Albuquerque Crummey Trust Lawyer

A Crummey trust provides a unique way to use the full extent of your annual gift tax exclusion without affecting your lifetime gift tax exemption amount. To achieve this benefit, you should make sure to take a specific set of actions every time you contribute to the trust.

After making a contribution to the trust, you can give your intended beneficiary the option to withdraw it immediately. Informing them of this right makes the contribution count as a “present interest.”

This status qualifies it for the annual IRS gift tax exclusion amount, rather than having it deduct from your lifetime exemption amount. Your beneficiary can then withdraw the contribution at a later date, once its value has had a chance to appreciate.

If you want to take advantage of this beneficial tax arrangement, you can work with an Albuquerque Crummey trust lawyer. They can help you follow all of the recommended best practices.

After all, any mistakes could cause a contribution to instead count towards your lifetime gift tax exemption. It may even jeopardize the trust itself, in certain situations.

Find out more about how to get the most benefit possible from your Crummey trust when you schedule a confidential consultation with no obligation. Call 505-503-1637 or contact us online to schedule your consultation today.

How an Albuquerque Crummey Trust Attorney Can Help You

Setting up a Crummey trust can be a great way to avoid gift taxes while giving a beneficiary — especially a young beneficiary — the ability to benefit from the substantial investment growth of the gifts you contribute.

However, it is important to carefully follow all of the rules and practices recommended for using these trusts. Otherwise, you may end up with unintended consequences, including accidentally using some of your lifetime gift tax exemption.

You may even unintentionally trigger taxes for the beneficiary even if they do not withdraw their distribution, in some instances, if the trust generates enough taxable income.

An experienced Albuquerque Crummey trust attorney can provide you with assistance to reduce the risk of these undesirable effects and many others. Your attorney will use precise legal language to create the trust while helping you prepare everything else needed for your trust to function the way you intend.

Considerations and decisions an Albuquerque Crummey trust lawyer can help you with include:

• Whether to form the trust in New Mexico or in another state, based on your goals and what laws you seek to take advantage of, such as if you wanted to create a dynasty trust or asset protection trust
• Who to name as a trustee to preserve the trust’s value and ensure it is managed in the way you want
• How to maximize your ability to use your annual gift tax exclusion every year without impacting your lifetime exemption amount, including for multiple beneficiaries
• How to include language that could change the structure of the trust to or from a Crummey trust, such as if you want the trust to convert to a bypass trust (aka a credit shelter trust) at the time of your death
• How to prepare for handling the trust’s administration costs as well as its tax implications
• How to brief your beneficiaries on their options without jeopardizing Crummey protections
• How to schedule and send Crummey letters notifying beneficiaries of their limited right to withdrawal in compliance with IRS requirements for determining a “present interest”
• How to prepare for situations where the beneficiary may exercise their right to an immediate withdrawal (as opposed to a delayed one) without directly discouraging them from doing so
• How to fit your Crummey trust within your larger overall estate plan

Come to New Mexico Financial & Family Law for guidance and assistance in all these matters, and many more. We always carefully review your unique portfolio and discuss your goals in detail.

This approach allows us to recommend a range of options that can fit together into a comprehensive estate plan. Our goal with every client is to give them the strategies that are most likely to help them achieve their goals, helping them decide on the perfect estate plan for their unique needs.

How Does an Albuquerque Crummey Trust Work?

As mentioned above, a Crummey trust serves as a fairly creative way to take full advantage of your yearly gift tax exclusion amounts — without eating into your lifetime gift tax exemption.

For the most part, a Crummey trust acts just like a regular trust:

• The trust creator (called the grantor, settlor, or trustor) transfers some of their assets into a trust, which becomes the new legal owner
• A trustee is appointed, and they take over managing and controlling the assets, including making distributions — or giving information on the right to withdraw a distribution — to beneficiaries
• Beneficiaries receive distributions, often along a pre-determined schedule, such as quarterly, monthly, or annually

A Crummey trust has a few unique qualities that set it apart, which are covered in their own sections below.

A Crummey Trust Must Be Irrevocable

Grantors are given the option to make their trust revocable or irrevocable. Revocable trusts offer them flexibility, which includes the ability to make major changes to the trust or access the principal assets used to fund it at will.

Irrevocable trusts, on the other hand, cannot be changed once they have been established (although there are some potential workarounds if it’s absolutely necessary). In exchange, these trusts may possess certain advantageous qualities, such as tax avoidance or asset protection.

In the case of Crummey trusts, the grantor needs to be able to declare that they have fully removed any interest from an asset (including cash) when they transfer it into the trust. For this reason, the trust has to be irrevocable.

In addition, the grantor should not serve as trustee or be able to exercise any significant degree of influence on the trust.

The Crummey Trust Is Funded With Regular Gifts

Grantors usually continue to transfer assets into a Crummey trust each year.

If they are trying to maximize their yearly gift tax exclusion, they will gift the maximum amount they are able to for each beneficiary. The IRS usually increases this amount each year to keep up with inflation.

In 2025, the yearly allowance for gift-tax-free transfers is $19,000. Note that this amount is per recipient and per benefactor. So, if a married couple has three children, each spouse is allowed to gift up to $19,000 per child, per year, potentially totaling up to a maximum of $114,000 for all three children.

The Beneficiaries Receive Notice of Their Temporary Right to Withdrawal

When a contribution is made to the Crummey trust, it only counts as a gift if the beneficiary receives full and proper notice of their right to claim it.

The best way to provide this notice is by sending a written letter (i.e., not an email) informing the beneficiary of the existence of the gift and their immediate and unrestricted right to claim it. This right usually expires within a short timeframe, such as after 30 days or 60 days.

Beneficiaries should be given clear instructions on how to withdraw their gift, as well. The goal is to make retrieving the gift as easy as possible.

Taking these steps qualifies the gift as a “present interest.”

If the Beneficiary Waives Their Right to the Immediate Gift, the Asset Can Appreciate Without Affecting Its Gift Exclusion Eligibility

With a Crummey trust, the grantor usually does not want their beneficiaries to exercise their right to immediately withdraw their gift.

Why? Well, to put it simply: if “a penny saved is a penny earned,” then a penny that’s well-invested is many pennies earned.

In other words, the grantor wants the beneficiary to get the full benefit of their gift, which may not be realized until many years down the road. While the beneficiary waits, their gift appreciates in value, building them true wealth rather than the chance at instant gratification.

Grantors Can Make Contributions Every Year, Adding Up to Significant Gift Tax Savings

Normally, when someone is promised a future interest in a trust, it counts as an unrealized gift. This status causes the principal amount to be deducted from the lifetime exemption amount of the gift-giver.

In 2025, the total lifetime gift and estate tax exemption amount is $13.99 million. While that is quite a lot, one can see how it could be possible to go over that amount in a lifetime.

Exceeding the lifetime gift/estate tax exemption is certainly possible when parents die and their entire estate is inherited by their children, especially if they have been making substantial gifts each year that eat away at their lifetime exemption.

With a Crummey trust, the family is instead allowed to gift to each child (or other desired beneficiary) each and every year, without penalizing their lifetime exemption amount.

Common Traps to Avoid When Creating a Crummey Trust

As alluded to earlier, there are a number of ways that a Crummey trust could trigger unintended consequences when they are not handled with care.

Problem 1: Gifts Fail to Satisfy the “Present Interest” Rule Because the Beneficiary Is Discouraged From Claiming It Immediately

A gift can only count as a present interest when “there is no understanding or agreement, expressed or implied, that the withdrawal will not be exercised.”

Accordingly, a grantor should never outright tell a beneficiary that they cannot or should not claim the gift when it immediately becomes available. They should also avoid putting rules in the trust that make it challenging or undesirable to immediately claim the gift.

For example, the trust should not make outright promises that the gift will be worth more in the future. Instead, it should merely allude to a future right of withdrawal, such as when the beneficiary reaches a certain age.

In a letter explaining the rule, the IRS stated: “If there is evidence of an agreement between the donor and the power holder that the withdrawal right would not be exercised, or if the exercise of the right would result in adverse consequences to the holder, the withdrawal right will not be considered a bona fide gift of a present interest.”

At the same time, it can be pretty challenging for the IRS to prove that a provision is specifically meant to discourage someone from claiming their present interest to a Crummey trust gift.

A 2015 case (Mikel v. Commissioner) looked at a provision allowing a trustee to arbitrate a beneficiary’s claim on a present interest — along with a clause stating that the beneficiary waived any future right to trust interests if they lost in the arbitration. The IRS contended that these provisions violated the present interest test, but a court disagreed, allowing the contributions to count as annual gift tax exclusions rather than lifetime exemptions.

Problem 2: Offering the Immediate Right to Access the Gift to Someone Who Is Different Than a Future Beneficiary

For a gift to genuinely qualify as a present interest, there cannot be the implication that the gift wasn’t really intended for that person. Instead, the trust should leave open the possibility that this person could claim the gift at a future date after the immediate withdrawal window expires.

Problem 3: Beneficiaries Have to Pay Taxes on Their Portion of Crummey Trust Income

Because a contribution to a Crummey trust is a “present interest,” any income generated by that interest ultimately becomes the responsibility of the intended recipient. So, if a stock pays out a regular dividend, the intended beneficiary of the original stock has to report and pay taxes on those dividends every year.

Accordingly, grantors should carefully select assets that can appreciate without producing taxable income — e.g., growth stocks or bonds with non-taxable interest.

How Is a Crummey Trust Different From a 2503(c) Trust?

A 2503(c) trust is one option for parents who want to make future gifts to their children without deducting from their lifetime gift/estate tax exemption.

On paper, the structure of a 2503(c) trust looks very similar to a Crummey trust, albeit with one key exception: the special exclusion rule terminates when the beneficiary turns 21. At that time, the beneficiary is allowed to claim the entire balance of their interest in the trust.

They can opt not to do that, but they must then immediately begin paying taxes on any realized income generated within the trust.

A family can opt to use a 2503(c) trust and have it automatically convert to a Crummey trust, however, in some situations. Refer to an Albuquerque Crummey trust attorney for more guidance.

Get Help Planning for Tax Reductions With an Albuquerque Crummey Trust Law Firm

New Mexico Financial & Family Law has decades of collective experience assisting our clients with trust formation, estate planning, and other essential wealth management matters.

Talk to an experienced attorney at our Albuquerque trust law firm during a confidential consultation with no further obligation. We’ll help you go over the relevant aspects of your financial portfolio and consider your options with reference to your larger estate plans and long-term goals.

Call (505) 503-1637 or contact us online to schedule your no-risk appointment with an Albuquerque Crummey trust attorney today.