Source: https://www.charitableplanning.com/library/documents/636994
Timestamp: 2019-05-25 01:32:51
Document Index: 50666080

Matched Legal Cases: ['§ 664', '§ 170', '§ 664', '§ 2055', '§ 2055', '§ 664', '§ 664', '§ 664', '§ 170', '§ 170', '§ 664', '§ 1', '§ 7701', '§ 170', '§ 1', '§ 170', '§ 7520', '§ 20', '§ 7520', '§ 170', '§ 170', '§ 170', '§ 170', '§ 678', '§ 664', '§ 664', '§ 664', '§ 170', '§ 170', '§ 170', '§ 170']

SECTION 4. SAMPLE TESTAMENTARY CHARITABLE REMAINDER ANNUITY TRUST — TERM OF YEARS
SECTION 5. ANNOTATIONS REGARDING SAMPLE TESTAMENTARY CHARITABLE REMAINDER ANNUITY TRUST — TERM OF YEARS
SECTION 6. ALTERNATE PROVISIONS FOR SAMPLE TESTAMENTARY CHARITABLE REMAINDER ANNUITY TRUST — TERM OF YEARS
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 a testamentary charitable remainder annuity trust (CRAT) providing for annuity payments for a term of years followed by the distribution of trust assets to a charitable remainderman.
Section 4 of this revenue procedure provides a sample declaration of trust for a testamentary CRAT that is created by an individual who is a citizen or resident of the United States and that provides for a term of years annuity period. 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) the apportionment of the annuity amount among members of a named class in the discretion of the trustee; (.04) a qualified contingency; and (.05) 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 the estate of a citizen or resident of the United States under § 2055(e)(2)(A) if the other requirements of § 2055(e)(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 a testamentary 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.
I give, devise, and bequeath [property bequeathed] to my Trustee in trust to be administered under this provision. I intend this bequest to establish a charitable remainder annuity trust, within the meaning of Rev. Proc. 2003-58 and § 664(d)(1) of the Internal Revenue Code (hereinafter “the Code”). The trust shall be known as the Charitable Remainder Annuity Trust and I hereby designate as the initial trustee (hereinafter “the Trustee”).
1.	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 passing to this trust as finally determined for federal estate tax purposes. 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 of my death 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 estate 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.
2.	Deferral Provision. The obligation to pay the annuity amount shall commence with the date of my death, but payment of the annuity amount may be deferred from this date until the end of the taxable year in which the trust is completely funded. Within a reasonable time after the end of the taxable year in which the trust is completely funded, the Trustee must pay to the Recipient (in the case of an underpayment) or receive from the Recipient (in the case of an overpayment) the difference between any annuity amounts actually paid, plus interest, and the annuity amounts payable, plus interest. The interest shall be computed for any period at the rate of interest, compounded annually, that the federal income tax regulations under § 664 of the Code prescribe for this computation.
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 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.
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) and 2055(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) and 2055(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee’s sole discretion.
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 the 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). 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.
Permissible term. The period for which the annuity amount is payable must not exceed 20 years. Section 1.664-2(a)(5)(i). Thus, for example, the annuity period of a CRAT for a term of 20 years will end on the day preceding the twentieth anniversary of the date the trust was created.
Permissible recipients. For a CRAT having a term of years annuity period, the annuity amount must generally be paid to a named person or persons (within the meaning of § 7701(a)(1)). If the annuity amount is to be paid to an individual or individuals, all the individuals must be living at the time of the creation of the trust. The annuity amount may be payable to the estate or heirs of a named recipient who dies prior to the expiration of the term of years. See Rev. Rul. 74-39, 1974-1 C.B. 156. The annuity amount may be payable to members of a named class and, because the annuity period is for a term of years, all of the members of the class need not be living or ascertainable at the creation of the trust. An organization described in § 170(c) may receive 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.
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). 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 § 20.7520-3(b) for special rules that may be applicable in valuing interests transferred to CRATs.
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).
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 passing to this trust as finally determined for federal estate tax purposes. 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) and 2055(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 of my death 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) and 2055(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) and 2055(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 estate 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.
In paragraph 2, Deferral Provision, and paragraph 4, Distribution to Charity, of the sample trust, replace each reference to “the Recipient” with a reference to “the Recipient and the Charitable Recipient.”
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 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 1.664-2(a)(3)(ii). See Rev. Rul. 77-73, 1977-1 C.B. 175. A 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) not a member of the recipient class; and (ii) prohibited from applying any part of the annuity payment in satisfaction of the trustee’s own legal obligation.
Any trustee who is authorized in the trustee’s sole discretion to allocate the annuity amount among members of a Recipient class must not be a member of the Recipient class.
Replace the first sentence of paragraph 1, Payment of Annuity Amount, of the sample trust with the following three sentences:
In each taxable year of the trust during the annuity period, the Trustee shall pay to a member or members of a class of persons 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 passing to this trust as finally determined for federal estate tax purposes. 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 (as defined in § 664(f)(3)) or the expiration of the term of years. The amount of the charitable deduction, however, will be determined without regard to a qualified contingency. See § 664(f)(2).
Instruction for use. Replace the second and third sentences of paragraph 1, Payment of Annuity Amount, of the sample trust with the following two sentences, respectively:
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 one or more charitable organizations described in §§ 170(c) and 2055(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) and 2055(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) and 2055(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) and 2055(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee’s sole discretion.