Probate & Trust Law Section Conference Manual ... - Minnesota CLE

2013 Probate and Trust Law Conference
Dealing with Dastardly Drafting Dilemmas:
Solving Problems in Advance
Crummey Power Provisions (Hinds)
Crummey power provisions can be troublesome, although we rarely consider them once they are
infused into our forms. The complexity of issues that need to be addressed is substantial. These
include (1) establishing the amount subject to withdrawal and “hanging powers” to prevent
unintended gifts; (2) identifying the contributor for gift and GST purposes, especially split-gift
allocations for married couples and by future contributors who were not the original settlor of the
trust; (3) gifts to multiple trusts in a particular year and deciding which gifts are subject to the
power or not; (4) identifying who is granted a power and how the powers are allocated (e.g.,
children, grandchildren, spouse, etc.); (5) dealing with “indirect gifts” such as premium
payments on insurance policies owned by the trust; (6) how to deal with powers that continue to
hang or contributions to a “successor trust” after the initial trust has been terminated and divided
into separate trusts; (7) properly lapsing the power that is hanging, especially when there are
multiple trusts with hanging powers from different eras; (8) the manner in which notice may be
given in a way to permit application of the annual exclusion but also not to create liability for
trustees who fail to give written notice (including to minors or those under disability); (9) trustee
options for satisfying a withdrawal request, if one is received; (10) whether discretionary
distributions from the trust reduce the withdrawal power, as if requested by a beneficiary-powerholder;
(11) excluding beneficiaries from being granted a power to withdraw for future gifts;
(12) protecting against forced exercise in bankruptcy, divorce or otherwise, to the extent
possible; (13) whether a power should be granted to the spouse of the contributor; and
(14) whether the power can be amended by the trustees at a later date.
The greatest fear, however, is whether the power is effective if a Crummey letter is not sent to
the beneficiary. The IRS position on the notice that is sufficient to allow the annual exclusion
may not, in fact, be the law. If you mandate written notice in the trust agreement but it is not
given and the power lapses before notice if given may result in disallowance of the annual
exclusion. Therefore, this form essentially permits ANY type of notice, in written or oral form
and by any method to be sufficient. That permits evidence that sufficient notice of contributions
was given, even in the first year to qualify. Also note that a power does not lapse until actual
notice is received by the beneficiary and continues to hang.
ARTICLE 1. POWERS OF WITHDRAWAL
1.1 Powers Of Withdrawal. The following shall apply to all powers of withdrawal
with respect to any trust established by this Agreement:
Generally, No Spousal Power of Withdrawal Should be included
(1) Grant Of Power Of Withdrawal To My Spouse. If my Spouse is living at the time
of a Contribution, my Spouse shall have the power to withdraw property from the
Trust Estate of such trust (including the contributed property) in an amount equal to
the value of the contributed property (as of the date of such Contribution); provided
1