Crummey Withdrawal Notice

CRUMMEY WITHDRAWAL NOTICE

DATE: [__/__/____]

TO: [________________________________], as Trustee of the [________________________________] Trust dated [__/__/____]

NOTICE OF WITHDRAWAL RIGHT

Dear [TRUSTEE NAME]:

This letter constitutes formal notice that the following contributions have been made to the above-referenced trust, and that each beneficiary listed below possesses a right to withdraw funds from such contributions during the withdrawal period specified herein.

1. CONTRIBUTIONS TO TRUST

Total Contribution: $[____________]

2. BENEFICIARIES AND WITHDRAWAL RIGHTS

Each beneficiary listed below is entitled to withdraw the amount specified opposite their name. The withdrawal right shall lapse on [WITHDRAWAL LAPSE DATE], which shall be no less than thirty (30) days from the date of this notice.

3. MANNER OF EXERCISE

To exercise the withdrawal right, the beneficiary (or, if the beneficiary is a minor or incompetent, the beneficiary's legal guardian or authorized representative) must:

a) Provide written notice to the Trustee at the address below;

b) Request withdrawal of the specified amount;

c) Such request must be received by the Trustee on or before [WITHDRAWAL LAPSE DATE]; and

d) The Trustee shall pay or deliver the withdrawn amount within a reasonable time thereafter, but in no event later than [30 DAYS AFTER EXERCISE].

4. AUTOMATIC LAPSE

If a beneficiary does not timely exercise the withdrawal right, such right shall automatically lapse at 11:59 p.m. on [WITHDRAWAL LAPSE DATE]. After such lapse, the beneficiary shall have no further right to the contributed amount, and the funds shall remain part of the trust principal, subject to the terms of the trust instrument.

5. TRUSTEE CONTACT INFORMATION

Trustee Name: [________________________________]

Address: [________________________________]

Phone: [________________________________]

Email: [________________________________]

6. EFFECT OF LAPSE

Beneficiaries are advised that:

• The right to withdraw is completely voluntary. No agreement, express or implied, obligates any beneficiary to refrain from exercising this right.

• Failure to exercise the right does not affect the beneficiary's other interests in the trust, if any.

• The lapse of the withdrawal right may have income tax consequences under IRC § 678 and generation-skipping transfer tax consequences under IRC § 2611(b), depending on trust structure and beneficiary relationships. Beneficiaries should consult with their personal tax advisors regarding the tax consequences of allowing this right to lapse.

7. ACKNOWLEDGMENT OF RECEIPT

To be completed by or on behalf of each beneficiary:

I acknowledge receipt of this Crummey Withdrawal Notice dated [__/__/____] regarding contributions to the [________________________________] Trust.

SOURCES AND REFERENCES

• Internal Revenue Code § 2503(b) – Gift tax annual exclusion for gifts of present interest
• Internal Revenue Code § 2503(c) – Minor's trust alternative (no withdrawal notice required)
• Internal Revenue Code § 2514 – Powers of appointment; the "5×5 rule" limiting lapsed withdrawal rights
• Internal Revenue Code § 2611(b) – Generation-skipping transfer tax consequences of power lapse
• Crummey v. Commissioner, 397 F.2d 82 (9th Cir. 1968) – Withdrawal rights constitute present interest
• Rev. Rul. 73-405 – IRS acquiescence to Crummey withdrawal power doctrine
• Rev. Rul. 81-7 – Requirement of actual notice to beneficiary for present interest treatment
• Letter Ruling 199912016 – IRS standards for adequate notice and withdrawal period
• Technical Advice Memorandum 9532001 – Failure to provide timely notice defeats present interest
• Treas. Reg. § 25.2503-3(b) – Definition of present interest in gift tax context

DRAFTING NOTES

Withdrawal Period: Most practitioners use 30 to 60 days. The IRS position (Rev. Rul. 81-7) requires "adequate time" to exercise the right; 30 days is generally considered safe harbor.

Multiple Gifts in One Year: If multiple contributions occur in the same calendar year, ensure that the cumulative withdrawal rights across all gifts do not exceed the annual exclusion ($19,000 in 2026) per beneficiary. Coordinate lapse dates or track cumulative amounts.

5×5 Rule (IRC § 2514): If withdrawal rights exceed the greater of $5,000 or 5% of trust principal and lapse, the lapse may be treated as a taxable gift by the beneficiary to the remainder beneficiaries, or as a transfer subject to generation-skipping tax. For ILITs with multiple beneficiaries, ensure the trust corpus is large enough (at minimum $380,000 if annual gifts are $19,000) or limit withdrawal powers to sole beneficiaries.

Record-Keeping: Maintain copies of all Crummey notices and acknowledgments with the gift tax return (Form 709) and trust records for the applicable statute of limitations period (minimum 6 years, longer if the return is substantially incomplete).

Alternatives:§ 2503(c) minor's trusts do not require Crummey notices but require distribution of principal and income at age 21. Direct Skinny Gifts (to beneficiary, not trust) or outright gifts avoid Crummey complexity but sacrifice trust control and creditor protection.