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 5×5 (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 5×5 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.