Trusts for Estate Planning

The Charitable Remainder Trust (CRT)
A CRT is perfect for a Grantor who wants to give to charity, wants a big current income tax deduction, but still does not want to give up all benefit of the property to be donated until after death.  This useful tool allows the Grantor a lifetime income as well, but is irrevocable.

Click here for more detail on CRT's

A CRT is considered "outside of your estate" by the IRS. Because of this, you may end up saving as much as 55 cents of every dollar you move to the CRT. Plus, you are not limited in how much you can contribute by the annual gifting limit or the Unified Credit.

In the most basic form of CRT, a pre-selected percentage of the Trust principal's value goes to the Grantor each year for life, with the remainder (i.e., the left over Trust principal) to a charity or educational institution at the Grantor's death. That remainder interest has a value today, established with a financial calculation, using an "assumed" future interest rate. (After all, a promise that property will go to charity in the future is worth something today.)

The CRT is also an excellent tool for those without appropriate beneficiaries. Indeed, in many situations, the CRT is the closest thing to "tax magic" that exists.

A/B Trusts
An A/B Trust allows a married couple to pass a combined estate of $1,300,000 or less to their children without any federal Estate Tax. These trusts enable a survivor or beneficiary to receive assets that are not considered part of the beneficiary's estate and therefore is not subject to the claims of creditors and estate taxes. This form of trust arrangement allows a married couple to pass more of their estate on, first to the surviving partner of the couple when the other dies, and then on to the couple's children.

Often, an Initial Trust, similar to a  simple  Trust is created for one or both of the partners. This trust directed to be split into two new trusts, an A trust, and a B trust, at the time of death of one of the partners. If each of the partners has a trust established for them, then only the trust belonging to the deceased partner is split into these two new trusts. The first, or  A portion of the trust is intended to benefit the surviving spouse during his or her lifetime, the rest (the B portion) is allocated to be passed on to any children or grandchildren the couple may have

The trust is established is such a way  that the federal estate tax shelter limit is deposited into the B portion of the trust. This limit is currently set at  about  $675,000 but is scheduled to be raised in increments to $1 million by the year 2006.

The tax goal of the "B" Trust is to get this money out of the couple's combined estate, so that it escapes estate taxation after the second spouse's death, too - not just the first. To illustrate how this works, let us look at a common - and costly - alternative arrangement.

If a couple uses simple Wills alone, the first spouse to die usually passes his/her entire estate to the survivor with no tax at all, because of the unlimited marital deduction. But in so doing, the chance to use one of the couple's two $675,000 shelters is lost. Upon the second death, only the second spouse's shelter is available. Anything over $675,000 will be heavily taxed. A couple with a $750,000 estate, for example, might needlessly pay Uncle Sam as much as $46,000. A couple with a $1,000,000 estate would lose several times that figure to taxes.

Of course, sometimes the estate is large enough so that the surviving spouse can afford to part with $675,000 upon the first death. If so, no Trust is necessary to make use of the decedent's shelter. One of the decedent's options is to just make an outright bequest of any amount to anybody. The first $675,000 would be sheltered from federal gift and estate tax.

Most families, however, face a major dilemma: Tax planning is fine, but Mom and Dad usually do not want the survivor of them to lose the benefit and security of that $675,000. Keeping control of the full family estate is a much higher priority than tax savings in most family situations.

Fortunately, the law allows the survivor to retain nearly full control over the "B" Trust for practical purposes, and still take advantage of the $675,000 credit shelter. So, property in the "B" Trust will not be included in the estate of the second spouse to die, and thus escapes estate tax. Yet the surviving spouse's rights to property in the "B" Trust include:

• All income produced by the "B" Trust.
• The annual, but non-cumulative right to withdraw the greater of $5,000 or 5% of the "B" Trust principal, for any reason. ("Mad money.")
• The right to invade this principal, but limited to an "ascertainable standard" relating to the survivor's "maintenance, health, support or education." (Precise wording of the Trust is absolutely crucial here to avoid tax trouble.)

What is the survivor not allowed to do with "B" Trust funds? Really, the only prohibited expenditures would probably not be very likely, anyway. "B" Trust money should not be used, for example, to buy a boat or a collection of antiques. (The "A" Trust could be used for such purchases, however.) As a practical matter, the limitations of the "B" Trust are extremely unlikely to constrain the way the surviving spouse chooses or can afford to live.

The "A" Trust (for the"Above-the-ground" spouse) is also called the "Marital Deduction Trust." Property in this Trust is absolutely and completely under the control of the surviving spouse, who can even revoke the Trust at any time. If somebody else is serving as Trustee, he/she/it must take orders from the survivor, if given. Alternatively, the survivor can just fire the Trustee.

The reason the A/B Trust arrangement is so useful is that it provides a means of doing two things: First, it takes advantage of both spouses' $675,000 shelter from federal estate tax - not just one. Secondly, it achieves this tax goal while allowing the surviving spouse maximal use and control of the entire family estate.

The $675,000 shelter is a "use it or lose it" break available only at the time of each person's death. The "B" Trust is a way for the first-to-die spouse to "stake his/her claim" to the credit shelter, to avoid losing it. That is where the big tax benefit comes from.

Strictly from the standpoint of estate tax, the "A" Trust is unnecessary. The survivor has total control over the "A" Trust, and we recall the basic rule presented earlier: There is no tax advantage in that situation. But the other significant advantages of a Trust still weigh in favor of using the "A" Trust. (The alternative is to simply use a "B" Trust for its tax advantage, but give all other property to the surviving spouse outright, with no "A" Trust at all.)

BEWARE ! For any Trust to work at all, it must own property; there must be a formal transfer to it. If the A/B Trust is to be established in a Will, rather than as part of a living Trust, an important step must be taken to get the most (or maybe any) benefit out of each spouse's $675,000 shelter: Each spouse must own $675,000 in assets -separately. This might involve some shuffling of title documents, but it is essential. Why? Remember that, in many families, all property is owned by Mom and Dad jointly, with right of survivorship. If so, this property passes at death, outside the Will(no matter what kind of Will it is). Nothing would then be left to place in the Trusts, and the whole plan would completely fail.

BEWARE ! In community property states, a spouse might have a half interest in an asset, even if his/her name is not on the document of ownership. Therefore, any Trust in one of these states should be drafted with particular care to allow allocation of assets appropriately.

The Life Insurance Trust
This is a widely used, but unfortunate name for a Trust that is not really a special breed. A "life insurance" Trust is just any Trust, usually irrevocable, that is permitted by its terms to buy insurance as an investment. The Trust should be authorized to hold a wide range of investment vehicles, with no requirement that life insurance be purchased.

BEWARE ! The folks at IRS do not like the fact that life insurance enjoys some unique tax advantages. They search for ways to justify taxing it. Although many "Insurance Trusts" are named as such, placing the "I" word on the cover of the document only raises a red flag unnecessarily. It suggests that the Trust was created with tax planning in mind, and might be a good place for the IRS to look more closely. Instead, why not just call it "The Jones Family Irrevocable Trust"?

Why use a Trust to own insurance policies, anyway? First, remember that proceeds from policies you own will be included in your estate, even though paid to a third party. If an irrevocable Trust owns the policy, however, death proceeds can be received by the family income tax-free (as usual), yet not be included in your taxable estate. But a Trust is not necessary to get this result. For example, if a child owns, pays for and is beneficiary of a policy on the life of a parent, he/she can receive the policy proceeds with no tax consequences to anyone.

The real value of using a Trust to hold insurance is to provide for the use and management of the policy proceeds according to your wishes. The beneficiaries might not be old enough to manage a sizeable lump sum of money. Even if age is not a problem, lack of financial and investment savvy might be. Finally, having just lost a loved one, survivors tend to just not care about money matters. This is a terrible time to have to make important decisions. Not coincidentally, it is also a time when grieving spouses are most vulnerable to bad advice and scams.

To avoid estate taxation, the estate owner/insured must avoid all "incidents of ownership" in the policy. Obviously, this is why the insured should not own the policy outright. The IRS, however, looks (way) beyond the obvious for any controlling "strings" or links between the insured estate owner and the policy on his/her life. If any such connection is found, IRS often argues it is an "incident of ownership," requiring that the policy proceeds be included in the decedent's taxable estate. Unfortunately, "incidents of ownership" is not a clearly-defined concept, and the court decisions have not been uniform. So be careful, and seek good advice on this point.

Too often, an irrevocable life insurance Trust is prepared by an attorney as part of a family estate plan, but little guidance is offered on avoiding tax pitfalls. The family breadwinner, for example, often has a life insurance policy already, and is simply told by his/her lawyer to make it a gift to the Trust. That is easily done. It might not be so simple, however, to do it in a way that severs all the insured spouse's "incidents of ownership" in the policy, to achieve the desired tax result. This is a matter on which professional tax advice should be sought.

Ideally, somebody other than the insured (or spouse) should be used as the Grantor of the Trust (e.g., an adult child) to apply for and buy the policy to begin with. If the child lacks funds to pay the premiums, this can be handled by unrestricted parental gifts of less than $10,000 per child from each parent, each year. Parents can always voice their desire as to how their gifts should be spent. But if a formal agreement were made that the gifts would be used for insurance, IRS might consider that an "incident of ownership" in the policy by the parent. On the other hand, one has to assume the kids are not stupid. If they are not, it should be clear that future gifts would be in serious doubt if this year's money is used to make a down payment on a $50,000 car.

Often, it is just not practical to obtain new life insurance. If the ideal situation is not attainable, you should recognize several potential problems to work around. Again, these arrangements should not be made without the advice of an attorney and/or accountant experienced in these matters.

An existing policy can avoid inclusion in your estate if transferred to an irrevocable Trust (and if you, as the insured/former owner retain no "incidents of ownership"). Try to wait three years before dying, however. Policies transferred to a life insurance Trust within three years of death will be included in the estate anyway. (No other property is treated this way.)

When we speak of "transferring" life insurance policies here, it is always meant that the transfer will be a gift, and this is important. As a piece of property, an existing life insurance policy may also be sold by its owner. But in this situation, the special tax treatment given to the insurance is lost. The buyer is treated as having made an ordinary personal financial investment, and the proceeds will be taxed as income when received.

In the intra-family context, accordingly, there should ever be anything of value exchanged when a life policy changes hands. There is still the federal gift tax to consider, however. The taxable value of the policy must be established, and this is not always easy. (Remember that a policy placed in Trust, is not a gift the beneficiaries can presently use, so the annual $10,000 gift tax exclusion is not available. The policy cash value is often worth more than $10,000, anyway.)

A favorite area of IRS scrutiny is the source of premium-payment funds into the Trust. If it is determined that the funds are, in practical terms, under the insured's control, the proceeds may be included in his estate, even though the policy is owned by the Trust. (That is why, although the insured estate owner might hope his gifts will be used for premiums, the gifts must truly be free and clear, with no requirement as to how the money is spent.) Certainly, too, the insured should not be a Trustee of the life insurance Trust or the policy proceeds may be included in his/her taxable estate.

The Trustee of an irrevocable life insurance Trust must be viewed by IRS as truly independent. Of course, the Trustee is made well aware of the family's situation and desires, and might be expected to honor them. But he/she/it cannot just be a stand-in for the insured estate owner. (That is one advantage of using an institutional Trustee.) If the Trustee is believed to be a mere puppet of the Grantor, the policy proceeds will not be removed from the taxable estate. The primary (but not the only) purpose of the Trust would then be defeated.

TIP: Remember, too, that when IRS challenges something - like the independence of a Trustee - the examination is done after the fact, with 20/20 hindsight. The examiners do not care how good an arrangement looks "on paper." The focus is on what actually happened, and what the final result was. (This advice applies to all tax questions and strategies, not just Trusts. That is why it is pointless to get too "cute" with one's tax planning.)

BEWARE ! Sometimes, people run into trouble just because of what could have happened under the terms of the Trust in question. Example: Assume the Trustee of your life insurance Trust is not specifically prohibited from expenditures in fulfillment of your legal obligations, i.e., the Trustee could buy groceries for the kids, without violating the terms of the Trust document. (Remember, the Trust might well have liquid assets during your lifetime, besides the policy.) Assume further that the Trustee never did so, or had any thought of it. Still, IRS might argue that IF you had been in a bind, the Trustee could have helped you out. Therefore, your so-called "irrevocable insurance Trust" was just a nice, big safety net, that you were fortunate enough not to need. So, IRS might say, never mind the Trust; the policy proceeds should be included in the taxable estate anyway.

Click here for more detail on Insurance Trusts

The Generation-Skipping Trust
This is an irrevocable arrangement that provides income only, not access to Trust principal, to the Grantor's spouse and/or children. It terminates when all have reached a specified age or died, with Trust principal then distributed to grandchildren.

Under a "loophole" in prior law, by skipping over the children in the final distribution of principal, a Grantor could save gift and estate tax.  Now, such transfers are taxed at the maximum federal gift and estate tax rate of 55%.  BUT, there is a cumulative exemption of $1,030,000 (adjusted annually for inflation) per donor that can be used to avoid tax on generation skipping transfers (by Trust or gift) during the donor's lifetime, or at death. 

Medicaid Trusts
These Trusts were designed to hold assets that were "given away" to impoverish the Trust Grantor, in order to qualify for Medicaid benefits. The purpose was to preserve one's life savings for the children, rather than see that sum quickly disappear, should nursing home care become necessary. These Trusts are seen in many variations, which all should be considered obsolete, and unsuitable for almost every purpose or situation.

This was a tricky game, even before the 1993 tax law. Under prior law, the Grantor was allowed to derive significant benefits from a Trust he himself created. Now, if a Grantor sets up a Trust, and there are any strings attached or possible benefits to the Grantor, the assets are not protected from Medicaid.

Today, an asset transfer to any irrevocable Trust within a "look back" period of five years of applying for a Medicaid nursing home bed is presumed by law to have been made in order to qualify for Medicaid. (Note that if one simply gives away an asset outright (not into a Trust), the "look back" period for determining Medicaid nursing home coverage is not five years, but only three years.) This triggers a disqualification period of potentially unlimited duration, depending on the value of property transferred. If this is not a sufficient disincentive, there's more: In 1997, pursuing or assisting another in these Medicaid impoverishment strategies became a violation of federal criminal law, subject to one year in prison. The new law was promptly and widely criticized as ambiguous, unworkable and basically stupid. Later in 1997 it was amended, so that if Grandma does her own impoverishment "planning" she will not be thrown in jail. Anyone who - for a fee - dares advise her to do this, however, is still presumably breaking the law. Meanwhile, my advice is to just forget the whole idea.

Federal and state budget battles will continue over funding Medicaid, in general, and nursing home care, in particular. Although the precise outcome cannot be forecast with certainty, clearly it is going to become much more difficult to qualify for shrinking Medicaid benefits. Many observers fear that quality standards and regulatory enforcement will suffer under budgetary pressure. One must hope that resources always will be available to the truly needy. To purposely plan on Medicaid coverage as a first option, however, seems unwise, at best.

Remember, too, that there is almost certainly a shortage of "Medicaid beds" in your community. The state contracts with various facilities, but pays a rate up to 30% lower than the "private pay" rate, so the nicer places often do not participate in Medicaid. For all these reasons, I feel strongly that Medicaid Trusts generally have lost their usefulness.

The Qualified Terminable Interest in Property (QTIP) Trust

This is a good arrangement for those entering second marriages with substantial estates already. It provides lifetime income for the surviving current spouse, while leaving the remainder of Trust property to the children of a previous marriage (or others). In other words, although the surviving spouse has an income interest in the QTIP Trust , he/she cannot decide to whom the property shall pass after his/her death. Distributions are not permitted from a QTIP Trust to anyone but the surviving spouse during his/her lifetime.

A bequest to a QTIP Trust, by law,"qualifies" for the unlimited marital deduction for estate tax purposes, even though the surviving spouse's rights to Trust assets are less than total. (Ordinarily, a bequest to a spouse would not be able to take advantage of the marital deduction unless it were given outright - free and clear, with no limitations as to how or to whom the surviving spouse could dispose of the property.) This is important because it avoids (or at least delays) the imposition of federal estate tax on the property placed in the QTIP Trust. Note that all Trust assets are included in valuing the survivor's estate for tax purposes, just as they would be if left outright to the survivor.

The Grantor Retained Annuity Trust
The GRAT is an irrevocable Trust, good for shifting some of the value of an asset out of the estate. The Grantor places assets in Trust for the ultimate benefit of the children (i.e., they have a remainder interest), but retains the right to an annual pay out for a period of years.

Example: Grantor creates a GRAT and transfers $300,000 in mutual fund shares into it. The Trust provides that the Grantor will get a $6,000 annual pay out for 15 years, after which the Trustee will make a complete and final distribution of the shares to the Grantor's children.

At this point, there has been a taxable gift - but not of the full $300,000, because there are "strings" attached. After all, the money is not available to the children for 15 years. This is how tax savings are possible. At the end of 15 years - IF the Grantor is still alive - the value of the mutual fund shares, including any price increase, will have been removed from Grantor's estate and will not be subject to tax upon his death. The GRAT is also a good way for the owner of a growing, closely held business to retain an income for himself, while passing the business along to his heirs before any more (taxable) growth occurs.

By accepting some gift tax liability at the time the GRAT was set up, the Grantor has reduced his estate tax liability later, and the heirs end up with more. If the grantor dies within the term of the Trust, all property is included in the estate, and there are no tax consequences - just as if nothing had been done.

The key to the GRAT technique (and the Charitable Remainder Trust) is the relative values given the two interests involved: The gift of the remainder interest in the Trust principal, and the value of what the Grantor has retained - the present right to collect a certain cash pay out from the Trust each year for "X" years. There is a financial calculation that depends on the current interest rate published by IRS, the number of years during which Grantor will take the Trust payout, and the amount of the payout. The greater the annual pay out, and the number of years of payments, the greater will be the value the Grantor has retained for himself, and the smaller will be the value the IRS gives to what is left over, which is the taxable gift. (In the CRT, of course, "what is left over" goes to charity, so there is no taxable gift. This value will therefore be the amount of the donation and current income tax deduction.)

The Qualified Personal Residence Trust
The QPRT is an irrevocable Trust, similar in concept to a GRAT, with a confusing name. It is a good method of shifting the value of the family home out of your estate, for the purpose of lowering the ultimate estate tax.

The house is placed into Trust for the future benefit of the children. The value today of this remainder interest is a taxable gift. As with a GRAT, the Grantor accepts some federal gift tax liability now, to save more on federal estate tax later. What is retained here by the Grantor is not income, but the right to live in the house for a term of years. If the Grantor outlives that term, the value of the house - plus any property appreciation since it was transferred to the Trust - passes to the children with no additional federal estate tax. As with a GRAT, if the Grantor does not survive the term of the Trust, it has no tax effect.

The QPRT does, however, have two significant drawbacks: First, the children will have received the house by lifetime gift, not inheritance, so there is no step-up in the tax basis of the property. For homes purchased decades ago at a fraction of today's price, this means that income tax (at the 28% capital gains rate) must be paid on the increase in value - if the property is ever sold by the children. (Recall that, because the basis of inherited assets is "stepped up," a lifetime of value appreciation can totally escape income taxation.) Secondly, if the Grantor does survive, he/she must start paying the children fair market rent, or the IRS might look at this as a sham transaction. Payment of rent can be viewed as a further opportunity to pass wealth to the children, while decreasing the size of the taxable estate. A long term lease can provide the security they seek, if the payments are real and reasonable in amount. But this adds an element of insecurity to the arrangement and is difficult to accept psychologically for many people.

Note that a new tax regulation - applicable to QPRTs created after May 16, 1996 - has eliminated the common technique of permitting the Grantor the right to buy back the residence for his continued occupancy at the end of the Trust term. Now, the Trust document must specifically prohibit such a buy back. Indeed, this area is a good example of how the IRS looks at the "substance" of an arrangement over its "form," scrutinizing "cute" transactions and changing the rules in the middle of the game, when necessary. So even if one has a QPRT created prior to the regulation's effective date, the "buy back" technique should be used only with great caution, if at all.

Note, finally, that even if your state has an inheritance tax, it might well have no gift tax. If not, the QPRT (and the GRAT, above) can also save state death tax. If the Grantor outlives the Trust, the house would be considered a gift, not subject to the state tax, if any, on inheritances.

Click here for more detail on QPRTs

The Crummey Trust
This Trust takes its name from the court decision in the case of Mr. Crummey versus the IRS. The Grantor's motivation is to create an estate for his/her survivors, through annual gifts, made in a way that discourages the beneficiaries from spending the gifts immediately. The simple way to do that is to make outright gifts, and just tell the recipients of your wish that the money be saved for college, for example. Sometimes, however, a large estate owner has many gifts to make over the years to many people, and lacks confidence that these wishes will be consistently honored by all. This might be due to the immaturity of the beneficiaries. Frequently, too, the estate owner is most concerned about a beneficiary's spouse pressuring the beneficiary to spend any gift money as soon as the check arrives. In that situation, the Crummey Trust is often used.

This Trust was "invented" by Crummey's attorney so that his client could make gifts in Trust, but still take advantage of the $10,000 annual gift tax exclusion from federal gift and estate tax ($20,000 per married couple). That is the important feature of the Crummey Trust because, as we will see, gifts to many other kinds of Trusts do not qualify for the $10,000 annual exclusion.

The Crummey Trust is a means of serving two of the Grantor's purposes: First, annual gifts are a great way to slowly reduce the taxable estate, while passing along wealth to the next generation. As long as the gifts are made in $10,000 (or less) "chunks" that qualify for the annual estate and gift tax exclusion, none of the estate owner's $675,000 tax shelter is wasted on them, so it can be saved for use at his death. More total wealth is thus protected from tax. Secondly, when the gifts pay for insurance on the estate owner's life, the ultimate benefit to the children can be far greater than the amount given, because the policy proceeds at death might be more than the premium dollars paid to that point. For this reason, the Crummey Trust is commonly used as part of the estate owner's life insurance plan, although it does not have to be.

One faces special problems when making gifts in Trust, however. The $10,000 annual tax exclusion pertains only to gifts of a present interest in property (e. g., cash, free and clear) - not a future interest. Many people are not aware of this restriction. It means that a gift to many Trusts would NOT qualify for the tax exclusion: Since the terms of many Trusts would not allow the beneficiaries to have unrestricted, immediate access to that gift, it would be a non-qualifying gift of a future interest.

The Crummey Trust is intended to get around this problem. Gifts are made to the Trust, which is irrevocable. (The Grantor cannot end the Trust or take his/her money back, although future gifts can certainly be halted, if desired.) The Crummey Trust beneficiaries are given only a short period of time each year (e.g., 30 days) in which they are permitted by the Trust document to withdraw the gift money from the Trust, free and clear, for completely unrestricted use.

The Grantor hopes they will not do that - and is free to say so - but there can be no formal agreement that the gift money will not be withdrawn. Likewise, there can be no formal requirement that the Trustee pay life insurance premiums with the gift money, although that is very often the Grantor's stated desire.

The right to withdraw the gift must not be illusory, and the Crummey Trust beneficiaries must be formally advised of it in a letter each year. In the original Crummey case, the court decided that this limited access is enough to make the gift a present interest. On these conditions, the gift to a Crummey Trust qualifies for the annual $10,000 gift tax exclusion. It is fair to call the Crummey Trust a tax "gimmick," but one that is perfectly legal and very widely used.

Unfortunately, absolute technical compliance with the law - each and every year - is burdensome. Yet a failure to comply could have terrible tax consequences. Not surprisingly, these Trusts face particularly close IRS scrutiny. Potentially worse, the Crummey Trust rules are subject to modification. As a creature of past and future judicial decisions, rather than statute, these rules are not written in stone.

The Crummey Trust is a very common feature of estate plans designed by good estate planning attorneys. For the above reasons, however, it should be used with CAUTION. Fortunately, we will shortly see that, in many cases, there are "safer" ways to make gifts to the children in Trust, while getting the benefit of the $10,000 annual exclusion from gift tax.

Again, there is a simple alternative to the Crummey Trust, that should work fine for many families with mature children as beneficiaries: Make an outright gift of cash, without using a Trust, but announce the "hoped for" use of it, e.g., the purchase of insurance on your life, grandchild's college fund or other investment. If your son-in-law takes the gift and buys a fishing boat instead, maybe then see a lawyer about drafting a Trust. (Of course, any money given to the children this way would be included in their estates - IF they haven't spent it before they die.)

Remember, though, any asset purchased, including life insurance, will be the child's property. As such, it is subject to the claims of his/her creditors, and to the risk of being "cashed in" later and spent. That is why people use Trusts to begin with. It might be that the beneficiaries can be relied upon to at least initially honor the donor's wishes, but the donor is worried about his childrens' future temptation to spend the gifts. If this is the situation, consider using an irrevocable Trust, but without the Crummey provision. In other words, give the money outright, but "hope" it is immediately re-gifted to the Trust for the intended use. Such a gift will qualify for the $10,000 annual gift tax exclusion, without having to jump through the Crummey "hoops." Once this re-gifting is done, there would be no purpose for the Crummey provision; that year's gift would be safely in Trust and untouchable by the beneficiaries if they are tempted later to get to it. (Remember, however, that the child making a gift into a non-Crummey Trust would be using up his/her own $675,000 federal gift and estate tax shelter. Depending on the likely size of the child's estate, this might or might not be an important consideration.)

F.Y.I. Irrevocable Trusts, generally, are useful for holding property expected to increase in value. Decades of price appreciation can be excluded from one's estate if it occurs after that property is irrevocably placed in Trust. This is terrific - as long as the estate owner does not decide later that giving away the property was a mistake.