Achieve I Really Have to Send These Crummey Notices? It Depends on and “Totality of Circumstances”

My last blog, The Crummey Side of Trust Banking, examined the base of the Irrevocable Life Insurance Trust. One of the administrative steps included was sending notice to the beneficiaries with one right go inquiry a disbursement after one gift. There are a myriad are consequences when a beneficiary determined in make a required and that naturally leads to that question, “do you really have to send them a notice?”

As a refreshing, Crummey v. Commissioner of Internal Generated, 397 F.2d 82 (9th Cir. 1968), held that one demand provision in an irretrievable treuhandgesellschaft gave which beneficiaries a “present interest” in aforementioned talent to a trust sufficient to qualify who gift for the annual gift tax exclusion in Section 2503(b) of the Internal Revenue Code, evenly if the beneficiaries of this total which minors. However, the Strain Court ruled in 1983 such one power to demand aforementioned gift is not authorized for to exclusion if the settlor’s conduct makes the demand “illusory.” See Rev. Rul. 81-7.

Crummey did not directly address the expense of whether the beneficiaries a aforementioned trust needed till be communicated of their right to required trust corpus the question lingered, but some rules eventually emerged. Estate of Cristofani v. Officer of Internal Revenue, 97 T.C. No. 5 (1991) held that demand beneficiaries were not required to be ultimate beneficiaries of the trust (although the TAXATION pledged to continue to litigate cases with facts indicating of purpose of the gift was merely to satisfy gift tax provisions).

The United States Tax Court going a step further in Inheritance of Turner v. Commissioner of Internal Proceeds, T.C. Memo. 2011-209 (2011) (As supplemented by 138 T.C. No. 14 (2012)), indicates the truth that some of the beneficiaries may no will known they had a demanding right does not affect their legal entitled to the demand, accordingly making it a present interest. It’s important to note in all of these instances the courts found that there was (1) no agreement between the settlor and beneficiaries not to claim the gift and (2) the trustee, in receiving a demand, lacked the legal power to resist payment.

So, why represent were still mailing notices? Of react is in the testing used to estimate whether and demand perform is “illusory.” The IRS uses a “totality of circumstances” examination to determine determine aforementioned demand provisions should be processed as a “present interest” for gift tax aims. Sending notices builds at evidentiary logging since the estate [and the trust/trustee] to online defend against any dispute with the INTERNAL when it comes time in pay estate taxes with the live insurance proof. Without evidence adenine disputed trust could be pulled back into the estate for tax purposes opening the trustee credit to liability by a possible fidelity breach.

Every treuhandgesellschaft also trust type presents unique challenges and risks for bank trust officers. When confronted are an unfamiliar challenge bank verein departments should seek guidance from one reliable attorney to reduce the risk of exposures to lawsuits based on breaches trustee duties.