A Crummey letter is a critical component of a Crummey trust, a type of irrevocable trust often used for gifting to minors. These letters notify beneficiaries (typically children or grandchildren) that a contribution has been made to the trust and that they have a limited time (usually 30 days) to withdraw that contribution. This “demand right” allows the contribution to qualify for the annual gift tax exclusion, avoiding gift tax implications. Without a properly executed Crummey letter, the gift may not qualify, potentially leading to tax liabilities.
The key to a valid Crummey letter is clear, concise language that is easy for the beneficiary (or their guardian if the beneficiary is a minor) to understand. The letter must explicitly state the amount of the contribution, the beneficiary’s right to withdraw it, the timeframe for withdrawal, and what happens if the withdrawal right is not exercised within that timeframe. Maintaining meticulous records of these letters and their delivery is also essential for proper trust administration and audit trails.
Crummey Letter Samples:
Here are eight sample Crummey letters. Note that these samples are for illustrative purposes only and should not be used without consulting with an attorney experienced in estate planning.
Sample 1: Simple Crummey Letter
Date: [Date]
Beneficiary Name: [Beneficiary Name]
Beneficiary Address: [Beneficiary Address]
Dear [Beneficiary Name],
This letter is to inform you that on [Date of Contribution], a contribution of [Dollar Amount] was made to the [Trust Name] trust for your benefit. You have the right to withdraw this amount from the trust for a period of 30 days from the date of this letter.
If you do not exercise this right within 30 days, the funds will remain in the trust and be administered according to the terms of the trust agreement.
Sincerely,
[Trustee Name]
Sample 2: Crummey Letter with Guardian Notification
Date: [Date]
Guardian Name: [Guardian Name]
Guardian Address: [Guardian Address]
Dear [Guardian Name],
This letter is to inform you, as the guardian of [Beneficiary Name], that on [Date of Contribution], a contribution of [Dollar Amount] was made to the [Trust Name] trust for the benefit of [Beneficiary Name]. [Beneficiary Name] has the right to withdraw this amount from the trust for a period of 30 days from the date of this letter. As [Beneficiary Name]'s guardian, you must act in his/her best interest regarding this withdrawal right.
If the withdrawal right is not exercised within 30 days, the funds will remain in the trust and be administered according to the terms of the trust agreement.
Sincerely,
[Trustee Name]
Sample 3: Crummey Letter with Multiple Beneficiaries
Date: [Date]
Beneficiary Name: [Beneficiary Name]
Beneficiary Address: [Beneficiary Address]
Dear [Beneficiary Name],
This letter is to inform you that on [Date of Contribution], a contribution was made to the [Trust Name] trust. Your share of this contribution is [Dollar Amount]. You have the right to withdraw this amount from the trust for a period of 30 days from the date of this letter. This right applies to all beneficiaries who received a like contribution.
If you do not exercise this right within 30 days, the funds will remain in the trust and be administered according to the terms of the trust agreement.
Sincerely,
[Trustee Name]
Sample 4: Crummey Letter with Trust Document Reference
Date: [Date]
Beneficiary Name: [Beneficiary Name]
Beneficiary Address: [Beneficiary Address]
Dear [Beneficiary Name],
This letter is to inform you that on [Date of Contribution], a contribution of [Dollar Amount] was made to the [Trust Name] trust for your benefit. Pursuant to Article [Article Number] of the trust agreement, you have the right to withdraw this amount from the trust for a period of 30 days from the date of this letter. Please refer to the trust document for full details regarding your rights.
If you do not exercise this right within 30 days, the funds will remain in the trust and be administered according to the terms of the trust agreement.
Sincerely,
[Trustee Name]
Sample 5: Crummey Letter with Specific Withdrawal Instructions
Date: [Date]
Beneficiary Name: [Beneficiary Name]
Beneficiary Address: [Beneficiary Address]
Dear [Beneficiary Name],
This letter is to inform you that on [Date of Contribution], a contribution of [Dollar Amount] was made to the [Trust Name] trust for your benefit. You have the right to withdraw this amount from the trust for a period of 30 days from the date of this letter. To exercise this right, you must notify the trustee in writing at the following address: [Trustee Address].
If you do not exercise this right within 30 days, the funds will remain in the trust and be administered according to the terms of the trust agreement.
Sincerely,
[Trustee Name]
Sample 6: Crummey Letter for an ILIT (Irrevocable Life Insurance Trust)
Date: [Date]
Beneficiary Name: [Beneficiary Name]
Beneficiary Address: [Beneficiary Address]
Dear [Beneficiary Name],
This letter is to inform you that on [Date of Contribution], a contribution of [Dollar Amount] was made to the [Trust Name] Irrevocable Life Insurance Trust for your benefit. This contribution was used to pay the life insurance premium. You have the right to withdraw this amount from the trust for a period of 30 days from the date of this letter.
If you do not exercise this right within 30 days, the funds will remain in the trust and be used for trust purposes, including future premium payments.
Sincerely,
[Trustee Name]
Sample 7: Crummey Letter with Acknowledgement Receipt
Date: [Date]
Beneficiary Name: [Beneficiary Name]
Beneficiary Address: [Beneficiary Address]
Dear [Beneficiary Name],
This letter is to inform you that on [Date of Contribution], a contribution of [Dollar Amount] was made to the [Trust Name] trust for your benefit. You have the right to withdraw this amount from the trust for a period of 30 days from the date of this letter. Please sign and return the attached acknowledgement to confirm your receipt of this notification.
If you do not exercise this right within 30 days, the funds will remain in the trust and be administered according to the terms of the trust agreement.
Sincerely,
[Trustee Name]
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Acknowledgement of Receipt
I, [Beneficiary Name], acknowledge that I have received this Crummey Letter on [Date].
____________________________
Signature
Sample 8: Crummey Letter with “Hanging Power” Provision (Consult an Attorney!)
Date: [Date]
Beneficiary Name: [Beneficiary Name]
Beneficiary Address: [Beneficiary Address]
Dear [Beneficiary Name],
This letter is to inform you that on [Date of Contribution], a contribution of [Dollar Amount] was made to the [Trust Name] trust for your benefit. You have the right to withdraw this amount from the trust for a period of 30 days from the date of this letter. Note: This trust contains a "hanging power" provision. If you do not exercise your withdrawal right, it will carry over to subsequent years, up to the amount that qualifies for the annual gift tax exclusion in those years. Consult with your own legal or financial advisor regarding this provision.
If you do not exercise this right within 30 days, the funds will remain in the trust and be administered according to the terms of the trust agreement. Any unexercised withdrawal right may "hang" and be available in future years as described above.
Sincerely,
[Trustee Name]
Crummey letters are essential for maximizing the benefits of Crummey trusts. However, they are complex legal documents, and the wording and procedures must be correct to ensure compliance with tax laws. Always consult with an estate planning attorney to create Crummey letters that are tailored to your specific circumstances and meet all legal requirements. Failing to do so could result in unwanted tax consequences and undermine the purpose of the trust.