Estate Reduction Trust

An estate reduction trust will achieve the estate planning goal of transferring wealth from one generation to the next, but will also limit the recipients decision-making power over the assets that have been transferred.

Also known as a "Crummey" trust, named after a tax court case in which the petitioner was a taxpayer named Crummey, the estate reduction trust allows a parent to transfer up to $13,000 (as of 2009) into a trust for an underage child without having to pay any gift tax or file a gift tax return. This can be done annually, and by different individuals, such as parents or grandparents. In this way, a significant amount of money can be built up for college or future use while a child is still young. Taxes on income earned by the trust assets will be paid out of trust earnings as long as there are no distributions to the child.

A Crummey trust is set up to give the child the minimum access to the assets required by law in order for the transfer to be considered a completed gift for estate planning purposes. Parents and grandparents may often have concerns that the younger generation is not mature enough to handle the sudden wealth that a trust, or an otherwise sound estate plan, may bestow.