With Trusts, "Crummey" Is Good: San Francisco Tax Lawyer Robert Wood

(Forbes) We don’t like to contemplate our own deaths. But slightly less objectionable are current strategies to reduce exposure to gift tax, get assets in loved ones’ hands, and protect against estate taxes. If your estate is less than $5 million (or $10 million with your spouse) you may think you no longer need to worry about any of this. But we don’t know if that will remain so.

The estate tax could come back with a vengeance in 2013. A “Crummey” trust takes its name from a famous tax case involving Reverend Crummey, who was probably teased mercilessly growing up. See Crummey v. Commissioner. To follow in his footsteps, set up a trust and have it buy a life insurance policy on your life. Someday when you die, the trust will receive the insurance proceeds and pay them out to the beneficiaries listed in your trust.

To pay the annual premiums on the policy, you can put in up to $13,000 per person for your family members. Since you are essentially buying a policy that benefits your family, those premium payments would normally be considered gifts to your beneficiaries. However, done properly, you pay no gift tax on those payments, and when you die the trust will receive the policy proceeds free of estate tax.  Read more