interested in updating more complex estate planning documents such as Medical Directives and Powers of Attorney documents, he can ensure that the right legal documentation is developed in order to meet your specific wishes.