Many parents, grandparents, and other family members with sufficient means often like to make monetary gifts to younger members of their families. As a previous article discussed, such gifts can be a useful way to reduce the size of your taxable estate, lowering the amount of estate tax you may eventually have to pay. You may think that the estate tax is only for the truly rich, but the current sunset provision in the estate-tax law makes the situation after 2010 look extremely unattractive to those who've amassed even a reasonable amount of money for a nest egg.

However, even if you think making gifts is a good idea, you may not be thrilled at the prospect of giving your children or grandchildren unfettered control over a big chunk of money. You may have your own ideas about how your descendants should use the money you give them. Once you hand over that cash, though, the decision is out of your hands. If you want greater control over how your money is spent, establish a trust. A special type of trust known as a Crummey trust lets you keep the control you want while getting the full estate-tax benefit of your gift.

How Crummey trusts work
By using a trust, you can work with your estate-planning attorney to set the conditions under which the trust can spend money on its beneficiaries' behalf: delaying outright distribution of gifts until the beneficiaries reach a certain age, for example, or allowing the money to be used only to help a family member with the purchase of a new home.

Unfortunately, most trust gifts do not qualify for the annual gift tax exclusion. In general, you can give as much as $12,000 per year without having to file a gift tax return -- on the condition that what you are giving must meet the legal definition of a "present interest." As a simple example, if someone gives you a book, then you have a present interest in the book; you can read it, give it away, or do anything else you want with it. If someone promises to give you the book after your friend is done reading it, on the other hand, you don't have a present interest in the book, even if the promise is legally binding. Most gifts in trust don't qualify as present interests, because the whole point of the trust is to limit the beneficiary's ability to spend the trust's assets.

A Crummey trust, on the other hand, does allow you to take the annual gift tax exclusion. The Crummey trust qualifies for the exclusion by including a provision that gives the trust beneficiaries a temporary right to withdraw money from the trust immediately after you deposit those funds. For example, if you establish a Crummey trust for your child and deposit $12,000 into the trust, your child would have the right to withdraw the $12,000 within a certain period of time. In a legal case involving a family named Crummey, a court determined that this withdrawal right qualified as a present interest, and therefore the person who made the gift was entitled to use the annual gift tax exclusion.

They can take the money?
The first concern that most people have when presented with the Crummey trust strategy is that their children or grandchildren will exercise the withdrawal right and take the money. Indeed, it's extremely important that each gift recipient knows that you have made an annual gift into the trust and that he or she has a right to withdraw money from the trust during a short time frame. If you neglect this step, the IRS can argue that you never gave a present interest, and you'll lose your gift tax exclusion.

It's hard to imagine anyone being able to easily resist the lure of free money, but a little consideration reveals a simple way to persuade your children or grandchildren to leave the money alone. If you have a large enough estate to make annual gifts to family members, odds are good that you'll also leave a substantial amount of money to them later, whether during your lifetime or after your death. By making it clear that anyone who elects to exercise his or her withdrawal right should never expect to receive another penny from you, you'll usually persuade everyone to exercise some self-interest and leave the money in the trust. After all, $12,000 could be a drop in the bucket compared with what any person might eventually receive.

Because a Crummey trust can be established for multiple beneficiaries, you can often achieve your gift-giving goals with a single trust. Your estate-planning attorney will advise you on your particular situation and ensure that the proper language is included in your trust document. Your attorney will likely monitor the timing of your gifts and make sure that the required notices go out to your family members. In addition, although giving money is always an option, you can use gifts of stock or other types of property. So if you happen to have highly appreciated shares of long-term holdings like Dell (NASDAQ:DELL) or SYSCO (NYSE:SYY) around, you don't have to sell them; you can just transfer them into the trust in lieu of cash.

After you reach your own financial goals, you may want to share your wealth with your family. A Crummey trust can be a good way to guide how your money will be used while reducing or eliminating your future estate-tax liability.

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Fool contributor Dan Caplinger has never been a trust beneficiary, but he's worked with plenty of them. He doesn't own shares of any of the companies mentioned in this article. Dell is a Stock Advisor and Inside Value pick, while SYSCO's a high-yielding Income Investor selection. The Fool's disclosure policy won't make you feel crummy.