Source: https://www.charitableplanning.com/library/documents/637109
Timestamp: 2019-03-19 17:22:47
Document Index: 683370761

Matched Legal Cases: ['§ 664', '§ 170', '§ 664', '§ 664', '§ 170', '§ 170', '§ 664', '§ 664', '§ 664', '§ 664', '§ 1', '§ 7520', '§ 1', '§ 1', '§ 1', '§ 1', '§ 1', '§ 1', '§ 4941', '§ 4947', '§ 4945', '§ 4947', '§ 170', '§ 170', '§ 170', '§ 170', '§ 674', '§ 678', '§ 643', '§ 643']

Rev. Proc. 2005-53
SECTION 4. SAMPLE INTER VIVOS CHARITABLE REMAINDER UNITRUST — TERM OF YEARS
SECTION 5. ANNOTATIONS REGARDING SAMPLE INTER VIVOS CHARITABLE REMAINDER UNITRUST — TERM OF YEARS
.03 Annotation for Paragraph 3, Proration of Unitrust Amount, of the Sample Trust.
SECTION 6. ALTERNATE PROVISIONS FOR SAMPLE INTER VIVOS CHARITABLE REMAINDER UNITRUST — TERM OF YEARS
This revenue procedure contains an annotated sample declaration of trust and alternate provisions that meet the requirements of § 664(d)(2) and (d)(3) of the Internal Revenue Code for an inter vivos charitable remainder unitrust (CRUT) providing for unitrust payments for a term of years followed by the distribution of trust assets to a charitable remainderman.
Previously, the Internal Revenue Service issued sample trust instruments for certain types of CRUTs. The Service is updating the previously issued samples and issuing new samples for additional types of CRUTs; annotations and alternate sample provisions are included as further guidance. In addition to the sample trust instrument included in this revenue procedure for an inter vivos CRUT providing for unitrust payments for a term of years, samples are provided in other separate revenue procedures for:
an inter vivos CRUT providing for unitrust payments payable consecutively for two measuring lives (see Rev. Proc. 2005-54, superseding section 4 of Rev. Proc. 90-30, 1990-1 C.B. 534, and section 5 of Rev. Proc. 90-31;
Section 4 of this revenue procedure provides a sample declaration of trust for an inter vivos CRUT providing for a term of years unitrust period that is created by an individual who is a citizen or resident of the United States. Section 5 of this revenue procedure provides annotations to the provisions of the sample trust. Section 6 of this revenue procedure provides samples of certain alternate provisions concerning: (.01) the payment of part of the unitrust amount to an organization described in § 170(c); (.02) the apportionment of the unitrust amount among members of a named class in the discretion of the trustee; (.03) a qualified contingency; (.04) the restriction of the charitable remainderman to a public charity; (.05) a retained right to substitute the charitable remainderman; (.06) a power of appointment to designate the charitable remainderman; (.07) the net income method of calculating the unitrust amount; (.08) the net income with make-up method of calculating the unitrust amount; and (.09) a combination of methods for calculating the unitrust amount.
For transfers to a qualifying CRUT, as defined in § 664(d)(2) and, if applicable, § 664(d)(3), the remainder interest will be deductible by a citizen or resident of the United States under §§ 170(f)(2)(A), 2055(e)(2)(A), and 2522(c)(2)(A) for income, estate, and gift tax purposes, respectively, if the other requirements of §§ 170(f)(2)(A), 2055(e)(2)(A), and 2522(c)(2)(A) (that is, the requirements not relating to the provisions of the governing instrument) also are met. The Service will recognize a trust as a qualified CRUT meeting all of the requirements of § 664(d)(2) and, if applicable, § 664(d)(3), if the trust operates in a manner consistent with the terms of the trust instrument, if the trust is a valid trust under applicable local law, and if the trust instrument: (i) is substantially similar to the sample in section 4 of this revenue procedure; or (ii) properly integrates one or more alternate provisions from section 6 of this revenue procedure into a document substantially similar to the sample in section 4 of this revenue procedure. A trust 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 unitrust period qualifies as a CRUT. 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 CRUT.
On this ______ day of _______, 20___, I, _________ (hereinafter “the Donor”), desiring to establish a charitable remainder unitrust within the meaning of Rev. Proc. 2005-53 and § 664(d)(2) 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 Unitrust.
2. Payment of Unitrust Amount. In each taxable year of the trust during the unitrust period, the Trustee shall pay to [permissible recipient] (hereinafter “the Recipient”) a unitrust amount equal to [a number no less than 5 and no more than 50] percent of the net fair market value of the assets of the trust valued as of the first day of each taxable year of the trust (hereinafter “the valuation date”). The unitrust period shall be a period of [a number not more than 20] years. The first day of the unitrust period shall be the date property is first transferred to the trust and the last day of the unitrust period shall be the day preceding the [ordinal number corresponding to the length of the unitrust period] anniversary of that date. The unitrust 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 unitrust amount shall be added to principal. If, for any year, the net fair market value of the trust assets is incorrectly determined, then within a reasonable period after the correct value is finally determined, 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 unitrust amount(s) properly payable and the unitrust amount(s) actually paid.
Trustee provisions. Alternate or successor trustees may be designated in the trust instrument. In addition, the trust instrument may contain other administrative provisions relating to the trustee’s duties and powers, as long as the provisions do not conflict with the rules governing charitable remainder trusts under § 664 and the regulations thereunder. Note that certain powers given to certain persons serving as trustee may cause the trustee to be treated as the owner of the trust under subpart E and thus disqualify the trust as a charitable remainder trust. See § 1.664-1(a)(4).
Minimum value of remainder. As noted in section 5.02(5) of this revenue procedure, with respect to each contribution of property to the trust, the value of the charitable remainder interest (determined under § 7520) is required to be at least 10 percent of the net fair market value of the property contributed to the trust as of the date of its contribution to the trust. Section 664(d)(2)(D).
Proration of additional contributions. Paragraph 5, Additional Contributions, of the sample trust provides a formula for determining the unitrust amount in each year that an additional contribution is made to the CRUT. If an additional contribution is made in a short taxable year or in the taxable year during which the unitrust period ends, the unitrust amount computed under paragraph 5 of the sample trust must be prorated pursuant to paragraph 3, Proration of Unitrust Amount, of the sample trust.
Testamentary additions. If the donor is not the recipient and the donor makes an additional contribution at death whereby the obligation to pay the unitrust amount with respect to any property passing to the trust by reason of the donor’s death begins as of the date of the donor’s death, the requirement to pay the portion of the unitrust amount allocable to that contribution may be deferred pursuant to the provisions of § 1.664-1(a)(5)(i). The deferral provision in paragraph 6 of the sample trust uses the method for computing deferred payments that is provided in § 1.664-1(a)(5)(i). Note that § 1.664-1(a)(5)(ii) provides an alternate method for determining the amount described in § 1.664-1(a)(5)(i)(b), i.e., the unitrust amounts payable plus interest on those amounts. Rev. Rul. 92-57, 1992-2 C.B. 123, provides sample language to be included in the governing instrument if the alternate method set forth in § 1.664-1(a)(5)(ii) for determining the amount described in § 1.664-1(a)(5)(i)(b) is selected.
Payment of the unitrust amount. Payment of the unitrust amount to the recipient is not considered an act of self-dealing within the meaning of § 4941(d), as modified by § 4947(a)(2)(A), or a taxable expenditure within the meaning of § 4945(d), as modified by § 4947(a)(A). Section 53.4947-1(c)(2) of the Foundation and Similar Excise Taxes Regulations.
Payment of Unitrust Amount. The unitrust amount is equal to [a number no less than 5 and no more than 50] percent of the net fair market value of the assets of the trust valued as of the first day of each taxable year of the trust (hereinafter “the valuation date”). In each taxable year of the trust during the unitrust period, the Trustee shall pay [the percentage of the unitrust amount payable to the noncharitable recipient] percent of the unitrust amount to [permissible recipient] (hereinafter “the Recipient”) and [the percentage of the unitrust amount payable to the charitable recipient] percent of the unitrust amount to [an organization described in §§ 170(c), 2055(a), and 2522(a) of the Code] (hereinafter “the Charitable Recipient”). The unitrust period shall be a period of [a number not more than 20] years. The first day of the unitrust period shall be the date property is first transferred to the trust and the last day of the unitrust period shall be the day preceding the [ordinal number corresponding to the length of the unitrust 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 unitrust payment is to be distributed to it, then the Trustee shall distribute that unitrust 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 unitrust 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 unitrust amount shall be added to principal. If, for any year, the net fair market value of the trust assets is incorrectly determined, then within a reasonable period after the correct value is finally determined, 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 unitrust amount(s) properly payable and the unitrust amount(s) actually paid.
Replace each reference to “the Recipient” in paragraph 6 of the sample trust, Deferral of the Unitrust Payment Allocable to Testamentary Transfer, with a reference to “the Recipient and the Charitable Recipient.”
Explanation. A trust is not a CRUT if any person has the power to alter the amount to be paid to any named person other than an organization described in § 170(c) if the power would cause any person to be treated as the owner of the trust, or any portion thereof, if subpart E were applicable to the trust. Section 1.664-3(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 unitrust 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 unitrust 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 unitrust payment in satisfaction of the trustee’s own legal obligation.
Replace the first sentence of paragraph 2, Payment of Unitrust Amount, of the sample trust with the following three sentences:
Instructions for use. Replace the second and third sentences of paragraph 2, Payment of Unitrust Amount, of the sample trust with the following two sentences:
The unitrust period is a period of [not more than 20] years, unless earlier terminated by the occurrence of [qualified contingency]. The first day of the unitrust period shall be the date property is first transferred to the trust and the last day of the unitrust period shall be the day preceding the [ordinal number corresponding to the length of the unitrust period] anniversary of that date or, if earlier, the date on which occurs the [qualified contingency].
Replace the first five sentences of paragraph 2, Payment of Unitrust Amount, of the sample trust with the following:
In each taxable year of the trust during the unitrust period, the Trustee shall pay to [permissible recipient] (hereinafter “the Recipient”) a unitrust amount equal to the lesser of (a) a fixed percentage amount equal to [a number no less than 5 and no more than 50] percent of the net fair market value of the assets of the trust valued as of the valuation date (hereinafter “the fixed percentage amount described in (a) of paragraph 2”) or (b) the trust income for the taxable year as defined in § 643(b) of the Code and the applicable regulations. The valuation date is the first day of each taxable year of the trust. The unitrust period shall be a period of [a number not more than 20] years. The first day of the unitrust period shall be the date property is first transferred to the trust and the last day of the unitrust period shall be the day preceding the [ordinal number corresponding to the length of the unitrust period] anniversary of that date. The unitrust amount shall be paid in equal quarterly installments at the end of each calendar quarter from income. Any income of the trust for a taxable year in excess of the unitrust amount shall be added to principal.
In each taxable year of the trust during the unitrust period, the Trustee shall pay to [permissible recipient] (hereinafter “the Recipient”) a unitrust amount equal to the lesser of (a) a fixed percentage amount equal to [a number no less than 5 and no more than 50] percent of the net fair market value of the assets of the trust valued as of the valuation date (hereinafter “the fixed percentage amount described in (a) of paragraph 2”) or (b) the trust income for the taxable year as defined in § 643(b) of the Code and the applicable regulations. The unitrust amount for a taxable year shall also include any amount of trust income for the year that is in excess of [the fixed percentage amount determined under (a) of this paragraph for the year], but only to the extent that the aggregate of the amounts paid to the Recipient in prior years was less than the aggregate of the amounts determined for all prior years under (a) of this paragraph and (a) of paragraph 5. The valuation date is the first day of each taxable year of the trust. The unitrust period shall be a period of [a number not more than 20] years. The first day of the unitrust period shall be the date property is first transferred to the trust and the last day of the unitrust period shall be the day preceding the [ordinal number corresponding to the length of the unitrust period] anniversary of that date. The unitrust amount shall be paid in equal quarterly installments at the end of each calendar quarter from income. Any income of the trust for a taxable year in excess of the unitrust amount shall be added to principal.
In general. The unitrust period shall be a period of [a number not more than 20] years. The first day of the unitrust period shall be the date property is first transferred to the trust and the last day of the unitrust period shall be the day preceding the [ordinal number corresponding to the length of the unitrust period] anniversary of that date. The valuation date is the first day of each taxable year of the trust. If, for any year, the net fair market value of the trust assets is incorrectly determined, then within a reasonable period after the correct value is finally determined, 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 unitrust amount(s) properly payable and the unitrust amount(s) actually paid.
The unitrust amount for that year shall also include any amount of trust income for the year that is in excess of [the fixed percentage amount determined under (a) of paragraph 5(i) for the year], but only to the extent that the aggregate of the amounts paid to the Recipient in prior years was less than the aggregate of the amounts determined for all prior years under (a) of paragraph 2(i) and (a) of this paragraph 5(i). In a taxable year in which an additional contribution is made on or after the valuation date, the assets so added shall be valued as of the date of contribution, without regard to any post-contribution income or appreciation, rather than as of the valuation date.
or each additional contribution during the year, the fair market value of the assets so added as of the valuation date (including any post-contribution income from, and appreciation on, such assets through the valuation date) multiplied by a fraction the numerator of which is the number of days in the period that begins with the date of contribution and ends with the earlier of the last day of the taxable year or the last day of the unitrust period and the denominator of which is the number of days in the period that begins with the first day of such taxable year and ends with the earlier of the last day in such taxable year or the last day of the unitrust period.
In a taxable year in which an additional contribution is made on or after the valuation date, the assets so added shall be valued as of the date of contribution, without regard to any post-contribution income or appreciation, rather than as of the valuation date. Beginning on the effective date of the triggering event, the Trustee shall no longer pay the amount equal to the lesser of (a) or (b) in paragraph 5(i) and shall not pay any amount of trust income described in the second sentence of paragraph 5(i).