ACCOUNT ACCESS

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.