Gifts to a trust are normally gifts of a future interest, which do not qualify for the annual gift exclusion. A Crummey power fixes that: each beneficiary gets a temporary right, typically 30 days, to withdraw their share of each gift, which makes it a present interest. The trustee sends a Crummey letter announcing the gift and the withdrawal right. When nobody withdraws, the trustee pays the premium. For 2026, each beneficiary can shelter up to $19,000 per donor, though the 5-and-5 lapse rule can limit how much of a lapse is tax-free for the beneficiary.
We are licensed insurance brokers, not CPAs or attorneys. Treat the tax and legal points on this page as general education, and confirm them with your own CPA or attorney before acting.
On this page
Why the letters exist
The annual gift exclusion ($19,000 per recipient in 2026) applies only to gifts of a present interest, something the recipient can use now. Money you put into an irrevocable life insurance trust normally does not qualify, because beneficiaries only benefit later. Without a workaround, every premium you fund would use up lifetime exemption and require a gift tax return.
The workaround comes from a 1968 court case, Crummey v. Commissioner, which approved giving trust beneficiaries a temporary right to withdraw contributions. That right makes each contribution a present interest.
How it works each year
- You gift money to the trust's bank account, enough to cover the coming premium.
- The trustee sends each beneficiary a written notice: the amount contributed, their share, and that they may withdraw it within a set window, often 30 days.
- Beneficiaries do not withdraw (they are not required to promise that, and there must be no agreement that they will not).
- The window lapses and the trustee pays the premium.
- The trustee keeps copies of the notices and any acknowledgments.
A couple's ILIT has three adult children as beneficiaries and an annual premium of $90,000. With gift splitting, each child can receive up to $38,000 of annual exclusion gifts from the couple ($114,000 total), so the full premium can be gifted to the trust within annual exclusions, provided the trust gives each child a Crummey withdrawal right over their share.
The 5-and-5 lapse rule
When a beneficiary lets a withdrawal right lapse, tax law can treat that as the beneficiary making a gift to the other trust beneficiaries. Under Sections 2514(e) and 2041(b)(2), a lapse is tax-free to the beneficiary only to the extent it does not exceed the greater of $5,000 or 5% of the trust's assets. Withdrawal rights above that amount can create gift tax issues for the beneficiary. Attorneys handle this with "hanging" powers that lapse gradually, by limiting withdrawal rights to the 5-and-5 amount, or by trust design. Ask your attorney which approach your trust uses.
Common mistakes
- Paying the premium directly to the insurance company instead of gifting to the trust account.
- Skipping notices, or sending them after the premium was already paid.
- Giving the trust too little time between gift and premium for the window to run.
- Implied agreements that beneficiaries will never withdraw.
- Not filing gift tax returns when your accountant recommends them.
Timing
Annual exclusions reset each January 1 and do not carry forward, so plan gifts with premium due dates in mind. Many families gift early in the year so the withdrawal window closes well before the premium is due, or make a December gift for a January premium. Our year-end checklist includes this step.
Frequently asked questions
What is a Crummey letter?
A written notice from a trustee to a trust beneficiary saying a gift was made to the trust and the beneficiary has a temporary right to withdraw their share. It allows gifts to the trust to qualify for the annual gift tax exclusion.
How long should the Crummey withdrawal window be?
Many trusts use 30 days, and the IRS has generally accepted windows of that length. Very short windows invite challenge. Follow your trust document.
Do Crummey letters have to be sent every year?
For each gift you want to qualify for the annual exclusion, yes. Some trusts allow a one-time notice covering future gifts, but many attorneys prefer annual notices for clean records.
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Written by Erik Moran
Erik co-owns Moran Insurance Group with Amanda Moran and handles the agency's life insurance cases, from key person and buy-sell coverage to trust-owned policies. He works alongside clients' CPAs and attorneys, who make the tax and legal calls. More about Erik.
Sources
Moran Insurance Group is a licensed insurance agency. Our brokers are not CPAs, attorneys or tax advisors, and nothing on this page is tax, legal or investment advice. Tax figures and rules reflect our understanding as of October 2026 and can change. Coverage is subject to carrier underwriting and state availability. Confirm anything tax or legal with a licensed CPA or attorney before you act on it.