As Seen in Philadelphia Business Journal
A: A Crummey letter is named after a 1968 tax court decision, Crummey et al. v Commissioner of Internal Revenue, which was decided in favor of the taxpayer. A Crummey letter is a favorite tool used by practitioners to transform a transfer made into trust which could be a future gift, into a present gift. This is important because a gift qualifies for the annual gift tax exclusion ($14,000 for 2016) only if the transfer is of a present interest, which is defined as an unrestricted right to the immediate use, possession, or enjoyment of the property.
A gift to a Crummey trust is accompanied by the issuance of a Crummey letter which gives notice to the beneficiaries of their right to withdraw the monies for a limited time, typically 30 days. The presence the legal right, not the likelihood of its exercise, is the determining factor in causing the transfer to the trust to be a gift of a present interest, and thus qualifying for the annual gift tax exclusion.