Crummey Administration (NJ)

Where Crummey Powers Show Up

Not Just ILITs

• ILITs: Most common—annual gifts cover premiums.

• SLATs/IDGTs: Fund growth assets while keeping gifts exclusion-eligible.

• SNTs: More nuanced—rarely use withdrawal rights for the disabled beneficiary; we sometimes name supporting powerholders (e.g., remainder beneficiaries) so gifts qualify while preserving benefits.

• Kids’ Lifetime Trusts: Use powers to qualify birthday/holiday funding as annual-exclusion gifts.

NJ-Specific Considerations

• No NJ Gift Tax, But… New Jersey has no gift tax, yet NJ inheritance tax can look to transfers within 3 years of death to non-Class A beneficiaries (siblings, nieces/nephews, friends). ILIT/SNLLAT gifts are typically lifetime transfers to a trust, not transfers “at death,” but large, death-proximate funding to trusts with non-Class-A ultimate takers deserves CPA review. We model and coordinate to avoid surprises.

• Probate Reality: Your ILIT and other irrevocable trusts operate outside NJ probate (public, creditor-first, often a 3–7% administrative drag when you total commissions, fees, bond premiums, appraisals, and delay). Proper Crummey administration helps keep them there—clean and uncontested.

• Bargain & Sale Deeds / Funding Maps: If any trust holds NJ real estate (less common for ILITs), we’ll use Bargain & Sale Deeds and keep premium-funding and rent flows separate so Crummey accounting stays clear.

How We Run Your Crummey Process 

1. Design The Trust Right

   • Define eligible powerholders (spouse, kids, grandkids).

   • Set withdrawal windows (commonly 30–45 days).

   • Cap lapses at the 5-and-5 amount; use hanging powers carefully for excess.

   • Add spendthrift and notice provisions (including alternative notice methods like email + mail).

2. Open A Dedicated Trust Account

   • Gifts land in a bank/brokerage account titled to the trustee before premiums go out. No commingling.

   • We avoid “premium paid before notice period ends” pitfalls by funding first, noticing, waiting out the window, then paying.

3. Calendar & Send Notices

   • We issue written notices per contribution (or annually with each gift referenced), by USPS certified mail and email where the trust allows.

   • For minors, notices go to the custodial parent/guardian (no pre-waivers). For adults, we include an optional acknowledgment.

4. Track Lapse/Exercise

   • If a beneficiary exercises, the trustee promptly pays up to their share (we design liquidity to allow this).

   • If no action, the power lapses as authorized (subject to 5-and-5 cap). Any excess is a hanging power we track annually.

5. Coordinate Tax Filings

   • Prepare data for Form 709 (gift tax return)—split-gift elections, ILIT contributions, and GST allocations/inclusion ratios.

   • Archive contribution confirmations, bank statements, notices, and proof of delivery.

6. Annual Audit & Trustee Training

   • Through AMP (Annual Maintenance Program), we run a yearly audit: beneficiaries, addresses, hanging-power balances, trust value for 5-and-5, premium schedule, and compliance memo.

   • Through CCP (Continuing Counsel Plan), we also coordinate with your CPA/EA and CFP®/RIA.

Technical Points

For Professionals

• Present Interest Qualification: Crummey v. Commissioner permits withdrawal powers to convert gifts to present interests; Rosen v. Commissioner supports group powers with real notice/opportunity.

• 5-and-5 & §2041: Lapse amounts over the 5-and-5 can create a general power issue; we cap lapses and use hanging powers with clear tracking. Death with a hanging balance may cause estate inclusion for the powerholder—our annual memo quantifies exposure.

• Number Of Powerholders: More powerholders can multiply annual exclusions but must be bona fide beneficiaries with real rights. Avoid “naked powers” lacking economic substance.

• Timing Of Gifts: Checks are complete when deposited/cleared; wires/ACH when credited. We gift early enough to allow the notice window before premiums are due.

• Waivers: Beneficiaries may exercise or do nothing. We generally avoid proactive “waivers,” especially for minors/guardians.

• GST Allocation: Automatic allocation rules can misfire with ILITs. We set affirmative GST allocations (or elect out) to hit the intended inclusion ratio.

• SNT Sensitivity: For benefits recipients, we generally avoid giving the special-needs primary beneficiary a withdrawal right; instead, we use remainder-beneficiary powers or other structures to keep SSI/Medicaid safe.

• Community Property: NJ is not community property; married donors may elect gift-splitting on Form 709.

Common Mistakes We Prevent

• No Notices / Late Notices: Gifts lose exclusion treatment; 709s become messy.

• Paying Premiums Before The Window Ends: Undercuts the “real right” to withdraw.

• No Proof Of Delivery: Audit risk. We keep certified mail receipts and digital logs.

• Overstuffed Powers Without 5-and-5 Controls: Triggers §2041 exposure or requires complex clean-ups.

• Commingled Accounts: Muddy tracing defeats present-interest proof.

• GST Guesswork: Wrong inclusion ratio = dynastic plan off-track.

• Using The Disabled Beneficiary As Powerholder: Risks SSI/Medicaid; we restructure.

New Jersey ILIT Basics (Quick Hits)

• Trustee Location & Insurance Carrier Coordination: We work with local carriers and ensure premium drafts respect the notice window.

• Policy Review: We run annual in-force illustrations to ensure funding levels match objectives; we’ll recommend 1035 exchanges when warranted.

• Probate Avoidance: ILIT proceeds bypass probate, supporting our philosophy: Probate is for creditors. We build plans for families.

How We Work with You

1. Design & Discovery Meeting (DDM): Choose ILIT/SLAT/SNT structure; set powerholders; define windows; plan annual calendar.

2. Drafting: Trust with Crummey language, HIPAA (Health Insurance Portability and Accountability Act) for medical trusts as needed, trustee guidance.

3. Implementation: Open accounts, move policies, set premium cadence, upload templates to your secure vault.

4. Administration: We run the Crummey cycle each contribution—send notices, track windows, file, and coordinate with your CPA/EA for 709s and GST.

5. Maintenance: AMP (annual audit, trustee training) or CCP (quarterly “Advisor Summits,” ILIT/SRT oversight, QSST/ESBT where S-corp shares exist).

FAQs

Q: How long should the withdrawal window be?
A: Commonly 30–45 days. Short windows can be challenged; we stick to market-standard periods and keep clear proof of timing.

Q: What if a beneficiary actually demands a withdrawal?
A: The trustee pays up to that beneficiary’s share; we design liquidity for that contingency. The plan still works—premiums may be adjusted.

Q: Can we send one annual notice instead of one per contribution?
A: Yes, if the notice clearly references each specific contribution and the trust allows it. We often prefer per-contribution for clean tracing.

Q: Do minors get notices?
A: Yes—through a guardian. Minors can’t waive; they may allow the power to lapse. We document delivery and lapse.

Q: Do Crummey powers hurt SSI/Medicaid?
A: They can if given to the benefits recipient. We typically avoid making the disabled beneficiary a powerholder and use remainder powerholders or other designs.

Q: We forgot notices last year. Can we fix it?
A: We can sometimes mitigate with lifetime exemption usage on Form 709 and tighten administration going forward. We’ll model and advise.