"Crummey Letters"

It is necessary for a trustee to send a notification letter (sometimes called a "Crummey Letter") to beneficiaries upon a gift to a trust when the trust contains withdrawal rights.

This is used with irrevocable trusts to qualify any gifts for the $10,000 annual gift tax exclusion under Internal Revenue Code Section 2503.  This is very commonly used in Irrevocable Life Insurance Trusts (ILITs).

Trustees of ILITs should send notice to trust beneficiaries of their withdrawal rights  ("Crummey Letters") immediately after any assets are transferred to the trust.  Evidence of these notices must be kept for Internal Revenue Service record keeping requirements.  The trustee may consider forwarding signed copies of these notices to their attorney for their files as well.

Here is a sample "Crummey Letter".