A Crummey Trust is one of several methods of accumulating assets for a child’s education. It’s most helpful in cases in which the value of the assets is large and the complete distribution of them to a child before age 21 is undesirable.

Crummey Trusts offer an alternative way to gift assets to minors in lieu of custodial accounts like a Coverdell Education Savings Account (CESA). Unlike a CESA, which automatically grants ownership of all assets to children when they reach age 30, a Crummey trust offers parents more flexibility and control.

A feature of a Crummey Trust is that it allows parents to transfer assets to a child while also taking advantage of the annual gift tax exclusion from their income taxes. The annual gift tax exclusion, which is $16,000 per individual and $32,000 per married couple, can be applied in a Crummey Trust because a gift of assets to the trust is always accompanied by a withdrawal power that gives the beneficiary the right to withdraw the assets immediately. This is what makes it a “gift”. However, there is an expectation that the beneficiary will not exercise the withdrawal right. If the beneficiary does not exercise it, the gift-giver remains entitled to the annual gift tax exclusion and the gift itself remains in the trust.

Crummey Provisions In Other Types of Trusts

A Crummey power can be included in another type of trust such as a Life Insurance Trust by means of a Crummey provision. A Crummey provision works as follows: The grantor (parent) makes a gift to the trust at the same time that the beneficiary (child) is notified that they have the power to withdraw the gift. The simultaneous acts of the grantor giving a gift and the beneficiary being empowered to withdraw the gift is construed as being the same as any outright gift. Thus, a gift to a trust with a Crummey provision also qualifies for the annual gift tax exclusion.

Income Tax Considerations

Until a Crummey power is exercised or allowed to lapse, the beneficiary is treated as the owner of any income derived from gifts put into the trust. If the beneficiary allows the Crummey power to lapse but retains an interest in trust assets, as is often the case, the beneficiary will continue to be treated as the owner of that portion of the trust that their interest represents and he or she will be taxed accordingly upon distribution. To minimize income taxes, assets can be invested in non-income-producing securities like growth stocks.

To the extent that Crummey Trust income is taxed to a beneficiary who is under the age of 18 or a student aged 19 to 23, the Kiddie Tax rules apply.  The Kiddie Tax was created as part of the Tax Reform Act of 1986 to prevent parents from shifting income-producing assets into a child’s name to take advantage of the child’s lower tax rate. Under the current Kiddie Tax rules, all unearned income above $2,500 per year is taxed at the parent’s marginal income tax rate instead of the child’s tax rate. For the 2023 tax year, the first $1,250 of a child’s unearned income qualifies for the standard deduction, the next $1,250 is taxed at the child’s income tax rate, and unearned income above the threshold of $2,500 is taxed at the parent’s marginal income tax rate.

Crummey Trust vs. Minor’s Trust

Parents may prefer a Crummey Trust over what’s referred to as a Minor’s Trust ( or Sec. 2503(c) Trust), which is established to hold gifts for a child until he or she reaches age 21. A gift to a Minor’s Trust also qualifies for the annual gift tax exclusion.

A Minor’s Trust can have only one beneficiary, and the assets in the trust are irrevocably his or hers. Because the trust is irrevocable, the parent gives up control of the assets. The beneficiary is only taxed when the trust makes distributions to him or her.

Principal and earnings in a Minor’s Trust must be distributed for the child’s education before he or she reaches age 21. If not, the IRS imposes a 10% penalty on the remaining assets. This is not true of a Crummey Trust or Provision, which can extend to age 30. Parents often prefer a Crummey Trust because it is revocable and gives them more control over the timing of the termination of the trust.

Present Interest in a Crummey Trust

Normally, gifts to minors remain under parental control until the child is 18 years old but then they may be construed as under the control of the child.  In order to delay the transfer of control beyond age 18, the assets must be in a trust. However, the annual exclusion from the gift tax is only available for gifts of so-called present interest. A present interestis one that can be exercised now, that is, the present gift holder can possess, use, encumber, or transfer it immediately. A gift that is never under the beneficiary’s control until some point in the future is not a present interest and cannot be considered a gift eligible for exclusion.

A Crummey Trust achieves this effect by offering the beneficiary a window of time, usually 30 days, during which he or she may take control of the gift. If the beneficiary fails to exercise the right to take control by withdrawing the gift during the 30 days, the gift becomes part of the trust. Since the beneficiary had the opportunity to take the gift out of the trust, the gift is deemed to be a present interest regardless of whether he or she actually took it out of the trust or not. This is what entitles parents using a Crummey Trust to take the annual gift tax exclusion.

The expectation of withholding future annual gifts if the beneficiary opts to withdraw the gift usually motivates the beneficiary to decline to do so. Some Crummey Trusts state explicitly that the beneficiary’s withdrawal of a gift will result in no future gifts to the trust.

A 5 and 5 Exception in a Crummey Trust  

When the beneficiary allows the withdrawal right to lapse there is no deemed gift so long as the Crummey power does not exceed the greater of $5,000 or 5 percent of the value of the trust property (commonly referred to as The 5 and 5 Exception). This is a common clause in Crummey Trusts that allows the beneficiary to withdraw the greater of:

  • $5,000 every year, or
  • 5% of the trust’s fair market value (FMV) from the trust each year

FMV is the price that property or securities would sell for at present on the open market.

Drawbacks of Crummey Trusts 

A Crummey Trust can be a beneficial addition to an estate plan, but there are potential drawbacks to keep in mind. First, there’s the cost of setting up and maintaining a Crummey trust. A parent typically needs to pay an attorney to help with creating the trust. The trustee can also collect a fee. The exception would be if the parent is also acting as the trustee. That, however, means the trust can be included in the parent’s gross taxable estate. For this reason, it usually better to appoint a disinterested third-party as trustee.

There’s also the possibility that the trust beneficiary will withdraw money from the trust during the withdrawal window. That would negate any gift tax exclusion benefits that the parent would have enjoyed if the gift had been left in the trust.

As noted above, Crummey Trusts allow beneficiaries to withdraw a portion of the trust’s assets within a specific time frame. If the beneficiary does not exercise this right, the assets remain in the trust. For FAFSA purposes, the value of the assets that can be withdrawn in any given year is considered a student asset, which is assessed at 50%.


Since Crummey Trusts can be more complicated than other types of trusts, a parent may benefit from reviewing the details with an estate planning attorney who can help  determine whether a Crummey Trust would be advantageous and, if so, what terms should be set to make the most of the assets being gifted to the beneficiary.