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| Best Practices: Taxes |
Mind the Gaps
Gayle B. Ronan
07/01/2005
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But in order to
maximize the benefits of the gift exclusion, some have been granting powers to
extended family members, raising eyebrows on the joint committee. This enables
the wealth holder to gift much larger sums into the trust each year and remove
the assets from the estate. The JCT seems unclear as to whether it wants to
eliminate or reduce this perceived abuse. The proposal presents three options,
only the first of which seems workable.
• Option 1 would limit who could be a
recipient by requiring that the holder of a Crummey power be a direct
beneficiary of the trust.
• Option 2 would defeat the purpose of the trust
altogether by giving the holder, who may or may not be an ultimate beneficiary
of the trust, a lifetime right to withdraw the gift.
• Option 3 would require
no prior agreement that the gift recipient will not withdraw funds from the
trust.
“Even if the estate tax were to be repealed, people would still seek
relief from gift taxes on lifetime transfers, and this would tighten things up,”
says Charles D. Fox IV, a partner in the Chicago office of Schiff Hardin. “But
in reality, most people already draft trusts in accordance with Option
1.”
Thomas P. Cavanaugh, an estate and trust attorney with Cox, Hodgman &
Giarmarco in Troy, Mich., agrees that even if the number of Crummey
beneficiaries were limited, that would merely detour planning. He notes that
trust grantors already use a tactic if they have a shortage of potential
beneficiaries for gifts that qualify for the $11,000 per person per year gift
tax exemption. “In that event,” he says, “Mom and Dad lend money to the Crummey
trust to fund the premium.”
Furthermore, Congress would have to face down a
powerful Crummey beneficiary: the insurance lobby, which helped quash a similar
proposal to do away with Crummey trusts a decade ago.
Gayle Ronan, a former private banker, writes about wealth management. ronan1@comcast.net
Illustration by Ken Orvidas.
Additional Information
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