Taxpayers can give away up to the gift tax exclusion amount each year to each of an unlimited number of donees, free of gift and generation-skipping transfer tax. Where the donee is a minor, many parents and grandparents make their annual gifts to a custodial account under either the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA).

An UGMA or UTMA account works well and is easy to create and maintain. However, it has one major defect: when the child (or grandchild) reaches age 18 or 21, depending on the state in which the beneficiary resides, the beneficiary can do whatever he or she wants with the money in his or her custodial account. If, for example, the beneficiary wants to buy a sports car instead of going to college, there is nothing that you can do about it.

Few parents wish their children (or grandchildren) to receive significant amounts of cash at age 18 or 21. Fortunately, there is a special kind of trust that avoids this problem. It’s called a “Crummey” trust, after a court case that paved the way for the use of this kind of trust.

With a Crummey trust, the property can remain in trust for as long as you wish without forfeiting the gift tax annual exclusion. Thus, you can transfer property to remain in a Crummey trust for the beneficiary’s entire lifetime or until an appropriate age (e.g., age 30) or event (e.g., graduation from college). You decide how the money is to be used and how much the beneficiary can receive.

There’s one catch to a Crummey trust: annual contributions you make to the trust won’t qualify for the gift tax annual exclusion unless you notify the beneficiary that you’ve made the contributions, and give him or her a limited period of time (usually 30 days) in which he or she can withdraw the contributions from the trust.

It’s usually understood that the beneficiary won’t exercise his or her right to withdraw the contributions, but will let them remain in the trust. However, that expectation should always remain unwritten because, if there’s any evidence of it, IRS will use that evidence to say that the beneficiary didn’t really have a power of withdrawal. If the beneficiary violates the unwritten understanding by withdrawing property from the trust, there’s nothing you can do about it, except to show your displeasure by not making any further contributions to that beneficiary’s trust.