A surprising case in taxpayer’s favor resulted in Turner vs Commissioner, TC Memo. 2011 – 209 (August 30, 2011). The trust document provided that the beneficiaries have “Crummey withdrawal powers” after each “direct or indirect transfer” to the trust. The trust gave each beneficiary the absolute right and power to demand withdrawal from the trust after each direct or indirect transfer to the trust. The Settlor paid insurance premiums directly to the carrier rather than to the trust and the trust to the carrier. The court held that the terms of the trust provided that the beneficiaries have the right to withdrawal whether the payments were direct or indirect and therefore the beneficiaries had the right to demand withdrawals from the trust after each indirect payment was made; thus even though the payments were indirect it did not affect the beneficiaries’ rights to demand withdrawal. The court found that these gifts were present interest gifts as it cited Crummey vs Commissioner and Cristofani vs Commissioner.
This decision is in favor of the taxpayer but we highly recommend that the insurance payment be made to the trust and the trust make the payment to the carrier, and the beneficiaries be notified of their withdrawal rights after each of the contributions to the trust are made.