The Demand Trust
As  An  Alternative  to UTMA's  and  UGMA's,  the Demand Trust  serves  as
an Optimal Vehicle for a Structured Gifting Program.

Q:  What  is  the  advantage  of  creating  a  demand  trust  as  the  vehicle  for  a
gifting program for my children or grandchildren?
A:  Demand trusts, also known as "Crummey Trusts," offer those who wish to
start  a  gifting  program for  their  children  or  grandchildren  significant
advantages  over  other  traditional  gifting  tools  such  as  UTMA (Uniform Transfer to Minors Act)/UGMA (Uniform Gift to Minors Act)
accounts and minor’s trusts. The advantages of the demand trust fall into the
categories of asset protection and control over trust distributions.
Depending  on  state  law,  a  demand  trust  provides  beneficiaries  with  asset
protection for the duration of the trust.   To achieve this, the demand trust must
be  drafted  to  give  the  trustee  discretionary  distribution  powers  over  trust
income and principal for the health, education, maintenance, and support of the
beneficiaries. Because the beneficiary does not have a  right to the trust assets,
except  during  the  brief  demand  period,  the  trust  assets  are  normally
untouchable by creditors, including ex-spouses, as long as the assets are held in
the  trust.  A  demand  trust,  because  of  its  flexibility,  gives  the  donor  greater
control over their gifts than UGMA/UTMA accounts or minor’s trusts. Donors,
through powers vested in the trustee or instructions within the trust, can control
the  timing  of  distributions  to  combat  fears  of  the  donee’s  immaturity,
inexperience,  or  lack  of  respect  towards  money.  The  donor’s  fear  that  a
substantial gift can "demotivate" a minor can also be laid to rest through proper
trust instructions.  The  document  can include instructions  for  specific  uses  of
trust assets, e.g. a college education for  the beneficiary.
Another advantage pertains to the selection of who is in charge of the gift  for
the  minor.  If  the  custodian  of  an  UGMA/UTMA  account,  or  trustee  of  a
minor’s trust, has a legal obligation to support the minor, then the custodian has
a  general  power  of  appointment  over  the  account  taxable  in  the  custodian’s
gross estate under section 2041 if he or she dies before complete distribution of
the account or trust. Rev. Rul. 56-484 and Rev. Rul. 59-357. Such is not the case
with  a  properly  drafted  demand  trust.  Also,  if  the  custodian  or  minor’s trust
trustee is the donor, the property is includible in the donor’s gross estate under
section  2036 if  he  or  she  dies  before  complete  distribution  of the  account  or
trust. If a grandparent wants the minor’s parents to be trustees, draft the demand
trust to include ascertainable standards guiding the trustee’s distributions. The
trustee then does not have to worry about the minor’s assets being included in
his/her estate.  See Rev. Rul. 73-143
With a demand trust, there is no requirement, as with UGMA/UTMA accounts
and minor’s trusts, that beneficiaries receive the trust assets outright upon
turning  eighteen  or  twenty-one  years  of  age.  In  fact,  if  desired  by  the
trustmaker,  the  beneficiaries  of  the  demand  trust  could  never  get  complete
control  over  the  trust  assets.  In  the  demand  trust,  payment  by  the  trustee  of
income or principal can be made discretionary.
These  highlights  demonstrate that a  demand trust is truly the optimal vehicle for a structured gifting plan.

Taken  from an Article Published  by the National Network of Estate Planning