Crummey notice requirements: how to write one for an ILIT

A Crummey notice is the written letter an ILIT trustee sends to each beneficiary telling them a gift has been made to the trust and that they have a limited window to withdraw their share. That notice is what converts a gift into a trust into a present-interest gift, which is the only kind that qualifies for the annual gift exclusion. Skip it, or send it carelessly, and the IRS can treat your premium gifts as future-interest gifts that use up lifetime exemption instead.

This post walks through what a compliant notice must say, who gets one, and how to document that you sent it. If you are new to the structure itself, start with my broader explainer on irrevocable life insurance trusts, then come back here for the paperwork.

Why a Crummey notice is required at all

A Crummey notice is required because the annual gift exclusion only applies to gifts of a present interest, and a gift into an irrevocable trust is normally a future interest. The gift tax rules under IRC 2503(b) exclude up to the annual exclusion amount per donee, but only when the recipient has an immediate right to enjoy the property.

The workaround, named after the Crummey court case, gives each beneficiary a temporary right to withdraw the gift from the trust. That withdrawal right is a present interest, so the gift qualifies. The written notice is the evidence that the right was real and that the beneficiary had a genuine chance to exercise it.

For 2026, the annual gift exclusion is $19,000 per donee. A married couple splitting gifts can move $38,000 per beneficiary per year into an ILIT if each beneficiary holds a qualifying withdrawal right and receives proper notice.

What a compliant Crummey notice must contain

A compliant Crummey notice must identify the gift, state the withdrawal amount, give a clear deadline, and tell the beneficiary how to exercise the right. Your attorney drafts the trust and usually supplies a notice template, but the trustee is the one who fills it in and sends it each year.

At minimum, every notice should state:

• The date and dollar amount of the gift to the trust.
• The specific amount that beneficiary may withdraw (their pro-rata share, capped by the terms of the trust).
• The deadline to exercise the right, typically 30 days, as set by the trust document.
• That the right lapses if not exercised by the deadline.
• How to make the withdrawal, usually a written request to the trustee.

Keep the language plain and the deadline unambiguous. The notice is a factual letter, not a legal brief, and it should match the withdrawal window your trust document actually specifies.

Who must receive a notice

Every person who holds a withdrawal right under the trust must receive a notice, not just the people you expect to keep the money in the trust. That often includes minor beneficiaries, whose notices go to a parent or legal guardian acting on their behalf.

Giving contingent or remote beneficiaries withdrawal powers is a common technique to multiply the number of annual exclusions, sometimes called hanging powers. Whether that holds up depends on how the trust is drafted and the facts, so your attorney decides who gets a power, and you send a notice to every holder of one.

The 5 and 5 rule and lapsing powers

The 5 and 5 rule limits how much of a beneficiary’s withdrawal right can lapse each year without creating a taxable gift by that beneficiary. Under IRC 2514(e), a lapse of a withdrawal power is treated as a release only to the extent it exceeds the greater of $5,000 or 5% of the trust assets.

Here is the problem in practice. If a beneficiary lets a $19,000 withdrawal right lapse, the amount above the $5,000 / 5% floor can be treated as a taxable gift from the beneficiary to the other trust beneficiaries. This is a statutory figure that is not inflation-indexed, so it stays at $5,000 while the annual exclusion keeps rising.

Drafters address this with hanging powers that carry the excess withdrawal right forward year to year, or by keeping gifts within the 5 and 5 limit. This is squarely a drafting question for your attorney, not something you solve in the notice itself.

Illustration: a two-beneficiary ILIT gift

Assume a grantor makes a single $30,000 gift to an ILIT with two adult beneficiaries, each holding an equal withdrawal right. These figures are illustrative; your trust terms and your CPA’s advice govern the real numbers.

Item	Beneficiary A	Beneficiary B
Withdrawal right on this gift	$15,000	$15,000
Covered by 2026 annual exclusion ($19,000)	Yes	Yes
Lapse amount vs. 5 and 5 floor ($5,000)	$10,000 over floor	$10,000 over floor
Notice deadline (per trust)	30 days	30 days

In this example each $15,000 gift fits inside the annual exclusion, so the grantor uses no lifetime exemption. The $10,000 that lapses above the 5 and 5 floor is the piece a hanging-power provision is designed to handle, which is why the trust drafting matters as much as the notice.

How to send and document the notice

Send the notice promptly after each gift and keep proof that you sent it, because the documentation is what protects the deduction years later in an audit. The timing should line up with when the gift actually hits the trust account, usually the same period you pay the policy premium.

Practical steps I see work well:

• Send one notice per beneficiary, dated, after the gift is deposited.
• Use a delivery method you can prove: certified mail, email with read receipt, or a signed acknowledgment returned to the trustee.
• Ask each beneficiary (or guardian) to sign and return an acknowledgment confirming receipt and the deadline.
• File the signed acknowledgments with the trust records and keep them permanently.

Signed acknowledgments are the strongest evidence. If a beneficiary will not return one, certified-mail receipts and copies of the dated letters are your backup.

How the notice ties back to estate tax goals

The whole point of the notice is to move premium dollars out of your taxable estate without consuming your lifetime exemption. The 2026 federal estate and gift exemption is $15,000,000 per person, made permanent and inflation-indexed after 2026 by the One Big Beautiful Bill Act, with a top transfer tax rate of 40%.

When the ILIT is drafted correctly and the trustee never held incidents of ownership, the death benefit sits outside the insured’s estate under IRC 2042. A policy transferred into the trust within three years of death can still be pulled back into the estate under IRC 2035, which is why many grantors have the trustee apply for and own a new policy from day one. This is also where the choice of policy design matters, and I often walk clients through base versus paid-up additions so the annual gift funds a policy that stays efficient.

For families whose main asset is property, the liquidity an ILIT creates can cover taxes and expenses without a forced sale. I cover that in more depth in my guide to estate planning for real estate owners. You can see the full picture on my estate planning page, and the policy mechanics on the LIRP page.

Crummey notice checklist for trustees

• Confirm the gift was deposited into the trust account before dating any notice.
• Identify every beneficiary who holds a withdrawal power under the trust.
• Calculate each beneficiary’s withdrawal amount per the trust terms.
• State the gift date, amount, withdrawal right, deadline, and lapse language.
• Match the deadline to the window in the trust document.
• Send by a provable method and request signed acknowledgments.
• Verify annual gifts stay within the $19,000 per-donee exclusion where that is your goal.
• Flag any lapse above the $5,000 / 5% floor for your attorney’s hanging-power language.
• File acknowledgments and mailing proof permanently with trust records.
• Repeat every year a gift is made, without exception.

I am a licensed insurance professional, not an attorney or CPA. I help structure and fund the policy inside the trust; your attorney drafts the trust and the notice template, and your CPA confirms the gift tax treatment.

Frequently Asked Questions

How long does a beneficiary have to exercise a Crummey withdrawal right?

The window is set by the trust document, and 30 days is the most common period, though some trusts use a different length. The notice must state the exact deadline and that the right lapses if not exercised, so the window has to match the trust language your attorney drafted.

Do I have to send a Crummey notice for every gift, every year?

Yes. A notice is tied to each gift that is meant to qualify for the annual exclusion, so a trust funded annually needs a fresh notice to every withdrawal-right holder each year. Build it into your premium payment routine so it never gets missed.

What happens if a beneficiary actually withdraws the money?

If a beneficiary exercises the right, the trustee must pay out that amount, which usually means there is no money left to pay the policy premium that year. In practice beneficiaries rarely withdraw because they want the policy to stay in force, but the right has to be genuine for the exclusion to hold.

Does a minor beneficiary still need a notice?

Yes, if the minor holds a withdrawal power under the trust. The notice goes to the parent or legal guardian who can act on the minor’s behalf, and you document it the same way you would for an adult.

What is the 5 and 5 rule in plain terms?

Under IRC 2514(e), a lapsed withdrawal right only counts as a taxable gift by that beneficiary to the extent it exceeds the greater of $5,000 or 5% of the trust assets. Drafting techniques like hanging powers keep larger annual gifts from triggering that result, which is a question for your attorney.

I design and place the life insurance that funds ILITs for clients nationwide over Zoom from my office in Chattanooga, Tennessee, working alongside your attorney and CPA. If you want help structuring the policy inside your trust, see my services page.