An Important Administrative Note

Many trustees include in their withdrawal notices the opportunity for beneficiaries to waive their exercise of withdrawal rights.  However, a withdrawal right is a general power of appointment under IRC Section 2514(c), and a waiver of the right is not a “lapse” under IRC Section 2514(e) for which the 5x5 (greater of $5,000 or 5%) exclusion is available.  As a result, the beneficiary will need to treat as a gift the entire amount of the contribution for which s/he waived withdrawal rights, as opposed to just the amount in excess of the 5x5 exclusion.

 Trustees should not offer beneficiaries the opportunity to make an affirmative waiver of their withdrawal rights when providing them with Crummey notices – the rights should simply be allowed to lapse per the terms of the trust document.