Crummey Notice Calculator: Does Your ILIT Funding Plan Hold Up in 2026?

An irrevocable life insurance trust (ILIT) only works as a tax shelter if every premium gift qualifies for the annual gift tax exclusion — and the only thing that makes that happen is a properly delivered Crummey notice. Miss the notice, miss the window, or overfund the withdrawal rights, and the IRS can reclassify the entire year’s gifts as taxable. This calculator tests your funding plan against the 2026 rules: it checks the exclusion math, computes how much coverage your gifting capacity actually buys, projects the estate tax both with and without the program, and prices any remaining gap.

The engine above runs the same tests an estate attorney runs when administering an ILIT: does each gift fit under the exclusion, is each withdrawal right drafted to stay qualified under IRC §2514(e), and does the funded death benefit actually cover the projected estate tax? Enter your own numbers to see where your plan stands.

What a Crummey Notice Actually Does

Named after the 1968 Fifth Circuit case Crummey v. Commissioner, a Crummey notice is a letter that tells each trust beneficiary: “money just went into the trust, and you have the right to withdraw it for a limited time.” That temporary withdrawal right (the “Crummey power”) converts what would otherwise be a future interest gift — which never qualifies for the annual exclusion — into a present interest gift, which does. Without the notice, premium gifts to an ILIT fail the exclusion test entirely.

The mechanics matter as much as the letter itself. Beneficiaries must receive the notice within a reasonable window (most attorneys use 30 days, some allow 15), each withdrawal right must be capped so the annual lapse stays qualified under §2514(e), and the withdrawal right for a minor child typically lapses when the child turns 21. In practice nobody withdraws; the ritual exists so the gift qualifies. The IRS knows this, which is exactly why the notice trail must be real: dated letters, proof of delivery, acknowledgments, and a permanent log.

How This Calculator Works

The tool models a multi-year premium-gifting program in four steps. First it qualifies each year’s gifts: every dollar up to the 2026 exclusion ($19,000 per donor per beneficiary, $38,000 when a married couple splits gifts) counts as excluded; anything above it burns lifetime exemption and triggers a Form 709 filing. Second, it computes premium capacity — your beneficiary count multiplied by the per-beneficiary exclusion, which is the most the trust can receive exclusion-free each year. Third, it converts cumulative gifts into death benefit: your existing ILIT coverage plus the new coverage the funded premiums buy. Fourth, it projects your estate to the planning horizon with and without the program, applies the federal graduated estate-tax table, and prices any remaining gap as a term-life backstop.

Watch the default example closely: gifting $19,000 × 3 beneficiaries × 20 years moves $1,140,000 out of the estate — but because the estate grows 5% annually, the projected tax only falls from $598,370 to $152,885. The remaining tax of $152,885 is what the death benefit is for: $1,610,911 of trust coverage absorbs it several times over. That is the structural point of an ILIT — the exclusion gifts are the fuel, and the insurance is the engine. Gifting alone rarely erases a seven-figure estate tax; gifting plus insurance does.

The 2026 Annual Exclusion and Withdrawal-Right Limits

One number controls every Crummey program in 2026: the annual exclusion of $19,000 per donor per beneficiary — doubled to $38,000 when spouses split gifts. Each beneficiary can absorb up to that amount exclusion-free every year, so beneficiary count is the cheapest lever in the whole structure. The table below shows what different combinations move, and what happens when a gift climbs above the exclusion line.

The last column is the trap: gifts above $19,000 still move money into the trust, but the overage consumes lifetime exemption and requires Form 709. Note how 12 beneficiaries at $19,000 each moves $228,000 per year with zero exemption burn — which is why large families get disproportionate value from these trusts.

What ILIT Premium Capacity Actually Buys

Exclusion-qualified gifts become policy premiums. The market-realistic pricing below (standard health, non-smoker, $500,000 of coverage) shows why insuring young matters: the same $19,000-per-year capacity buys far more coverage at 35 than at 65.

Three structural levers stretch premium capacity further: more beneficiaries (each adds a full exclusion slot), gift splitting for married couples (doubles every slot), and a younger insured age at policy issue. A family with four children and split gifts can move $152,000 a year into an ILIT without touching the lifetime exemption — and at the pricing above on a healthy 45-year-old, that funds well over a million dollars of coverage over a 20-year window.

State Estate Tax: The Second Reason ILITs Exist

The federal exemption gets the headlines, but twelve states impose their own estate tax with exemptions far below the federal $15M — which is why ILITs are especially popular in high-tax states. A Massachusetts estate of $3M pays state tax even though it is nowhere near the federal threshold. Life insurance owned by a properly drafted ILIT is excluded from the taxable estate in both systems.

State exemptions are the same ceilings that make long-term care funding precarious — the two largest claims on a mid-size estate are taxes and care. The 2026 national medians below put the care side in context:

The calculator’s live funding schedule at its default inputs — $57,000 per year, fully exclusion-qualified — accumulates like this over the 20-year program:

Common Ways Crummey Programs Fail (and the Fix)

IRS examinations of ILITs rarely attack the trust itself — they attack the administration. These are the four failure modes the calculator is designed to catch before an auditor does.

• No notice at all. The most common failure. Gifts without documented notices are future interests — the exclusion fails, and penalties plus interest accrue on the gift-tax shortfall. Fix: calendar the notice the same day the premium is paid.
• Notice delivered after the window. A letter sent on day 31 of a 30-day window gives the beneficiary no real opportunity to withdraw. Exclusion denials have been sustained on this fact pattern alone. Fix: send within 10 days of funding and keep delivery proof.
• Withdrawal right drafted too broad. Under §2514(e), rights that lapse more than the greater of $5,000 or 5% of the value involved create a general power of appointment. Fix: cap each right at the annual exclusion in the trust instrument, which always stays under the threshold for exclusion-sized gifts.
• Program ends before the policy does. Premiums due after the notices stop are no longer exclusion-qualified. The calculator flags this mismatch as a lapsed funding window — premiums must then come from trust assets, which works only if the trust holds cash value.

Who Needs This Calculator

• Grantors funding a new ILIT who want to know how much death benefit their exclusion capacity actually supports before setting premium schedules.
• Trustees administering an existing ILIT verifying that the notice calendar and withdrawal caps stay compliant year after year.
• Estates in the twelve state estate-tax states where the state exemption is a small fraction of the federal one and ILIT-owned coverage is the cleanest liquidity fix.
• Married couples deciding on gift splitting — the tool shows the immediate doubling of exclusion capacity per beneficiary.
• Anyone comparing ILIT funding against simply buying coverage personally — see the estate tax and life insurance calculator for the static-estate version of this comparison.

Steps to Set Up a Compliant Crummey Program

1. Have your estate attorney draft the ILIT with withdrawal powers capped at the annual exclusion, with rights lapsing at 21 for minors.
2. Apply for the policy with the trust as owner and beneficiary from day one — never transfer an existing policy in, or the three-year rule pulls it back into the estate.
3. Run this calculator with your real beneficiary count and planned gifts to set a premium schedule the exclusions can actually carry.
4. Fund the premium gift, then send every beneficiary a dated Crummey notice within 10 days — 30-day window, signed acknowledgment requested.
5. Log each notice (date sent, method, acknowledgment received) in a permanent administration file.
6. No beneficiary withdraws in practice; the log is your defense. File Form 709 only in years where gifts exceed the exclusion.
7. Re-run the calculator after major changes: a new grandchild adds an exclusion slot, a move between states changes the estate-tax math, and each funding year shifts the projection.

Key Takeaways

• The Crummey notice — not the trust document — is what makes premium gifts exclusion-qualified; no notice means no exclusion.
• In 2026 you can move $19,000 per donor per beneficiary ($38,000 with splitting) into an ILIT every year, estate-tax-free.
• Withdrawal rights must be capped at the exclusion in the trust instrument so the annual lapse stays under the §2514(e) threshold.
• More beneficiaries is the cheapest lever: a 12-beneficiary program moves $228,000 a year with zero exemption burn.
• Exclusion gifting funds the engine; the death benefit does the work. Price any remaining estate-tax gap as a backstop policy, not as more gifting.
• Administration is the audit risk: dated notices, delivery proof, and a permanent log on every single gift.

Frequently Asked Questions

What happens if a beneficiary actually withdraws the money?

They take it, and that year’s gift to them is reduced by the amount withdrawn. The exclusion still holds because the right was real. In practice withdrawals are rare — but the right must be genuine, which is why the window and the cap matter more than the letterhead.

How long must the Crummey withdrawal window be?

Most practitioners use 30 days; some trusts use 15. The window must be long enough to be a real opportunity and short enough that the money stays available for premiums. Whatever the trust document says, the notice must actually arrive within it.

Do I need a Crummey notice for every premium payment?

Yes — every gift into the trust needs its own notice. Annual premiums mean annual notices for each beneficiary, for as long as the funding program runs. This is why the calculator distinguishes the notice program length from the policy funding window.

What is the 5% withdrawal rule?

Under IRC §2514(e), a withdrawal power whose annual lapse exceeds the greater of $5,000 or 5% of the value subject to the power is treated as a released general power of appointment — which can pull the lapsed amount into the beneficiary’s own estate. Practitioners avoid the issue entirely by capping each beneficiary’s right at the annual exclusion ($19,000 in 2026), which always stays under the threshold for exclusion-sized gifts.

Can minors be ILIT beneficiaries with withdrawal rights?

Yes, and they usually are — children and grandchildren are exactly who these trusts are built for. Because a toddler can’t sign a withdrawal, the trust instrument itself hard-codes the minor’s right and it lapses at age 21. A parent-guardian can acknowledge the notice on the child’s behalf, which is why acknowledgments come back signed.

Does the ILIT pay income tax on the premium gifts?

Generally no — an ILIT with standard grantor-trust triggers is ignored for income tax and the premiums are paid with after-tax dollars. What matters here is the gift tax side, which is what the exclusion and the notices govern. Have your CPA confirm the grantor-trust status of your specific trust.

What happens when the notice program ends but premiums continue?

Those premiums are no longer exclusion-qualified gifts. The trust must pay them from its own assets — which only works if earlier gifts built cash value — or someone makes a larger taxable gift. The calculator flags this mismatch as a lapsed funding window so you can align the program length with the policy schedule before it becomes a problem.

Related Resources

For the governing rules and current figures, see the IRS estate tax overview and Form 709 instructions (gift tax filings), the full text of IRC §2514 on withdrawal rights, and the NAIC consumer resources for policyholder protections. Verify carrier financial strength with AM Best ratings search before placing a multi-decade ILIT policy.

Related Calculators

• Gift Tax Exclusion Calculator — sizes a gifting program from the estate side.
• Gift Splitting Calculator — married-couple exclusion doubling with the same estate-tax engine.
• Estate Tax & Life Insurance Calculator — federal §2001(c) brackets on a static estate.
• Estate Equalization Calculator — balancing inheritances across heirs with life insurance.
• Financial Underwriting Capacity Calculator — how much coverage a carrier will actually issue on your financials.
• DIME Life Insurance Calculator — household needs-based coverage sizing.
• Widow Survivor Income Phase Calculator — survivor benefit timing after a death.
• Roth Conversion Bracket Calculator — bracket-fill conversions and the heirs’ tax backstop.

Get Your Estate Plan Funded

An ILIT is only as good as the policy inside it. Compare free quotes from top-rated carriers, confirm the health class your premium capacity assumes, and lock in the coverage your Crummey program will fund. Get your free life insurance quote today.