Also known as a wealth replacement trust

Meant to provide liquidity for the decedent’s estate and/or to pay estate taxes

Donor typically transfers an amount equal to the annual gift tax exclusion

A notice of the right to withdrawal is sent to the beneficiary

If the beneficiary does not exercise the Crummey power within a specified period of time (30 days), the contribution is used to pay for life insurance premiums on the life of the grantor

Trust owns the life insurance policy on the grantor and hence proceeds are not included in the grantor’s estate

Trustee is typically an independent third party (bank)

The IRS has stated that the proceeds will be included in the insured’s estate if he or she is the trustee of the trust

In case of a spousal beneficiary, powers may be limited by an ascertainable standard to avoid inclusion in estate (similar to a Bypass trust)

Existing life insurance policy may be transferred – gift tax based on interpolated terminal reserve. Three-year rule applies

Do not fund the trust with community property