Jenni wrote:

- quote -

There are a lot of problems here, but from your perspective
I would warn you about one issue--if your husband demands
"his rights" in this matter, I would note that it might
impact anything that his father could change in the estate
plan regarding what your husband will eventually get--and I
suspect such a change might not be for the best. So be
forewarned...

That said, problem 1 is that the IRS likely can reduce what
the father can pass estate tax free by these gifts since
they were (arguably) a gift of a future interest since he
knew when he made the gifts that the Crummey notices would
never get to the beneficiaries. Ultimately that would
negatively impact the heirs of the estate if, in fact, there
is eventually an estate tax due.

Problem 2 is that, arguably, the father could be forced to
"make good" on those rights of withdraw for all years that
he had defrauded the trustee and beneficiary. As I note
above, enforcing this right *might* impact your
father-in-laws' plans on changing the distributions of
assets at his death. Depending on the nature of the trust
and its current financial situation, your husband might find
that this policy will be allowed to "wither and die" (no
more funds transferred in)--that is, if the trust could only
come up funds to make the premium payments by your
father-in-law making additional gifts to the trust, it's
just possible he might stop doing so.

As well, it's important to consider another fact--it's very
possible that those Crummey gifts, had they been withdrawn,
would have left the trust unable to fund the insurance
policy and, most likely, your father-in-law would have
stopped making gifts to the trust at that point.

There's no question that what your father-in-law did was
wrong and that it will likely cost the heirs estate tax vs.
what would have happened had it been done properly (with
your husband receiving the notices)--but there's also a very
good chance that if your husband had insisted on taking the
money out that the gifting would have stopped immediately
(after all, your father-in-law isn't forced to make the gift
each year). And, as I note, there's nothing that requires
him to make any more gifts in the future, or to keep his
estate plan fixed so that your husband's share remains the
same as today.

So if it was me--I'd probably not raise a fuss about this
issue, but would insist that all future Crummey letters come
to me. And I sure as heck wouldn't suggest my spouse ever
ask for the money unless we were willing to have that be the
only funds we'd ever get <grin> .

Now, if your husband is the person appointed to be the
executor/personal representative/etc. at your father's
death, he has a real issue about what to do about the Form
706 <grin> , but that's another issue. My guess, however, is
that the current trustee is the person appointed to do that,
and since he/she now knows about the ruse and likely doesn't
want to go to jail for tax fraud for signing a false return,
I expect that issue is taken care of...

--
Ed Zollars, CPA
Phoenix, Arizona

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- quote -

I suppose if you want to start a family dispute you could
assert that failure to supply you notice as to your rights
constitutes no notice at at all and now that you do have
notice you chose to elect to withdraw ALL the funds pursuant
to your powers which is your right under notice , and make
it clear that you may alert IRS as to the tax issues if they
fail to deal with you. Send it in writing certified etc to
the trustee!

This is sure to start a family fight. However since Dad
went to great steps to exclude you from your Crummy powers
yo may need to light a fire to see what's in the woodpile?

I am not sure if your right is retroactive at all. if you
have a right for 30 days to exercise, and it took 10 years
for you to get notice of same, you may well have a point
that you still have 25 days left or whatever. You may need
to exercise your rights PRONTO just to preserve your paper
leverage.

Keep in mind that one can use Crummey provisions so as to
EXCLUDE you forever if you fail to act. Now it may be that
your hubby stands to benefit from the trust an there is no
real harm--but you need to srt it out PROMPTLY.

In otherwords it may pay you to serve notive upon the
trustee that you chose to exercise all your rights from 1990
to date for which no notice was sent you and you want
delivery of all funds within 10 days. Then having locked in
a position you are able to discuss resolution, otherwise you
have ZERO leverage.

(I have done some Crummey power issues intrafamily and while
I have put some guidance upon folks to sign off I have not
kept them in the dark. Dad went a step too far---you need
to sort out why!)

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jenni[at]fnord.io.com (Jenni) wrote:

- quote -

If you had done that the insurance policy might well have
lapsed. Penny wise and pound foolish to do that most of the
time.

- quote -

There's probably little or no cash in the trust's account at
the moment, so retroactive rights wouldn't mean much as a
practical matter.

Additionally, if you make a withdrawal in the future it may
well piss his father off enough to allow the policy to lapse
and not to reinstate it. You'd be getting a little now but
probably missing out on a whole lot more later.

In general a gift to a Crummey trust is not *required* to be
presented for withdrawal. The only real legal consequence
of not doing so(depending on the provisions of the trust) is
that any gift to the trust that is not properly presented
for withdrawal does not qualify for the annual exclusion,
and should be listed on a gift tax return. It will also
reduce the father's lifetime exclusion.

Stu

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Last weekend, my husband got something very odd from his
father: a Crummey letter from an ILIT which had been set up
back in 1990. His father had not told him anything about a
trust before (and my husband was 20 at the time, so he
wasn't a minor).

After some conversations and e-mails with the trustee (a
financial advisor working for the bank holding the trust),
my husband found out that the bank had been sending him
Crummey letters since 1992, but his father gave the bank his
own PO box for the address when he set up the trust. Since
a signed reply was requested but not required, the trustee
didn't know that my husband didn't know.

We understand (now that we've had the chance to do some
research) that the point is usually to funnel the money into
insurance premiums for his benefit in the future, but there
have been a couple of times in those 11 years when he may
have chosen to withdraw (like when we both lost our jobs and
my father died).

My husband gave the trustee our current address, so in the
future he'll directly receive the letters and account
status. But is there anything else we can do? Is there any
sort of retroactive right?

Thanks,
Jenni

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