What Is a Crummey Power?

Crummey powers allow gifts to an irrevocable life insurance trust (ILIT) to qualify for the annual gift tax exclusion. Learn how they work and why notices matter.

If you’ve heard of an ILIT (Irrevocable Life Insurance Trust), you’ve probably also heard of a Crummey power. This provision allows gifts made to an ILIT to qualify for the annual gift tax exclusion—currently $19,000 per beneficiary (2025)—so the gifts are not counted against your lifetime exemption.

Why Is a Crummey Power Needed?

Normally, gifts to a trust are considered future interests, which do not qualify for the annual exclusion. The IRS only allows the exclusion if the recipient has a present interest—something they can immediately use or withdraw. A Crummey power gives each trust beneficiary the temporary right to withdraw contributions, converting the gift into a present interest that qualifies for the exclusion.

How Does a Crummey Power Work?

1. Contributions Made to the Trust

   You make a gift to the ILIT, typically to pay insurance premiums.

2. Withdrawal Notice

   Each beneficiary is given a right to withdraw their share of the contribution—usually for 30 days—through a formal Crummey notice.

3. Lapse of Right

   If the beneficiary does not exercise this right (which is almost always the plan), the money stays in the trust, and the trustee uses it to pay premiums.

Why Notices Are So Important

• The trustee must give written notice to beneficiaries each time a contribution is made.

• Keeping copies of signed notices and mailing records is crucial if the IRS ever audits the gift tax treatment.

• Without proper notices, the IRS could disallow the annual exclusion, treating the gift as a taxable transfer.

Thoughtful Planning for ILITs

Crummey powers are a powerful way to fund life insurance trusts without using up your lifetime exemption—but they must be handled carefully to comply with IRS rules. Contact The Law Office of Jin-Wook Kim, P.C. to ensure your ILIT is structured and administered properly, so your gifts qualify for maximum tax savings.