How to Setup a Crummey Trust

Named for the first man to use this type of trust, Clifford Crummey, the Crummey trust is designed to help parents, grandparents, friends, and relatives save for a child's college education. The trust is designed so that anyone can make a contribution to the trust in the form of a gift. Once the gift has been made, the beneficiary (the child who the trust was set up for) if given the chance to withdraw the gift or let it stay as part of the trust to be distributed (disbursed) by the trustee at a later date for educational expenses. These educational expenses can be tuition, books, and supplies, travel costs to and from school, a new computer, printer, or other educational tools.

If you wish to set up a Crummey Trust for a child you care about, start by evaluating your financial situation. Decide how much you wish to place into the trust each year and be sure you are financially secure to do so. Remember that by starting early in a child's life will give you plenty of time to make many small contributions to the trust. If you wait until the child is older, you will have to make larger contributions to equal the same amount of money as if you had made several smaller contributions. Another benefit of starting when the child is younger is that you will be able to utilize the tax free gift giving allowances each year.

When setting up the Crummey trust, you must decide at what age the beneficiary will be able to start withdrawing the money. You may decide that the beneficiary will need the money as soon as 17 years of age when starting college. Alternatively, you can specify the money be inaccessible until the beneficiary is ready to start post-graduate education.

Another decision you will make when setting up the Crummey trust is the amount the beneficiary will be allowed to withdraw at one time. Limiting the amount of money the beneficiary can take out each year will help prevent them from spending all of the money during their first year of college, only to have trouble paying for the remaining time in college.