Source: http://www.irs.gov/irb/2003-31_IRB/ar05.html
Timestamp: 2013-06-20 06:35:17
Document Index: 84728408

Matched Legal Cases: ['§ 170', '§ 664', '§ 664', '§ 170', '§ 170', '§ 4941', '§ 4947', '§ 170', '§ 2055', '§ 2522', '§ 664', 'art\n1', '§ 1', '§ 170', '§ 1', '§ 1', '§ 170', '§ 7520', '§ 1', '§ 1', '§ 1', '§ 20', '§ 1', '§ 170', '§ 7520', '§ 170', '§ 664', '§ 2522', '§ 2055', '§ 2055', '§ 2055', '§ 170', '§ 25', '§ 170', '§ 4944', '§ 170', '§ 4947', '§ 508', '§ 170', '§ 1', '§ 170', '§ 170', '§ 170', '§ 2055', '§ 4944', '§ 4947', '§ 4943', '§ 4947', '§ 170', '§ 170', '§ 170', '§ 4947', '§ 674', '§ 678', '§ 664', '§ 664', '§ 170', '§ 170', '§ 170', '§ 170', '§ 170', '§ 170', '§ 170', '§ 25', '§ 170', '§ 170', '§ 170', '§ 170', '§ 170']

Internal Revenue Bulletin - August 4, 2003 - Rev. Proc. 2003-54 Internal Revenue Bulletin: 2003-31 August 4, 2003 Rev. Proc. 2003-54 Table of Contents
SECTION 1. PURPOSE SECTION 2. BACKGROUND SECTION 3. SCOPE AND OBJECTIVE SECTION 4. SAMPLE INTER VIVOS CHARITABLE REMAINDER ANNUITY TRUST — TERM OF YEARS SECTION 5. ANNOTATIONS REGARDING SAMPLE INTER VIVOS CHARITABLE REMAINDER ANNUITY TRUST — TERM OF YEARS .01 Annotations for Introductory Paragraph and Paragraph 1, Funding of Trust, of the Sample Trust.
vivos CRAT providing for annuity payments for a term of years, samples are provided in separate revenue procedures for:
89-21, 1989-1 C.B. 842);
SECTION 3. SCOPE AND OBJECTIVE Section 4 of this revenue procedure provides a sample declaration of trust for an inter vivos CRAT that is created by an individual
samples of alternate provisions concerning: (.01) the statement of the annuity amount as a specific dollar amount; (.02) the
payment of part of the annuity to an organization described in § 170(c); (.03) the apportionment of the annuity amount among
members of a named class in the discretion of the trustee; (.04) a qualified contingency; (.05) the restriction of the charitable
remainderman to a public charity; (.06) a retained right to substitute the charitable remainderman; and (.07) a power of appointment
to designate the charitable remainderman.
For transfers to a qualifying CRAT, as defined in § 664(d)(1), the remainder interest will be deductible by a citizen or resident
revenue procedure into a document substantially similar to the sample in section 4 of this revenue procedure. A trust instrument
that contains substantive provisions in addition to those provided in section 4 of this revenue procedure (other than properly
integrated alternate provisions from section 6 of this revenue procedure, or provisions necessary to establish a valid trust
under applicable local law that are not inconsistent with the applicable federal tax requirements), or that omits any of the
provisions of section 4 of this revenue procedure (unless an alternate provision from section 6 of this revenue procedure
is properly integrated), will not necessarily be disqualified, but neither will that trust be assured of qualification under
the provisions of this revenue procedure. The Service generally will not issue a letter ruling on whether an inter vivos trust
created by an individual and having a term of years annuity period qualifies as a CRAT. The Service, however, generally will
issue letter rulings on the effect of substantive trust provisions, other than those contained in sections 4 and 6 of this
revenue procedure, on the qualification of a trust as a CRAT.
SECTION 4. SAMPLE INTER VIVOS CHARITABLE REMAINDER ANNUITY TRUST — TERM OF YEARS On this day of , 20, I, (hereinafter “the Donor”), desiring to establish a charitable remainder annuity trust, within the
meaning of Rev. Proc. 2003-54 and § 664(d)(1) of the Internal Revenue Code (hereinafter “the Code”), hereby enter into this
trust agreement with as the initial trustee (hereinafter “the Trustee”). This trust shall be known as the Charitable Remainder
Annuity Trust.
1. Funding of Trust. The Donor hereby transfers and irrevocably assigns, on the above date, to the Trustee the property described in Schedule
A, and the Trustee accepts the property and agrees to hold, manage, and distribute the property under the terms set forth
in this trust instrument.
2. Payment of Annuity Amount. In each taxable year of the trust during the annuity period, the Trustee shall pay to [permissible recipient] (hereinafter “the Recipient”) an annuity amount equal to [a number no less than 5 and no more than 50] percent of the initial net fair market value of all property transferred to the trust, valued as of the above date (that
is, the date of the transfer). The annuity period is a term of [a number not more than 20] years. The first day of the annuity period shall be the date the property is transferred to the trust and the last day of
the annuity period shall be the day preceding the [ordinal number corresponding to the length of the annuity period] anniversary of that date. The annuity amount shall be paid in equal quarterly installments at the end of each calendar quarter
from income, and to the extent income is not sufficient, from principal. Any income of the trust for a taxable year in excess
of the annuity amount shall be added to principal. If the initial net fair market value of the trust assets is incorrectly
determined, then within a reasonable period after the value is finally determined for federal tax purposes, the Trustee shall
pay to the Recipient (in the case of an undervaluation) or receive from the Recipient (in the case of an overvaluation) an
amount equal to the difference between the annuity amount(s) properly payable and the annuity amount(s) actually paid. 3. Proration of Annuity Amount. The Trustee shall prorate the annuity amount on a daily basis for any short taxable year. In the taxable year of the trust
of the annuity period in that taxable year.
4. Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principal and income of the trust
(other than any amount due the Recipient under the provisions above) to [designated remainderman] (hereinafter “the Charitable Organization”). If the Charitable Organization is not an organization described in §§ 170(c),
2055(a), and 2522(a) of the Code at the time when any principal or income of the trust is to be distributed to it, then the
Trustee shall distribute the then principal and income to one or more organizations described in §§ 170(c), 2055(a), and 2522(a)
of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee’s sole discretion.
5. Additional Contributions. No additional contributions shall be made to the trust after the initial contribution. 6. Prohibited Transactions. The Trustee shall not engage in any act of self-dealing within the meaning of § 4941(d) of the Code, as modified by § 4947(a)(2)(A)
of the Code. 7. Taxable Year. The taxable year of the trust shall be the calendar year.
8. Governing Law. The operation of the trust shall be governed by the laws of the State of . However, the Trustee is prohibited from exercising
9. Limited Power of Amendment. This trust is irrevocable. However, the Trustee shall have the power, acting alone, to amend the trust from time to time
10. Investment of Trust Assets. Nothing in this trust instrument shall be construed to restrict the Trustee from investing the trust assets in a manner
SECTION 5. ANNOTATIONS REGARDING SAMPLE INTER VIVOS CHARITABLE REMAINDER ANNUITY TRUST — TERM OF YEARS .01 Annotations for Introductory Paragraph and Paragraph 1, Funding of Trust, of the Sample Trust.
Factors concerning qualification of trust. A deduction must be allowable under § 170, § 2055, or § 2522 for property contributed to the trust. Section 1.664-1(a)(1)(iii)(a) of the Income Tax Regulations. The trust must meet the definition of and function exclusively as a charitable remainder
trust from the creation of the trust. Section 1.664-1(a)(4). Solely for purposes of § 664, a trust is deemed created at the
earliest time that neither the grantor nor any other person is treated as the owner of the entire trust under subpart E, part
1, subchapter J, chapter 1, subtitle A of the Code (subpart E), but in no event prior to the time property is first transferred
to the trust. Neither the donor nor the donor’s spouse shall be treated as the owner of the trust under subpart E merely because
he or she is named as a recipient of the annuity amount. Section 1.664-1(a)(4). In addition, funding the trust with certain
types of assets may disqualify it as a charitable remainder trust. See § 1.664-1(a)(7) and Rev. Rul. 73-610, 1973-2 C.B. 213.
Income tax deductibility limitations. The amount of the charitable deduction for income tax purposes is affected by a number of factors, including the type of
property contributed to the trust, the type of charity receiving the property, whether the remainder interest is paid outright
to charity or held in further trust, and the donor’s adjusted gross income (with certain adjustments). See § 170 (b) and
(e); § 1.170A-8; Rev. Rul. 80-38, 1980-1 C.B. 56; and Rev. Rul. 79-368, 1979-2 C.B. 109. See section 6.05 of this revenue
procedure for an alternate provision that restricts the charitable remainderman to a public charity (as defined therein).
Identity of donor. For purposes of qualification under this revenue procedure, the donor may be an individual or a husband and wife. Appropriate
adjustments should be made to the introductory paragraph if a husband and wife are the donors. Terms such as “grantor” or
“settlor” may be substituted for “donor.”
part, but not all, of the annuity amount. Section 664(d)(1)(A) and § 1.664-2(a)(3)(i). See section 6.02 of this revenue procedure
for an alternate provision that provides for payment of part of the annuity to an organization described in § 170(c).
Multiple noncharitable recipients. Generally, if the annuity amount is payable to more than one person, the trust instrument should describe the interest of
each person. See section 6.03 of this revenue procedure for an alternate provision providing for the apportionment of the
annuity amount among members of a named class in the discretion of the trustee.
of the assets placed in trust. Section 664(d)(1)(A). In addition, the value (determined under § 7520) of the charitable remainder
interest must be at least 10 percent of the initial net fair market value of all property placed in the trust. Section 664(d)(1)(D).
See §§ 1.7520-3(b) and 25.7520-3(b) for special rules that may be applicable in valuing interests transferred to CRATs.
Payment of annuity amount in installments. Paragraph 2, Payment of Annuity Amount, of the sample trust specifies that the annuity amount is to be paid in equal quarterly
installments at the end of each quarter. However, the trust instrument may specify that the annuity amount is to be paid to
the recipient annually or in equal or unequal installments throughout the year. See § 1.664-2(a)(1)(i). The amount of the
charitable deduction will be affected by the frequency of payment, by whether the installments are equal or unequal, and by
whether each installment is payable at the beginning or end of the period. See § 1.664-2(c) and § 20.2031-7(d)(2)(iv).
see § 1.664-2(a)(1)(i)(a).
Early distributions to charity. The trust instrument may provide that an amount other than the annuity shall be paid (or may be paid in the discretion of
the trustee) to an organization described in § 170(c). If such a distribution is made in kind, the adjusted basis of the property
distributed must be fairly representative of the adjusted basis of the property available for distribution on the date of
distribution. Section 1.664-2(a)(4).
Minimum value of remainder. As noted in section 5.02(4) of this revenue procedure, the value (determined under § 7520) of the charitable remainder interest
is required to be at least 10 percent of the initial net fair market value of all property placed in the trust. Section 664(d)(1)(D).
Designated remainderman. Any named charitable remainderman must be an organization described in § 170(c) at the time of the transfer to the charitable
remainder annuity trust. See § 664(d)(1)(C). Any named charitable remainderman also must be an organization described in § 2522(a)
to qualify for the gift tax charitable deduction and an organization described in § 2055(a) to qualify for the estate tax
charitable deduction. See Rev. Rul. 77-385, 1977-2 C.B. 331. If it is determined a deduction under § 2055(a) will not be necessary
in any event, all references to § 2055(a) in the trust instrument may be deleted. The trust instrument may restrict the charitable
remainderman to an organization described in §§ 170(c), 2055(a), and 2522(a), but grant to a trustee or other person the power
to designate the actual charitable remainderman. The gift of the remainder interest will be incomplete for gift tax purposes
if, for example: (i) the donor retains the power to substitute the charitable remainderman; or (ii) the trust instrument provides
the trustee with the power to designate the charitable remainderman and the donor is not prohibited from serving as trustee.
See § 25.2511-2(c). Note, however, that an income tax charitable deduction is available even if the donor has the authority
to substitute the charitable remainderman or the trustee has the authority to designate the charitable remainderman. Rev.
Rul. 68-417, 1968-2 C.B. 103; Rev. Rul. 79-368, 1979-2 C.B. 109. See section 6.06 of this revenue procedure for an alternate
provision in which the donor retains the right to substitute the charitable remainderman. See section 6.07 of this revenue
procedure for an alternate provision in which the recipient is granted a power of appointment to designate the charitable
Multiple remaindermen. The remainder interest may pass to more than one charitable organization as long as each organization is described in §§ 170(c),
2522(a), and, if needed, 2055(a). Section 1.664-2(a)(6)(i).
Alternative remaindermen. The trust instrument of a CRAT must provide a means for selecting alternative charitable remaindermen in the event the designated
organization is not qualified at the time any payments are to be made to it from the trust. Section 1.664-2(a)(6)(iv).
Section 53.4947-1(c)(2) of the Foundation and Similar Excise Taxes Regulations.
Prohibitions against certain investments and excess business holdings. Prohibitions against investments that jeopardize the exempt purpose of the trust for purposes of § 4944, as modified by
are required if the trust provides for payment of part of an annuity amount to an organization described in § 170(c) and gift
and estate tax charitable deductions are sought for this interest. See § 4947(b)(3). See section 6.02 of this revenue procedure
Trust to continue in existence for benefit of charity. The governing instrument requirements of § 508(e) must be included in the trust instrument if, after the termination of
termination of the annuity period when the trust continues in existence for the benefit of the charitable remainderman. Note
that when the trust provides for the trust corpus to be retained, in whole or in part, in trust for the charitable remainderman,
the higher deductibility limitations in § 170(b)(1)(A) for the income tax charitable deduction will not be available (even
if the charitable remainderman is restricted to a public charity) because the contribution of the trust corpus is made “for
the use of” rather than “to” the charitable remainderman. See § 1.170A-8(b).
assets transferred to the trust, the annuity amount may be stated as a specific dollar amount. Section 1.664-2(a)(1)(ii) and
(iii). In either case, the annuity amount must be not less than 5 percent nor more than 50 percent of the initial net fair
market value of all property placed in trust. Section 664(d)(1)(A).
Delete the last sentence of paragraph 2, Payment of Annuity Amount, of the sample trust concerning the incorrect valuation
of trust assets. .02 Payment of Part of the Annuity to an Organization Described in § 170(c).
Explanation. An organization described in § 170(c) may receive part, but not all, of any annuity amount. Section 664(d)(1)(A). If a gift
tax charitable deduction and, if needed, an estate tax charitable deduction are sought for the present value of the annuity
interest passing to a charitable organization, the trust instrument must contain additional provisions. First, the trust instrument
must specify the portion of each annuity payment that is payable to the noncharitable recipient and to the charitable organization
described in §§ 170(c), 2522(a), and, if needed, § 2055(a). Second, the trust instrument must contain a means for selecting
an alternative qualified charitable organization if the designated organization is not a qualified organization at the time
when any annuity amount is to be paid to it. Third, the trust instrument must contain prohibitions against investments that
jeopardize the exempt purpose of the trust for purposes of § 4944, as modified by § 4947(a)(2)(A), and against retaining any
excess business holdings for purposes of § 4943, as modified by § 4947(a)(2)(A).
Payment of Annuity Amount. The annuity amount is equal to [a number no less than 5 and no more than 50] percent of the initial net fair market value of all property transferred to the trust, valued as of the above date (that
is, the date of the transfer). In each taxable year of the trust during the annuity period, the Trustee shall pay [the percentage of the annuity amount payable to the noncharitable recipient] percent of the annuity amount to [permissible recipient] (hereinafter “the Recipient”) and [the percentage of the annuity amount payable to the charitable recipient] percent of the annuity amount to [an organization described in §§ 170(c), 2055(a), and 2522(a) of the Code] (hereinafter “the Charitable Recipient”). The annuity period is a term of [not more than 20] years. The first day of the annuity period shall be the date the property is transferred to the trust and the last day of
the annuity period shall be the day preceding the [ordinal number corresponding to the length of the annuity period] anniversary of that date. If the Charitable Recipient is not an organization described in §§ 170(c), 2055(a), and 2522(a)
of the Code at the time when any annuity payment is to be distributed to it, then the Trustee shall distribute that annuity
payment to one or more organizations described in §§ 170(c), 2055(a), and 2522(a) of the Code as the Trustee shall select,
and in the proportions as the Trustee shall decide, in the Trustee’s sole discretion. The annuity amount shall be paid in
equal quarterly installments at the end of each calendar quarter from income, and to the extent income is not sufficient,
from principal. Any income of the trust for a taxable year in excess of the annuity amount shall be added to principal. If
the initial net fair market value of the trust assets is incorrectly determined, then within a reasonable period after the
value is finally determined for federal tax purposes, the Trustee shall pay to the Recipient and the Charitable Recipient
(in the case of an undervaluation) or receive from the Recipient and the Charitable Recipient (in the case of an overvaluation)
an amount equal to the difference between the annuity amount(s) properly payable and the annuity amount(s) actually paid.
(other than any amount due the Recipient and the Charitable Recipient under the provisions above).
modified by § 4947(a)(2)(A) of the Code. .03 Apportionment of the Annuity Amount among Members of a Named Class in the Discretion of the Trustee.
Explanation. A trust is not a CRAT if any person has the power to alter the amount to be paid to any named person other than an organization
if subpart E were applicable to the trust. Section 1.664-2(a)(3)(ii). See Rev. Rul. 77-73, 1977-1 C.B. 175. For example, the
donor would not be treated as the owner of any portion of a trust if the power is exercisable solely by an independent trustee
or trustees, provided no person has the power to add beneficiaries to the class except to provide for after-born or after-adopted
children. Section 674(c). Trustees are independent for purposes of § 674(c) if none of them is the donor or the donor’s spouse
and if no more than half of them are related or subordinate parties who are subservient to the wishes of the donor. However,
an independent trustee’s discretionary power, exercisable solely by that trustee, to allocate the annuity amount among the
members of a class would cause the trustee to be treated as the owner of all or a portion of the trust under § 678(a) if the
trustee is a member of the class, if the trustee may apply trust income or corpus to satisfy the trustee’s own legal obligation,
or if the trustee actually exercises the power to satisfy a support obligation owed by the trustee. Therefore, if any trustee
is given the discretionary power exercisable solely by that trustee to allocate the annuity amount among members of a class,
the trust instrument must provide that such trustee must be: (i) independent; (ii) not a member of the recipient class; and
(iii) prohibited from applying any part of the annuity payment in satisfaction of the trustee’s own legal obligation.
class must be independent within the meaning of section 674(c) of the Code and must not be a member of the Recipient class.
Replace the first sentence of paragraph 2, Payment of Annuity Amount, of the sample trust with the following three sentences:
comprised of [designated members of class] (hereinafter “the Recipient”) an annuity amount equal to [a number no less than 5 and no more than 50] percent of the initial net fair market value of all property transferred to the trust, valued as of the above date (that
is, the date of the transfer). The Trustee may pay the annuity amount to one or more members of the class, in equal or unequal
shares, as the Trustee, in the Trustee’s sole discretion, may from time to time deem advisable. The Trustee may not, however,
apply the payment for the Trustee’s own benefit, or in satisfaction of any support or other legal obligation of the Trustee.
Explanation. Under § 664(f), payment of the annuity amount may terminate upon the earlier of the occurrence of a qualified contingency
be determined without regard to a qualified contingency. See § 664(f)(2).
Instruction for use. Replace the second and third sentences of paragraph 2, Payment of Annuity Amount, of the sample trust with the following
The annuity period is a term of [not more than 20] years, unless earlier terminated by the occurrence of [qualified contingency]. The first day of the annuity period shall be the date the property is transferred to the trust and the last day of the
annuity period shall be the day preceding the [ordinal number corresponding to the length of the annuity period] anniversary of that date or, if earlier, the date on which occurs the [qualified contingency].
Explanation. The amount of the donor’s income tax charitable deduction is more limited for gifts to certain private foundations than
for other charitable organizations. Specifically, charitable organizations described in § 170(c) include private foundations
that are not described in § 170(b)(1)(E). See § 170(b) and Rev. Rul. 79-368, 1979-2 C.B. 109. To avoid these more restrictive
limitations, a donor of an inter vivos CRAT may wish to restrict the charitable remainderman to an organization that is described
in § 170(b)(1)(A) as well as §§ 170(c), 2055(a), and 2522(a) (referred to herein as a “public charity”).
Instruction for use. To restrict the charitable remainderman to a public charity, each and every time the phrase “an organization described in
§§ 170(c), 2055(a), and 2522(a) of the Code” appears in the sample trust, replace it with the phrase “an organization described
in §§ 170(b)(1)(A), 170(c), 2055(a), and 2522(a) of the Code.”
Explanation. The donor may retain the right to substitute another charitable remainderman for the charitable remainderman named in the
trust instrument. See Rev. Rul. 76-8, 1976-1 C.B. 179. Note, however, that the retention of this right will cause the gift
of the remainder interest to be incomplete for gift tax purposes. See § 25.2511-2(c) and Rev. Rul. 77-275, 1977-2 C.B. 346.
Instruction for use. Insert the following sentence between the first and last sentences of paragraph 4, Distribution to Charity, of the sample
The Donor reserves the right to designate, at any time and from time to time, in lieu of the Charitable Organization identified
above, one or more organizations described in §§ 170(c), 2055(a), and 2522(a) of the Code as the charitable remainderman,
and shall make any such designation by giving written notice to the Trustee.
76-7, 1976-1 C.B. 179.
Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principal and income of the trust
§§ 170(c), 2055(a), and 2522(a) of the Code as the Recipient shall appoint and direct by specific reference to this power
of appointment by inter vivos or testamentary instrument. To the extent the Recipient fails to effectively exercise the power
of appointment, the principal and income not effectively appointed shall be distributed to one or more organizations described
in §§ 170(c), 2055(a), and 2522(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide,
in the Trustee’s sole discretion. If an organization fails to qualify as an organization described in §§ 170(c), 2055(a),
and 2522(a) of the Code at the time when any principal or income of the trust is to be distributed to it, then the Trustee
shall distribute the then principal and income to one or more organizations described in §§ 170(c), 2055(a), and 2522(a) of
the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee’s sole discretion.