Source: https://www.charitableplanning.com/library/documents/637096
Timestamp: 2019-03-19 16:53:20
Document Index: 418676246

Matched Legal Cases: ['§ 664', '§ 170', '§ 664', '§ 170', '§ 170', '§ 664', '§ 664', '§ 2055', '§ 2522', '§ 1', '§ 7520', '§ 170', '§ 170', '§ 2055', '§ 4944', '§ 4947', '§ 4943', '§ 4947', '§ 170', '§ 170', '§ 170']

Rev. Proc. 2003-55
SECTION 4. SAMPLE INTER VIVOS CHARITABLE REMAINDER ANNUITY TRUST — TWO LIVES, CONSECUTIVE INTERESTS
SECTION 5. ANNOTATIONS REGARDING SAMPLE INTER VIVOS CHARITABLE REMAINDER ANNUITY TRUST — TWO LIVES, CONSECUTIVE INTERESTS
This revenue procedure contains an annotated sample declaration of trust and alternate provisions that meet the requirements of § 664(d)(1) of the Internal Revenue Code for an inter vivos charitable remainder annuity trust (CRAT) providing for annuity payments payable consecutively for two measuring lives followed by the distribution of trust assets to a charitable remainderman.
Previously, the Internal Revenue Service issued sample trust instruments for certain types of CRATs. The Service is updating the previously issued samples and issuing new samples for additional types of CRATs; 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 CRAT providing for annuity payments payable consecutively for two measuring lives, samples are provided in separate revenue procedures for:
an inter vivos CRAT providing for annuity payments payable concurrently and consecutively for two measuring lives (see Rev. Proc. 2003-56, superceding section 5 of Rev. Proc. 90-32, 1990-1 C.B. 546);
Section 4 of this revenue procedure provides a sample declaration of trust for an inter vivos CRAT with consecutive interests for two measuring lives 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 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) a qualified contingency; (.04) the retained right to revoke the interest of the survivor recipient; (.05) the last annuity payments to the recipients; (.06) the restriction of the charitable remainderman to a public charity; (.07) the retained right to substitute the charitable remainderman; and (.08) 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 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) are also met. The Service will recognize a trust as a qualified CRAT meeting all of the requirements of § 664(d)(1) 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 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 with consecutive interests for two measuring lives 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.
On this day of , 20, I, (hereinafter “the Donor”), desiring to establish a charitable remainder annuity trust, within the meaning of Rev. Proc. 2003-55 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.
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 Initial Recipient”) until the Initial Recipient’s death, and thereafter to [permissible recipient] (hereinafter “the Successor Recipient”) (subject to any proration in paragraph 4), 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 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 date of the death of the survivor of the Initial Recipient and the Successor Recipient. 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 Initial Recipient and/or Successor Recipient (in the case of an undervaluation) or receive from the Initial Recipient and/or Successor 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. Payment of Federal Estate Taxes and State Death Taxes. The lifetime annuity interest of the Successor Recipient will take effect upon the death of the Initial Recipient only if the Successor Recipient furnishes the funds for payment of any federal estate taxes and state death taxes for which the Trustee may be liable upon the death of the Initial Recipient. If the funds are not furnished by the Successor Recipient, the annuity period shall terminate on the death of the Initial Recipient, notwithstanding any other provision in this instrument to the contrary.
4. Proration of Annuity Amount. The Trustee shall prorate the annuity amount on a daily basis for any short taxable year. If the Successor Recipient survives the Initial Recipient, the Trustee shall prorate on a daily basis the next regular annuity payment due after the death of the Initial Recipient between the estate of the Initial Recipient and the Successor Recipient. In the taxable year of the trust during which the annuity period ends, the Trustee shall prorate the annuity amount on a daily basis for the number of days of the annuity period in that taxable year.
Percentage requirements. The sum certain annuity amount must be at least 5 percent and not more than 50 percent of the initial net fair market value of the assets placed in trust. Section 664(d)(1)(A). Even if the sum certain annuity amount is at least 5 percent and not more than 50 percent of the initial net fair market value of the assets placed in trust, no deduction will be allowable under § 2055 or § 2522 if the probability that the trust corpus will be exhausted before the death of the survivor of the recipients exceeds 5 percent. Rev. Rul. 77-374, 1977-2 C.B. 329, and Rev. Rul. 70-452, 1970-2 C.B. 199. See §§ 1.7520-3(b) and 25.7520-3(b) for special rules that may be applicable in valuing interests transferred to CRATs. 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).
In each taxable year of the trust during the annuity period, the Trustee shall pay to [permissible recipient] (hereinafter “the Initial Recipient”) until the Initial Recipient’s death and thereafter to [permissible recipient] (hereinafter “the Successor Recipient”) (subject to any proration in paragraph 4), an annuity amount equal to [the stated dollar amount].
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 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 recipients] percent of the annuity amount to [permissible recipient] (hereinafter “the Initial Recipient”) until the Initial Recipient’s death, and thereafter to [permissible recipient] (hereinafter “the Successor Recipient”) (subject to any proration in paragraph 4). In each taxable year of the trust during the annuity period, the Trustee shall pay [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 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 date of the death of the survivor of the Initial Recipient and the Successor Recipient. 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 Initial Recipient and/or the Successor Recipient and the Charitable Recipient (in the case of an undervaluation) or receive from the Initial Recipient and/or the Successor 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.
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 date of the death of the survivor of the Initial Recipient and the Successor Recipient or, if earlier, the date on which occurs the [qualified contingency].
Explanation. The donor may retain the right to revoke or terminate the interest of the successor recipient. This right is exercisable only by the donor’s last will and testament. Section 1.664-2(a)(4). The retention of this right may have gift and estate tax consequences. It will affect the value of the annuity interests transferred. It may also cause a portion of the trust to be included in the donor’s gross estate for federal estate tax purposes, even if it would otherwise not be includible. The following alternate provision provides for the donor’s retention of the right to revoke when the donor is also a recipient.
Designate the donor as the initial recipient in paragraph 2, Payment of Annuity Amount, of the sample trust.
The Donor hereby expressly reserves the power, exercisable only by the Donor’s last will and testament, to revoke and terminate the interest of the Successor Recipient under this trust. 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 date of the death of the survivor of the Initial Recipient and the Successor Recipient or, if the Donor revokes the interest of the Successor Recipient, the date of the Initial Recipient’s death.
To add an alternate provision to terminate the payment of the initial recipient’s share of the annuity amount with the last regular payment preceding his or her death, replace paragraph 4, Proration of Annuity Amount, of the sample trust with the following paragraph:
To add an alternate provision terminating the payment of the initial recipient’s share of the annuity amount with the last regular payment preceding his or her death, and terminating the payment of the annuity amount with the last regular payment preceding the termination of the annuity period, replace paragraph 4, Proration of Annuity Amount, of the sample trust with the following paragraph:
Section 4 of Rev. Proc. 90-32 is superseded.