Five-and-five power
Certified Financial Planner glossary · Certified Financial Planner
Definition
A withdrawal right whose lapse is not treated as a taxable release to the extent of the greater of 5,000 or five percent of trust corpus.
Five-and-five power in plain English
A Crummey beneficiary lets a withdrawal right lapse each year and someone worries the lapse is a taxable gift release. Five-and-five power is the safe harbor: a withdrawal right whose lapse is not treated as a taxable release to the extent of the greater of $5,000 or five percent of trust corpus. Amounts above that band need other drafting help, often a hanging power. Before you invent a full taxable release on an annual demand right, anchor on the greater-of $5,000 or 5% limit.
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