Crummey Trust

Unfunded trust that acts as the owner of a life insurance policy. The trust receives a donor's cash payments on a periodic basis, from which the beneficiary of the trust has a specified period in which to make a cash withdrawal. If this is not done, the cash paid by the donor is used to pay the premiums due on the life insurance policy. Under this circumstance the IRS deems that a gift of present value interest by the donor has been made. It is important that a gift of present value interest be established because such a gift in trust will enable the donor to contribute up to $10,000 ($20,000 if two donors such as husband and wife contribute) in premium payments and enjoy the gift tax exclusion. When the donor dies, the life insurance policy in trust is effectively removed from the donor's estate.