Crummey Notice Administration in New Jersey

TL;DR: Crummey notice administration is the annual recordkeeping discipline that preserves the federal gift-tax annual exclusion for contributions to irrevocable trusts. For 2026, the exclusion is $19,000 per donee. If notices are not properly sent and documented, the IRS may recharacterize contributions as future-interest gifts that do not qualify for the exclusion.

Crummey administration is above all a recordkeeping discipline. The trust may be perfectly drafted, but the annual gift-tax exclusion depends on whether each contribution is treated as a present-interest gift — and that requires a real, documented withdrawal right paired with a trustee file that can prove the beneficiary had a meaningful opportunity to exercise it.

The concept comes from Crummey v. Commissioner, 397 F.2d 82 (9th Cir. 1968). The case is old, but the practical issue is current: irrevocable life insurance trusts, gift trusts, and some dynasty trusts still rely on temporary withdrawal powers so annual contributions can qualify for the federal gift-tax annual exclusion.

Under N.J.S.A. 3B:31-1 et seq. (the New Jersey Uniform Trust Code), trustees owe duties of prudent administration, recordkeeping, and communication to beneficiaries. Crummey notices are federal tax notices, but in New Jersey they also become fiduciary records that a trustee must maintain under the standards imposed by the NJ UTC.

The 2026 Annual Exclusion Baseline

For 2026, the IRS annual gift-tax exclusion is $19,000 per donee under 26 U.S.C. § 2503(b). A married couple that makes a valid gift-splitting election under 26 U.S.C. § 2513 may generally treat a gift as made one-half by each spouse, but gift splitting has its own Form 709 requirements and should be coordinated with the donor’s tax preparer.

The exclusion only applies to gifts of a present interest. A contribution to a trust is usually a future interest unless the beneficiary has a presently exercisable withdrawal right. The Crummey notice is the trustee’s proof that the right was communicated and available.

N.J.S.A. 3B:31-10 requires trustees to keep qualified beneficiaries reasonably informed about the trust and its administration. A beneficiary who never receives a Crummey notice may have grounds to question whether the trustee satisfied both federal tax requirements and New Jersey fiduciary duties.

What the Trustee Must Do

1. Confirm the Gift Before Sending the Notice

The trustee should know the contribution date, donor, amount, trust account receiving the funds, and beneficiaries entitled to withdrawal rights. For an ILIT, funds should generally move into the trust account before premiums are paid, rather than going directly from the donor to the insurance company.

Under N.J.S.A. 3B:31-68, a trustee must administer the trust in good faith and in accordance with its terms and purposes. Confirming the gift before sending notice is part of that duty.

2. Calculate Each Withdrawal Right

The trust instrument controls the formula. Some trusts give each beneficiary a share of each contribution. Others cap the right at the annual exclusion. The trustee also needs to track prior “hanging” withdrawal powers if the trust uses them.

The calculation should be documented in writing. A trustee who cannot reproduce the math behind a withdrawal right may struggle to defend the present-interest characterization if the IRS examines the trust.

3. Send a Written Notice

The notice should identify the trust, trustee, contribution amount, beneficiary’s withdrawal amount, deadline, and method for exercising the right. For minors, the notice should go to the person authorized to act for the minor under the trust or applicable law.

N.J.S.A. 3B:31-10(b) allows a trustee to provide information to a representative of a minor or incapacitated beneficiary. For Crummey purposes, this often means sending the notice to the minor’s parent or guardian, but the trust terms should authorize that approach.

4. Let the Window Run

The withdrawal period must be meaningful. Many trusts use 30 days. Very short windows, late notices, or informal understandings that beneficiaries “should never withdraw” make the right look less real.

The IRS has scrutinized windows as short as 14 days. While there is no statutory minimum under New Jersey law, a trustee should use a window long enough to demonstrate that the beneficiary had a genuine opportunity to consider the right.

5. Record the Result

If no withdrawal is made, the trustee should note the lapse date and retain the notice, proof of delivery, contribution record, and trust ledger. If a beneficiary exercises the right, the trustee must honor it according to the trust terms. A withdrawal power that cannot actually be exercised is not a present interest.

Under N.J.S.A. 3B:31-68, the trustee’s good-faith duty includes maintaining accurate records. A complete Crummey file is the best defense against both IRS challenge and beneficiary claim.

The 5-and-5 Issue

A lapse of a withdrawal right can have gift-tax consequences for the beneficiary who allowed the power to lapse. I.R.C. § 2514(e) provides a commonly used safe harbor for lapses not exceeding the greater of $5,000 or 5% of the trust property. When annual withdrawal rights exceed that amount, the excess may be structured as a “hanging” power that remains outstanding and lapses only as later safe-harbor capacity becomes available.

Hanging powers are not a casual add-on. They require a running schedule for each beneficiary. The trustee should be able to say, year by year, what amount was created, what amount lapsed, and what amount remains outstanding.

For New Jersey trustees, hanging powers also implicate N.J.S.A. 3B:31-36 (spendthrift provisions) and N.J.S.A. 3B:31-38 (discretionary trusts and creditor limits). A hanging power that exceeds the 5-and-5 safe harbor may expose the beneficiary to creditor claims in ways that a properly lapsed power would not.

Common Administrative Failures

Many Crummey programs break down in predictable ways:

• Notices are never sent.
• Notices are sent after the premium has already been paid and the withdrawal window has effectively closed.
• The trust account never receives the contribution; funds go directly from the donor to the insurer.
• The trustee cannot produce proof of mailing, email delivery, or acknowledgment.
• Beneficiaries are told, formally or informally, that withdrawal is not allowed or not expected.
• Minor-beneficiary notices are sent to the wrong person.
• Hanging powers are drafted but never tracked on a running schedule.
• Form 709 reporting is inconsistent with the trust administration file.

These are avoidable defects. The annual Crummey process should be calendared before the first gift is made and treated as a standing year-end compliance task.

Suggested Annual File

Each year’s Crummey packet should include:

• Copy of the signed trust or relevant withdrawal-right provisions.
• Donor contribution proof.
• Calculation worksheet for each beneficiary.
• Notice letters.
• Proof of delivery or acknowledgments.
• Lapse memo or withdrawal documentation.
• Hanging-power schedule, if applicable.
• Insurance premium proof for ILITs.
• Notes for the donor’s CPA about Form 709.

New Jersey Trustee Considerations

New Jersey trust law imposes fiduciary duties on trustees, including prudent administration and duties to keep appropriate beneficiaries informed. Under N.J.S.A. 3B:31-68, a trustee must administer the trust in good faith, in accordance with its terms and purposes, and in the interests of the beneficiaries. Crummey notices are tax notices, but they also become fiduciary records.

A trustee who is also a family member should treat the file as if a beneficiary, accountant, court, or IRS reviewer may ask for it later. N.J.S.A. 3B:31-10 gives beneficiaries the right to request information about the trust, and incomplete Crummey records may support a claim for breach of fiduciary duty.

NJ Inheritance Tax Overlay

While Crummey notices are primarily a federal gift-tax compliance tool, New Jersey inheritance tax should not be ignored. Under N.J.S.A. 54:34-1 et seq., the class of beneficiary determines whether inheritance tax applies. A withdrawal right that lapses into a trust for Class A beneficiaries (spouse, lineal descendants) generally incurs no NJ inheritance tax. If the trust includes Class C (siblings) or Class D (nieces, nephews, others) beneficiaries, the tax analysis becomes more complex.

Related Topics

• Estate Planning Overview
• ILIT Design and Funding
• Dynasty and GST Trusts
• Trust Administration
• Death, Inheritance, and Estate Taxes
• Contact Simon Law Group

Authoritative References

• IRS frequently asked questions on gift taxes
• IRS Form 709
• IRS Instructions for Form 709
• P.L. 2015, c.276 - New Jersey Uniform Trust Code

Contacting Simon Law Group or submitting an inquiry does not create an attorney-client relationship. Please do not send confidential information until the firm has confirmed it can discuss your matter.

Responsible Attorney: Britt J. Simon, Esq., Managing Partner, Simon Law Group, LLC.

Frequently asked questions

Sources & authorities

• New Jersey Legislature - Official Statutes Downloads
• New Jersey Uniform Trust Code, P.L. 2015 c.276
• New Jersey Revised Durable Power of Attorney Act, P.L. 2000 c.109
• New Jersey Department of Health - Advance Directive Forms and FAQs
• New Jersey Division of Taxation - Inheritance and Estate Tax
• IRS - Estate Tax