Turns gifts to an irrevocable trust into present-interest gifts that qualify for the annual exclusion.
In short. A Crummey withdrawal power gives a trust beneficiary a short window — typically 30 days — to withdraw a contribution to the trust. The presence of that window converts the gift into a present-interest gift eligible for the federal annual gift tax exclusion.
The annual gift tax exclusion only applies to gifts of a present interest. A contribution to an irrevocable trust is, by default, a future interest because the beneficiary cannot reach the money right away. The Crummey power solves that by giving each beneficiary a temporary right to withdraw their share of the contribution. The right typically expires after 30 days. After expiration, the contribution stays in the trust and is administered under the trust's normal terms.
Families include a Crummey withdrawal power so that annual contributions to an ILIT or other irrevocable trust can be sheltered by the annual exclusion (currently $19,000 per donor per donee in 2026) without consuming lifetime gift tax exemption. The trustee sends a written notice each year, the beneficiary chooses not to withdraw, and the gift becomes a completed annual-exclusion gift.
The Crummey power is a creature of federal tax law (IRC § 2503(b) and the Crummey line of cases), not Arizona law. Arizona's contribution is its straightforward Trust Code, which lets the drafter create the withdrawal power and the post-lapse default treatment without state-law friction. ILITs are typically governed by the Arizona Trust Code under ARS § 14-10101 and following.
Documents that include a Crummey withdrawal power typically contain language along these lines: "Each beneficiary shall have the right to withdraw a portion of any contribution to this trust, with the withdrawal right limited to the lesser of the contribution allocable to the beneficiary or the annual exclusion amount, and shall lapse 30 days after written notice from the trustee." Descriptive only.
The IRS will challenge Crummey powers that look like a sham — for example, if the trustee never sends notice, or if the beneficiary has an undocumented understanding that they will never exercise. A second failure is sloppy notice records; trustees should keep dated, signed Crummey letters every year. A third pitfall is forgetting the 5-and-5 lapse limits, which can create unexpected gift tax consequences when the unexercised withdrawal right lapses.
This page describes how this clause works in general terms. It is not legal advice and not a drafting template. Whether a clause like this belongs in your plan depends on your family, your assets, and your goals. Drafting is performed by partner attorneys we work with.