DESCRIPTION OF GIVING PLANS FOR CHARITABLE PURPOSES Beneficiary Designations of Retirement Plans and IRA’s. Retirement accounts, which include pension plans, profit sharing plans, stock bonus plans, Keogh Plans, 401(k) plans and Individual Retirement Accounts (IRAs), generate a number of tax consequences at the time of death of the owner. These tax consequences make qualified retirement assets and IRAs appropriate as charitable giving vehicles. Bequest or Devise is a gift provided for in a person’s will. Charitable Lead Trust, also known as a Short Term Charitable Trust or a Reversionary Living Trust, is a trust which is irrevocable for a term of years with the income being paid to a charity during this term. There is a provision for the property to revert to the trustor at the end of the term. Charitable Remainder Annuity Trust is a trust created by the Tax Reform Act of 1969 and it provides for a donor to transfer property to a trustee subject to his right to receive a fixed percentage of the initial net fair market value of the property for as long as he lives. Whatever remains in the trust at his death becomes the property of the beneficiary institution. Charitable Remainder Unitrust is another trust of the Tax Reform Act of 1969. It is similar to the charitable remainder annuity trust in many ways, except the income is a percentage of the fair market value of the property transferred, determined annually. Gift Annuity is a contract between your client and Economics Arkansas. By transferring cash or other assets, such as securities, your client will receive guaranteed payments for life. The amount of each payment is determined by your client’s age when the annuity is initially funded. Married couples often choose to have two annuitants so both will enjoy payments for life. Gift of Life Insurance is designation of a charitable organization as beneficiary of an insurance policy; assignment of ownership of a policy to charity; or gift to charity of a partial interest in a policy. Life Estate Contract is a contract that provides for a donor to transfer title to his home or family farm to a charity, reserving to himself the right to live in and on the property and receive all the income therefrom. At his death, the home or farm becomes the property of the charitable organization. Payable on Death Deposit Account is a specific type of bank account allowed in most states which is payable on request to one person during lifetime and on his death to one or more P.O.D. payees, or to one or more persons during their lifetimes and on the death of all of them, to one or more payees. Qualified Terminable Interest Property Trust is a product of the ERTA of 1981. This trust must pay all income to the surviving spouse for life and pass the remaining trust principal to a designated beneficiary (which may be a charity) at the death of the surviving spouse. Revocable Living Trust is a flexible revocable agreement whereby a donor transfers income-producing property, of almost any kind, to a trustee and receives an income for a period of years or for life and whatever remains in the trust at his death becomes the property of the beneficiaries of the trust.
SUGGESTED WORDING FOR BEQUESTS
1.
Unconditional Bequest "I give and devise to ECONOMICS ARKANSAS FOUNDATION, the sum of $__________ (or the following described property), the principal and income to be used in such manner as its Board of Directors deems best."
2.
Bequest of Residue "I give and devise to ECONOMICS ARKANSAS FOUNDATION, all the rest of my property and estate, real and personal. The principal and income will be used in such manner as its Board of Directors deems best."
3.
Contingent Bequest "If all of the above-named beneficiaries (devisees) should pre-decease me, then I give and devise the property, real or personal, which each such beneficiary (devisee) would have received had he survived me, to ECONOMICS ARKANSAS FOUNDATION, the principal and income to be used in such manner as its Board of Directors deems best."
4.
Bequest for Specific Purpose "I give and devise to ECONOMICS ARKANSAS FOUNDATION, the sum of $_________ (or the following described property), to establish THE _____________ FUND. The Fund income, but not the principal, should be used for __________________. If, in the judgment of its Board of Directors, change of circumstances should at some future time render the designated use of this Fund no longer appropriate, then the Board should use the Fund's income to further the objectives and purposes of ECONOMICS ARKANSAS FOUNDATION.
SAMPLE LIFE ESTATE AGREEMENT
This AGREEMENT made and entered into by and between JOHN DOE, of ________________, hereinafter referred to as Grantor, and ECONOMICS ARKANSAS FOUNDATION, a not-for-profit charitable corporation of the State of Arkansas, hereinafter referred to as THE ORGANIZATION. WITNESSETH: Whereas Grantor has executed and delivered to THE ORGANIZATION a deed to the following described real estate, to-wit:
in which deed Grantor has reserved unto himself a life estate; IT IS THEREFORE AGREED by and between the parties hereto: (1) That Grantor during the full term of his natural life shall be entitled to the right of possession and occupancy in and to the above-described real estate and the rents, income and profits arising therefrom. (2) That Grantor shall pay the real estate taxes levied and assessed against said real estate during his lifetime. (3) That THE ORGANIZATION will not sell or convey its remainder interest in said real estate during the lifetime of Grantor. (4) In accepting the deed which conveys the title to THE ORGANIZATION, subject to the life estate, THE ORGANIZATION agrees that if Grantor is required to use the full title to this property, THE ORGANIZATION will join with him in the execution of whatever documents may be required to assure him of the full use thereof. (5) It is mutually understood and agreed by the parties to this agreement that the sole purpose of this grant is that the property or the proceeds from the sale of the property shall be paid to ECONOMICS ARKANSAS FOUNDATION, to be used in carrying out its corporate objectives and purposes. IN WITNESS WHEREOF, the parties have executed this agreement this _______ day of _________________, 20____.
JOHN DOE, Grantor
Executive Director, Economics Arkansas By
ACKNOWLEDGMENT AND OATH STATE OF COUNTY OF
) ) )
SS:
On this ____ day of _______________20___ before me, the undersigned, a Notary Public, personally appeared to me known to be the same person described in and who executed the foregoing instrument and acknowledged that ____________________ executed the same as free and voluntary act and deed. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my notorial seal on the day and year above written.
Notary Public in and for County, My Commission Expires:
STATE OF COUNTY OF
) ) SS: )
On this day of 20 before me, the undersigned, a Notary Public, personally appeared to me personally known, who, being by me duly sworn, did say that he is of the Board of Directors, ECONOMICS ARKANSAS FOUNDATION, a non-profit corporation, and that the seal affixed to the foregoing instrument is the corporate of said corporation; that said instrument was signed and sealed on behalf of said corporation by authority of The Board of Directors; and _______ acknowledged said instrument to be the free act and deed of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my notorial seal on the day and year above written.
Notary Public in and for County, My Commission Expires:
DEFINITION OF A CHARITABLE REMAINDER ANNUITY TRUST A separately invested trust created by a gift of cash and/or securities or other property requiring the payment of a fixed dollar amount (which must be at least 5% of the initial fair market value of the gift establishing the trust, and can be higher if so stated in the trust agreement) at least annually to the Donor and/or other named beneficiaries (who must be living at the time the trust is created) for the life or lives of the beneficiary(ies) or for a term of years (not to exceed twenty years). Upon the death of the last surviving beneficiary, or at the end of the term of years, the trust terminates and the trust assets are transferred to the charitable organization for which it was created. See Section 664(d)(1) of the Internal Revenue Code and Sections 1.664-1, 1.664-2 of the Internal Revenue Regulations. To the extent that the investment income of the trust assets is insufficient to make the required annual payout, the balance must be paid from principal. The trustee can be the charitable organization for whom the remainder interest is designated, or may be an individual (other than the Donor himself or a non-charitable beneficiary of the trust) or a corporate trustee such as a bank or trust company. A charitable organization can be an income beneficiary so long as there is at least one non-charitable beneficiary. Except for the required payout from the trust to the income beneficiaries, the trust may not be invaded, altered, amended or revoked for the beneficial use of a person other than an organization described in Code Section 170(c).
SAMPLE ANNUITY TRUST (ANNUAL PAYMENT DESCRIBED AS STATED AMOUNT) TAX LAW IRS CODE 1954 Sec. 664 Regs. Sec. 1.664 (Rg.) Rev. Rul. 72-395 (R.R.) I.R.B. 1972-36
ANNUITY TRUST AGREEMENT made the day of , 20 , between ____________________________________________ (hereinafter called the "Donor") and Board of Directors, Economics Arkansas Foundation, or its successors, an Arkansas corporation located at Little Rock, Arkansas, (hereinafter called the "Trustee"). 1. The Donor transfers and delivers to the Trustee the property described in the annexed Schedule "A", having a total net fair market value of $ . This property and all receipts of every kind shall be managed and invested by the Trustee as a single fund (hereinafter called the "Annuity Trust").
Rg. Sec. 1.664-2 (a)(1) R.R. 72-395 Sec. 4.01
2. (A) The Trustee shall pay to the Donor (in cash, in kind, or partly in each) during his life an annuity amount of $_______ in each taxable year of the Annuity Trust. The annuity amount shall be paid in equal quarterly installments of $________ on the last day of March, June, September and December of each year. The payments to the Donor shall be paid from income and, to the extent that income is not sufficient, from principal. Any income of the Annuity Trust for a taxable year in excess of the annuity amount shall be added to principal. The annuity amount shall be decreased as elsewhere provided in the case where the taxable year is a short taxable year or is the taxable year in which the Donor dies. The Trustee's obligation to make payments is limited to the Annuity Trust assets.
IMPORTANT: The fixed dollar amount in paragraph 2(A) must be at least five percent (5%) of the initial net fair market value of the property transferred to the trust.
Rg. Sec. 1.664-2 (a)(1) (iv)(a) R.R. 72-395 Sec. 4.04
(B) The first taxable year of the trust begins with the date of the Agreement and shall end on December 31, 20 . Subsequent taxable years shall be on a calendar year basis. In the case of a taxable year which is for a period of less than 12 months (other than the taxable year in which the Donor dies) the annuity which must be distributed under paragraph 2(A) shall be such amount multiplied by a fraction the numerator of which is the number of days in the taxable year of the Annuity Trust, and the denominator of which is 365 (366 if February 29 is a day included in the numerator). Accordingly, during the first taxable year the first installment on March 31, 20 ___shall be $_________ and all quarterly installments thereafter shall be $ . In the case of the taxable year in which the Donor dies the annuity amount which must be distributed under paragraph 2(A) shall be such amount multiplied by a fraction the numerator of which is the number of days in the period beginning on the first day of such taxable year and ending on the date of the Donor's death and the denominator of which is 365 (366 if February 29 is a day included in the numerator). Notwithstanding the foregoing, the obligation of the Trustee to pay the annuity amount shall terminate with the payment next preceding the Donor's death.
Rg. Sec. 1.664-2(a)(6) (i) R.R. 72-395 Sec. 4.02
(C) Upon the Donor's death, this Agreement shall terminate and Trustee shall distribute all of the then principal and income of the Annuity Trust, other than any amount due the Donor, to the Board of Directors, Economics Arkansas Foundation, or its successors for (state purpose). If Economics Arkansas Foundation is not an organization described in section 170 (c) of the Internal Revenue Code of 1954 (hereinafter called "Code") at the time when any principal or income of the Annuity Trust is to be distributed to it, the Trustee shall distribute such principal or income to one or more organizations then described in section 170 (c) as the Trustee shall select in its sole discretion and in such shares as it shall determine.
Rg. Sec. 1.664-2(a)(6) (iv) R.R. 72-395 Sec. 4.03
Rg. Sec. 1.664-1(a) (3) R.R. 72-395 Sec. 7.08
3. In addition to the powers conferred upon it by law, the Trustee is authorized to retain the property described in Schedule "A", or may sell the property and invest and reinvest the Annuity Trust in any kind of property without diversification as to kind or amount and without regard to the limitations imposed by law on investments. Nothing in this agreement shall be construed to restrict the Trustee from investing the Annuity Trust assets in a manner which could result in the annual realization of a reasonable amount of income or gain from the sale or disposition of trust assets.
Rg. Sec. 1.664-2(b) R.R. 72-395 Sec. 4.05
4. No additional contributions may be made to the Annuity Trust after the initial contribution. 5. The Trustee shall not receive compensation for services rendered under this Agreement. No bond or other security shall be required of the Trustee in any jurisdiction.
IRS Code 1954 Sec. 4947(a) Sec. 508(e) R.R. 72-395 Sec. 4.06
6. In creating this Annuity Trust, Donor intends to obtain the full benefit of any income, gift and estate tax charitable contribution deduction to which he (and his estate) may be entitled under the Code and for the Annuity Trust to qualify as a charitable remainder annuity trust under Code Section 664 and the regulations thereunder. Accordingly, the Annuity Trust shall be interpreted, valued, managed and invested consistent with the Donor's intent. Without limiting the generality of the foregoing, the Trustee is prohibited (except for the payment of the annuity amount to the Donor) from engaging in any act of self-dealing as defined in section 4941(d) of the Code, from retaining any excess business holdings as defined in section 4943(c) of the Code which would subject the trust to tax under section 4943 of the Code, from making any investments which would subject the trust to tax under section 4944 of the Code, and from making any taxable expenditures as defined in section 4945(d) of the Code. If section 4942 of the Code is deemed applicable to the Annuity Trust by reason of section 508(e) of the Code or otherwise, the Trustee shall make distributions at such time and in such manner as not to subject the Annuity Trust to tax under section 4942 of the Code. 7. The Annuity Trust assets shall not be subject to estate, inheritance or other death taxes and the Donor agrees not to make any inconsistent direction in his Will. 8. No payments may be made from the charitable trust which would be in violation of Rev. Rul. 82-128, 1982-27 IRB7 pertaining to federal and state death taxes.
Rg. Sec. 1.664-2(a)(6) (i)
9. This Agreement is irrevocable. 10. The Trustee shall have the power to amend this Agreement for the sole purpose of complying with the requirements of Code section 66, and Treasury Regulation sections 1.664-1 and 1.664-2.
11. This Agreement is made pursuant to, and shall be interpreted in accordance with, the laws of the State of Arkansas. However, in any conflict with section 664 of the Code and the regulations thereunder, that Code section and the regulations shall govern.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the date first above written. (L.S.) Donor The Board of Directors Economics Arkansas Foundation By: (Seal)
STATE OF COUNTY OF
) ) SS: )
On this day of ___________________ before me, the undersigned, a Notary Public, personally appeared __________ to me known to be the same person described in and who executed the foregoing instrument and acknowledged that executed the same as free and voluntary act and deed. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my notorial seal on the day and year above written.
Notary Public in and for County, My Commission Expires:
STATE OF COUNTY OF
) ) SS: )
On this day of before me, the undersigned a Notary Public, personally appeared______________ , to me personally known, who, being by me duly sworn, did say that he is of the Board of Directors, Economics Arkansas Foundation, a non-profit corporation, and that the seal affixed to the foregoing instrument is the corporate of said corporation; that said instrument was signed and sealed on behalf of said corporation by authority of The Board of Directors; and acknowledged said instrument to be the free act and deed of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my notorial seal on the day and year last above written.
Notary Public in and for County, My Commission Expires:
DEFINITION OF CHARITABLE REMAINDER UNITRUSTS Under Code Section 664(d) (2) and (3), three variations of the charitable remainder unitrust are defined: "straight" unitrust, "net income" unitrust and "net-income-plus-makeup unitrust." (See also IRS Regulations, Sections 1.664-1, 1.664-3, 1.664-4.) 1. "Straight" Unitrust. A separately invested trust created by a gift of cash and/or securities or other property from which the trustee is required to pay the Donor and/or other named beneficiaries (who must be living at the time the trust is created) a fixed percentage of the market value of the trust assets, as revalued each year on the annual valuation date, for the life or lives of the beneficiary(ies) or for a term of years (not to exceed twenty years). Upon the death of the last surviving beneficiary, or upon the expiration of the term of years, the trust is to terminate, and the trust assets must be transferred to, or for the use of, a charitable organization, as described in Code Section 170(c), or be retained for such use. The stated percentage of payout must be at least 5% and can be higher if stated in the trust agreement. To the extent that the investment income of the assets is insufficient to make the required annual payout, the balance must be paid from principal. Conversely, any earned income in excess of the required payout is added back to principal. The trustee can be the charitable organization for whom the remainder interest is designated, or may be an individual (other than the Donor himself or a non-charitable beneficiary of the trust) or a corporate trustee, such as a bank or trust company. A charitable organization can be an income beneficiary so long as there is at least one non-charitable beneficiary. Except for the required payout from the trust to the income beneficiaries, the trust may not be invaded, altered, amended or revoked for the beneficial use of a person other than an organization described in Code Section 170(c). Under Code Section 664 (b) payments to the beneficiary of a straight unitrust retain the same character in the hands of the beneficiary as they had in the trust. The total of the payments for each year is taxable under, and must be reported in the order of, the following tier structure: (A) First, as ordinary income to the extent of such income earned by the trust assets for the year and any undistributed ordinary income of the trust for prior years.
(B) Second, as long-term capital gain to the extent that the trust has realized longterm capital gains for the year and any undistributed realized long-term capital gains for prior years. (C) Third, as non-taxable income to the extent that the trust has non-taxable income for the year and any undistributed non-taxable income for prior years. (D) Fourth, as tax-free distribution of trust corpus. 2. "Net Income" Unitrust. Same as a "straight" unitrust except that payments to the income beneficiary(ies) in any taxable year of the trust are limited to the ordinary investment income (dividends, interest, rent) earned by the trust assets and cannot exceed the fixed payout percentage of the market value of the trust assets stated in the trust agreement. Thus, this type of unitrust can pay out only ordinary income and cannot make capital gain distributions or any payments from the trust corpus. 3. "Net-Income-Plus-Makeup" Unitrust. This is the same as the "net income" unitrust except that the trustee can pay out to the beneficiary income earned by the trust in excess of the stated percentage of the market value of the trust assets to the extent of accumulated payout deficiencies of prior years (years in which the trust earned less than the stated percentage).
SAMPLE TWO LIFE CHARITABLE REMAINDER UNITRUST This Irrevocable Unitrust Agreement is made and entered into by and between __(name)____________________ of __ (city/state) __ (Grantors) and Economics Arkansas Foundation of Little Rock, Arkansas, (Trustee), as of the date this Agreement is duly executed on behalf of the Trustee. (A) UNITRUST PERCENTAGE. The Unitrust Percentage, which shall be used to determine the Unitrust Amount for purposes of this Agreement shall be Six percent (6.00%). (B) UNITRUST RECIPIENTS. The First Unitrust Recipient for purposes of this Agreement shall be ____(Grantors) of (city/state)_____. The Second Unitrust Recipient is the survivor of ____(Grantors) of (city/state)__________. Unitrust Amounts shall be paid first to __(Grantors)__ in equal shares while both are living and then to the survivor of __(Grantors)__ for that survivor's life, subject to the last regular payment provision of Paragraph 1 below. (C) SCHEDULE FOR CHARITABLE DISTRIBUTION. Any amounts which are to be distributed under this Agreement according to this Schedule of Charitable Distribution shall be distributed to qualified exempt charities as follows: ___% to ________________________, ___% to __________________, and ___% to __________________. (D) INITIAL TRUST CORPUS. The assets specified in Attachment "A" to this instrument have been transferred to the Trustee and shall constitute the initial trust corpus. This corpus and any additions to the corpus shall be administered by the Trustee as a single fund. (E) TRUST PROVISIONS. The following provisions shall govern this Charitable Remainder Unitrust: (1) PAYMENT OF UNITRUST AMOUNTS. During every taxable year of the Unitrust the Trustee shall pay the Unitrust Amount, which shall be determined according to Paragraph 2 hereof. Payments of Unitrust Amounts shall be made in equal quarterly installments, payable at the end of the selected period during each taxable year of the Unitrust. The Trustee shall pay the Unitrust Amounts to the Unitrust Recipient during the period indicated above. Notwithstanding other paragraphs herein, the obligation to pay Unitrust Amounts hereunder shall terminate with the last regular payment preceding the death of the last noncharitable beneficiary. (2) DETERMINING THE UNITRUST AMOUNTS. For all purposes of this Agreement, the Unitrust Amount shall be an amount equal to the Unitrust percentage (set forth above) multiplied by the net fair market value of the trust assets valued as of the first day of each taxable year, decreased as provided in paragraph 5 or increased as provided in paragraph 6 hereof. Unitrust Amounts shall be paid in equal quarterly
installments from income and, to the extent that income is not sufficient, from principal. Any net income of the Unitrust for any taxable year in excess of the Unitrust Amount shall be added to the corpus at the end of such year. (3) TESTAMENTARY RIGHT OF REVOCATION. Under the terms of this Charitable Remainder Unitrust Agreement, The Grantors each reserve the right, exercisable only by a Grantor's will (making specific reference hereto), to revoke and terminate the interests of any Successor Unitrust Recipient. A Grantor's power of revocation shall be limited to the proportion of total trust value transferred to the Trustee by that Grantor, with all values determined as of date of contribution. (4) ADJUSTMENTS IN EVENT OF REVALUATION. In the event that the fair market value of the assets constituting the corpus of the Unitrust, as determined by the initial valuation or any annual revaluation as provided hereinabove, is thereafter determined to be in error, the Unitrust Amounts which were paid to a Unitrust Recipient shall be adjusted within reasonable time after final determination is made as to correct fair market value of such corpus by refund to, or additional payment by, the said Unitrust as may be required so that only those Unitrust Amounts shall have been paid which would have been paid if the initial valuation or any annual revaluation had been correct. (5) TAXABLE YEAR AND SHORT TAXABLE YEARS. The first taxable year shall commence on the effective date of this agreement and shall end on December 31 of the same year. All subsequent taxable years shall commence on January 1 and, except for the final taxable year, shall end on December 31 of each respective year. During any taxable year of the Unitrust which is less than twelve months in duration, the Unitrust Amounts to be paid hereunder to the Unitrust Recipients shall be a fraction of the amount determined by multiplying the Unitrust Percentage by the fair market value of the assets constituting the corpus of such Unitrust at the beginning of that year, of which fraction the numerator shall be the number of days in such short year and of which the denominator is three hundred sixty-five (365) or, if February 29 is a day included in the numerator, of which the denominator is three hundred sixty-six (366). (6) ADDITIONAL CONTRIBUTIONS. The grantors and other persons may at any time contribute additional property to the Unitrust provided that such property is acceptable to the Trustee. If any additional contributions are made to the Unitrust after the initial contribution in trust, the Unitrust Amount, as determined under paragraph 2 above, for the taxable year in which the assets are added to the trust shall be determined by multiplying the Unitrust Percentage by (a) the net fair market value of trust assets (excluding the assets so added and any income from, or appreciation on, such assets) and (b) that proportion of the value of the assets so added that was excluded under (a) which the number of days in the period which begins with the date of contribution and ends with the earlier of the last day of the taxable year or the date of the last regular payment pursuant to Paragraph 1 hereof, bears to the number of days in the period which begins on the first day of such taxable year and ends with the earlier of the last day of the taxable year or the date of the last regular payment pursuant to Paragraph 1 hereof. In the case
where there is no valuation date after the time of contribution the assets so added shall be valued at the time of contribution. In the event of an additional contribution to the Unitrust as a result of the death of an individual whose gross estate for Federal Estate Tax purposes includes the property passing to this charitable unitrust as such additional contribution, the Trustee's obligation to pay the Unitrust Amount with respect to such additional contribution shall commence with the date of death of that person, but payment of such Unitrust Amount may be deferred from such date of death to the end of the taxable year of the unitrust in which such additional contribution has been finally and completely distributed into the unitrust. Within a reasonable period after such time, the Trustee shall pay, in the case of an underpayment, or shall receive from the income recipient(s), in the case of an overpayment, the difference between (a) any Unitrust Amounts actually paid by the Trustee, plus interest, compounded annually, and (b) the Unitrust Amounts payable, plus interest on those amounts compounded annually. The rate of interest shall be the rate then specified by the Treasury Department for underpayments and overpayments of unitrust interests as stated in the Regulations under Code Section 664. (7) DISABILITY OF RECIPIENTS. If at any time any noncharitable beneficiary to whom the Trustee is directed in this instrument to pay Unitrust Amounts is under legal disability, the Trustee may pay Unitrust Amounts over to the Recipient or for the Recipient's use to a guardian or to any adult person with whom the Recipient resides, without responsibility for expenditure of such Unitrust Amounts. (8) NO DEATH TAXES PAID FROM TRUST. No federal estate taxes, generation skipping transfer taxes, state death taxes or other estate, death or inheritance taxes (from now on called "death taxes") with respect to any party to this trust shall be allocated to or be recoverable from the trust. The grantors impose an obligation on grantors' estates to pay death taxes from sources other than this trust and agree to so provide in grantors' wills or in another way. This provision may be enforced by a noncharitable beneficiary, the trustee or a charity, acting alone or together. (9) TERMINATION OF UNITRUST. For all purposes of this instrument, the Unitrust, and its last taxable year, shall terminate upon the expiration of the last period during which Unitrust Amounts are to be paid hereunder (whether such period is the life of the First or Second Unitrust Recipient), provided that such shall not be later than the last day of the period specified in Section 1.664-3(a)(5) of the Federal Income Tax Regulations. Anything herein to the contrary notwithstanding, the Unitrust shall not continue beyond the time of death of the last to die of the Unitrust Recipients. (10) DISTRIBUTION UPON TERMINATION OF THIS UNITRUST. Upon termination of the Unitrust all property constituting the Unitrust, including all income received or accrued but not theretofore distributed, shall be distributed as set forth in the Schedule for Charitable Distribution (which appears in Section C hereof).
(11) CONFORMITY TO FEDERAL TAX LAWS. With respect to the Unitrust herein established, in any conflict, Treasury regulations shall prevail over generally accepted fiduciary accounting principles and any inconsistent provisions of this Unitrust Agreement. Without limiting the generality of these provisions, if Treasury regulations shall specify a method or time of valuing the Unitrust's assets, or a way of making payments from the Unitrust, which differs from the provisions herein contained, this Unitrust Agreement shall be deemed amended to conform to the Treasury regulations. The assets of the Unitrust shall be valued, managed and invested consistent with the intent that the Unitrust be exempt from taxation, and that it shall be entitled to applicable charitable income, gift or estate tax deductions. Except for the payment of the Unitrust Amounts to the Unitrust Recipients, the trustee is prohibited from engaging in any act of self- dealing as defined in Section 4941(d) of the Internal Revenue Code of 1986, from retaining any excess business holdings as defined in Section 4943(c) of the Code which would subject the trust to tax under Section 4943 of the Code, from making any investments which would subject the trust to tax under Section 4944 of the Code, and from making any taxable expenditures as defined in Section 4945(d) of the Code. The trustee shall make distributions at such time and in such manner as not to subject the trust to tax under Section 4942 of the Code. In addition, nothing in this trust instrument shall be construed to restrict the trustee from investing the trust assets in a manner which could result in the annual realization of a reasonable amount of income or gain from the sale or disposition of trust assets. (12) DISTRIBUTIONS TO CHARITIES. No amount other than a Unitrust Amount shall be paid to or for the use of any person other than an organization described in each of Section 170(b)(1)(A), Section 170(c), Section 2055(a) and Section 2522(a) (hereafter 'qualified exempt' organizations). Grantors retain the right by a written instrument to add qualified charities to and remove charities from the Schedule of Charitable Distribution and to change percentage allocations to all charities. If a Grantor is a current income recipient, then a Grantor shall retain the right to direct the Trustee to distribute an undivided percentage of trust assets to qualified exempt charities on the last day of any trust taxable year. The adjusted basis for Federal tax purposes of any trust property which the trustee distributes in kind to charity must be fairly representative of the adjusted basis for such purposes of all trust property available for distribution on the date of distribution. All principal and income to be distributed under the Schedule for Charitable Distribution shall be distributed in the specified percentages only to those organizations that are qualified exempt. The share of any specified charity which is not a qualified exempt organization shall be distributed in proportion to the remaining percentages by the trustee to the remaining named qualified exempt charities, if any. If no specified organization is qualified exempt, the share shall be distributed to such qualified exempt organization or organizations as shall be selected by the trustee in the sole discretion of the trustee. (13) ADMINISTRATION OF THE UNITRUST. The trustee is authorized to retain the Trust property, or may sell the property and reinvest in such property as the trustee shall deem advisable. The trustee shall not be required to diversify as to kind or amount. Unless prohibited by federal law, the trustee shall have the power to invest in
zero coupon bonds, an annuity contract or a life insurance policy on the life of the Unitrust Recipient or Recipients, as applicable. Solely for the purpose of complying with section 664 of the Code and applicable Treasury regulations, the trustee shall be authorized to amend this trust by written statement attached to this instrument and delivered to the current income recipients. In managing the trust assets, the trustee shall have the power to select and compensate professional advisors or administrators and to delegate appropriate trust powers to them. In addition, solely to the extent that these powers do not conflict with other trust provisions, the Trustee is authorized the trust powers specified by law. (14) ACCOUNTS AND REPORTS. The Trustee shall keep current accounts accurately reflecting the position of, and the receipts, disbursements and other changes in, the income and corpus of the trust, which shall be available for inspection during all reasonable business hours by any Unitrust Recipient currently receiving payments of Unitrust Amounts hereunder or his duly authorized representative. In addition, the Trustee as of the end of each taxable year of the trust and as of any other date the Trustee deems beneficial, shall keep the said Unitrust Recipient or his duly authorized representative, informed of the contents of such reports by accurate written statements. To the extent permitted by law, the Trustee shall not be required to provide reports or information to remainder recipients prior to trust termination. (15) TRUSTEE. Economics Arkansas Foundation of Little Rock, Arkansas, shall serve as Trustee of the Unitrust herein established. If No Independent Trustee as defined under Sections 664, 674 and 672 of the Code is acting with respect to this trust and the trust holds any asset that does not have a readily ascertainable fair market value, includes a discretionary power to allocate capital gain to income or principal, or holds any insurance contract or annuity contract, then an Independent Special Trustee as defined under the above Code sections shall be appointed by the Trustee in a written document referring to this paragraph. The Independent Special Trustee shall have sole responsibility for valuation of assets without readily ascertainable fair market value, for making allocations of capital gain to income or principal, and shall make all decisions regarding withdrawals, surrender, options, elections, allocations to income or principal, and dispositions with respect to any insurance or annuity contract. The Independent Special Trustee shall have no powers other than those specified in this paragraph. A Trustee shall be entitled to compensation for services hereinunder according to the Trustee's schedule of fees in effect at the time such services are rendered. No bond or security shall be required of the Trustee in any jurisdiction. The Trustee shall not be required to file an inventory or annual report with any court with proper jurisdiction. If at any time a trustee is a corporation, the position of trustee may be assumed by a successor corporation with trust powers. A successor trustee shall not be required to examine the administration or actions of any prior trustee and shall not be liable for such administration or actions. Grantors retain the right by written instrument submitted to the Trustee to remove any Trustee and designate any successor Trustee. (16) GOVERNING LAW. This Agreement and all rights and obligations under it shall be determined in accordance with the law of the State of Arkansas except to the
extent that such may be in conflict with United States laws and regulations with respect to income, estate and gift taxes which shall govern in the event of such conflict. In Witness Whereof, the grantors have signed this Agreement, accepted all trust provisions and transferred the trust corpus as specified in Attachment A and the Trustee has accepted this trust through the signature below. _________________________Date_________ (typed name), Grantor
_______________________Date_________ (typed name), Grantor
I hereby acknowledge receipt in trust of the corpus specified in Attachment "A" to this Charitable Trust. ______________________________________ (typed name), Trustee
Date_______________
STATE OF _________________________ COUNTY OF _______________________ Subscribed, sworn to and acknowledged before me by the Grantors, .
(Grantors)
on
(date)
(SEAL) _______________________________ NOTARY PUBLIC
,
Part III
Administrative, Procedural, and Miscellaneous
26 CFR 601.201: Rulings and determination letters. (Also: Part I, §§ 642(c), 2055; §20.2055-2)
Rev. Proc. 2007-46
SECTION 1. PURPOSE This revenue procedure contains an annotated sample declaration of trust and alternate provisions that meet the requirements for a testamentary charitable lead annuity trust (CLAT) providing for annuity payments payable to one or more charitable beneficiaries for the annuity period followed by the distribution of trust assets to one or more noncharitable remaindermen. SECTION 2. BACKGROUND The Internal Revenue Service (Service) is issuing sample forms for CLATs; annotations and alternate sample provisions are included as further guidance. In addition to the sample trust instrument for a testamentary CLAT that is included in this revenue procedure, samples are provided in a separate revenue procedure for grantor
and nongrantor inter vivos CLATs (see Rev. Proc. 2007-45). SECTION 3. SCOPE A CLAT is an irrevocable split-interest trust that provides for a specified amount to be paid to one or more charitable beneficiaries during the term of the trust. The principal remaining in the trust at the end of the term is paid over to, or held in a continuing trust for, a noncharitable beneficiary or beneficiaries identified in the trust. If the terms of a CLAT created on the decedent’s death satisfy the applicable statutory and regulatory requirements, the value of the charitable lead annuity interest will be deductible by the decedent’s estate under § 2055(e)(2)(B) and payments of the annuity amount to the charitable lead beneficiary will be deductible from the gross income of the trust to the extent provided by § 642(c)(1). A testamentary CLAT is subject to the provisions of part I, subchapter J of chapter 1 of subtitle A of the Internal Revenue Code (Code). Under the provisions of part I of subchapter J, a CLAT is allowed a deduction under § 642(c)(1) in determining its taxable income for any amount of gross income paid for purposes specified in § 170(c). Section 4 of this revenue procedure provides a sample declaration of trust for a testamentary CLAT with a term of years annuity period that is created by a decedent who was 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) an annuity period for the life of an individual; (.02) apportionment of the annuity amount in the
2
discretion of the trustee; (.03) the annuity amount as a specific dollar amount; and (.04) designation of an alternate charitable beneficiary in the trust instrument. If a trust is substantially similar to the sample trust in section 4 of this revenue procedure or properly integrates one or more alternate provisions from section 6 into a document substantially similar to the sample trust in section 4, is a valid trust under applicable local law, and operates in a manner consistent with the terms of the instrument, and if all other deductibility requirements are satisfied, the value of the charitable lead interest will be deductible by the decedent’s estate under § 2055(e)(2)(B) and payments of the annuity amount to the charitable lead beneficiary will be deductible from the gross income of the trust to the extent provided by § 642(c)(1). In addition, a testamentary CLAT will qualify for the safe harbor created under this revenue procedure if the trust satisfies all of the requirements set forth in the preceding sentence, except that it defines the annuity amount as an increasing amount for which the value is ascertainable at the creation of the trust and/or provides for a different disposition of trust assets upon the termination of the annuity period. Except as provided above, 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 ineligible for the relevant
3
charitable deduction(s), but neither will that trust (or contributions to it) be assured of qualification for the appropriate charitable deductions. The Service generally will not issue a letter ruling on whether a testamentary CLAT qualifies for income and estate tax charitable deductions. The Service, however, generally will issue letter rulings relating to the tax consequences of the inclusion in a CLAT of substantive trust provisions other than those contained in sections 4 and 6 of this revenue procedure. SECTION 4. SAMPLE TESTAMENTARY CHARITABLE LEAD ANNUITY TRUST 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 lead annuity trust, within the meaning of Rev. Proc. 2007-46. This trust shall be known as the ___________________ Charitable Lead Annuity Trust, and I hereby designate ____________________ as the initial trustee (hereinafter “the Trustee”). All references to “section” or “§” in this instrument shall refer to the Internal Revenue Code of 1986, 26 U.S.C. § 1, et seq. 1.
Payment of Annuity Amount. In each taxable year of the trust during the
annuity period, the Trustee shall pay to [designated charitable recipient] an annuity amount equal to [number representing the annual annuity percentage to be paid to the designated charitable recipient] percent of the initial net fair market value of all property passing to this trust, as finally determined for federal estate tax purposes. If [designated charitable recipient] is not an organization described in §§ 170(c) and 2055(a) at the time any payment is to be made to it, the Trustee shall instead distribute such payments to one or more organizations described in §§ 170(c) and 2055(a) as the Trustee shall
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select, and in such proportions as the Trustee shall decide, from time to time, in the Trustee’s sole discretion. The term “the Charitable Organization� shall be used herein to refer collectively to the organization(s) then constituting the charitable recipient, whether named in this paragraph or subsequently selected as the substitute charitable recipient. During the trust term, no payment shall be made to any person other than the Charitable Organization. The annuity period is a term of [number of years of annuity period] 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 Charitable Organization (in the case of an undervaluation) or receive from the Charitable Organization (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
5
completely funded, the Trustee must pay to the Charitable Organization the difference between any annuity amounts actually paid and the annuity amounts payable, plus interest. The interest for any period shall be computed at the § 7520 rate of interest in effect for the date of my death. All interest shall be compounded annually. 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 in 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 Upon Termination of Annuity Period. 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 to the Charitable Organization under the provisions above) to [remainder beneficiary]. 5.
Additional Contributions. No additional contributions shall be made to the
trust after the initial contribution. The initial contribution, however, shall be deemed to consist of all property passing to the trust by reason of my death. 6.
Prohibited Transactions. The Trustee shall not engage in any act of self-
dealing within the meaning of § 4941(d), as modified by § 4947(a)(2), and shall not make any taxable expenditures within the meaning of § 4945(d), as modified by § 4947(a)(2). The Trustee shall not retain any excess business holdings that would subject the trust to tax under § 4943, as modified by §§ 4947(a)(2) and 4947(b)(3). In addition, the Trustee shall not acquire any assets that would subject the trust to tax under § 4944, as modified by §§ 4947(a)(2) and 4947(b)(3), or retain assets which, if
6
acquired by the Trustee, would subject the Trustee to tax under § 4944, as modified by §§ 4947(a)(2) and 4947(b)(3). 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 any power or discretion granted under said laws that would be inconsistent with the requirements for the charitable deductions available to a charitable lead annuity trust or for contributions to a charitable lead annuity trust. 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 in any manner required for the sole purpose of ensuring that the annuity interest passing to the Charitable Organization is a guaranteed annuity interest under § 2055(e)(2)(B) and the regulations thereunder and that payments of the annuity amount to the Charitable Organization will be deductible from the gross income of the trust to the extent provided by § 642(c)(1) and the regulations thereunder. 10.
Investment of Trust Assets. Except as provided in paragraph 6 herein,
nothing in this trust instrument shall be construed to restrict the Trustee from investing the trust assets in a manner that could result in the annual realization of a reasonable amount of income or gain from the sale or disposition of trust assets. SECTION 5. ANNOTATIONS REGARDING SAMPLE TESTAMENTARY CHARITABLE LEAD ANNUITY TRUST .01
Annotations for Introductory Paragraph of the Sample Trust.
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(1)
Income taxation of testamentary charitable lead trusts. A testamentary CLAT is a complex trust that is taxable as a separate entity under the provisions of subchapter J of the Code. The trustee of the trust must apply for a tax identification number for the trust.
(2)
Deduction under § 642(c)(1) available for amounts paid for a charitable purpose. Under § 642(c)(1), a testamentary CLAT is allowed a deduction in computing its taxable income for any amount of gross income, without limitation, that under the terms of the trust instrument is paid for a purpose specified in § 170(c) (determined without regard to § 170(c)(2)(A)) during the taxable year. Section 642(c)(1) and § 1.642(c)-1(a). An amount paid to a corporation, trust, or community chest, fund, or foundation otherwise described in § 170(c)(2) shall be considered paid for a purpose described in § 170(c) even though the corporation, trust, or community chest, fund, or foundation is not created or organized in the United States, any state, the District of Columbia, or any possession of the United States. Section 1.642(c)-1(a)(2). With regard to amounts of income paid to the charitable beneficiary after the close of the taxable year in which the income was received (but on or before the last day of the next succeeding taxable year), the trustee of a testamentary CLAT may elect to take the charitable deduction for that payment for the year in which the income was received, rather than for the year in which the payment was made. Section 642(c)(1). The election is made by filing a statement with the income tax
8
return for the taxable year in which the charitable contribution is treated as paid. See § 1.642(c)-1(b). (3)
Charitable lead beneficiary requirements. A deduction is allowed under § 642(c)(1) for any amount of the gross income of a testamentary CLAT that is paid for a purpose specified in § 170(c). Note that the class of permissible charitable recipients for obtaining a deduction under § 642(c)(1) differs from the class of permissible charitable recipients for obtaining a deduction under § 170(a). Compare § 170(c) and § 1.642(c)1(a)(2).
(4)
Unrelated business taxable income. Under § 681, a testamentary charitable lead trust’s deduction under § 642(c)(1) is disallowed in any year to the extent that the deduction is allocable to the trust’s unrelated business taxable income, as defined in § 512, for that taxable year. See § 1.681(a)-2. However, a partial deduction is allowed under § 512(b)(11) for amounts allocable to unrelated business taxable income. Section 512(b)(11). See § 512(b)(12) and § 1.681(a)-2(a).
(5)
Computation of estate tax charitable deduction. In general, the estate tax charitable deduction available under § 2055(e)(2)(B) with respect to contributions to a CLAT is equal to the present value of the annuity interest. Section 7520 requires that an annuity interest must be valued using tables published by the Service. The method for valuing a charitable lead annuity interest is set forth in the regulations. See
9
§ 20.7520-2. If estate or other death taxes are paid from the assets used to fund a testamentary CLAT, the amount deductible under § 2055 is the amount that passes to charity, reduced by the amount of estate or death taxes paid. Section 2055(c). (6)
Trustee provisions. The trust instrument may name alternate or successor trustees and/or may include a process for the appointment of unnamed alternate or successor trustees. In addition, the trust instrument may contain certain administrative provisions relating to the trustee’s duties and powers.
.02
Annotations for Paragraph 1, Payment of Annuity Amount, of the Sample Trust. (1)
Guaranteed annuity. To qualify for an estate tax charitable deduction, a CLAT must provide for the payment of a guaranteed annuity amount at least annually to a qualified charitable organization for each year during the annuity period. See § 2055(e)(2)(B). A guaranteed annuity is an arrangement under which a determinable amount is paid periodically, but not less often than annually, for a specified term of years or for one or more measuring lives. See section 5.02(4) for a discussion of the permissible term of a testamentary CLAT. An amount is determinable if the exact amount that must be paid under the conditions specified in the instrument of transfer may be ascertained as of the appropriate valuation date. Section 20.2055-2(e)(2)(vi)(a). A charitable interest expressed as the right to receive an annual payment from a trust equal to the lesser of a
10
sum certain or a fixed percentage of the trust assets (determined annually) is not a guaranteed annuity interest. See § 20.2055-2(e)(2)(vi)(b). In addition, a charitable lead annuity interest is not a guaranteed annuity interest if the trustee has the discretion to commute and prepay the charitable interest prior to the termination of the annuity period. Rev. Rul. 88-27, 1988-1 C.B. 331. If a charitable interest in the form of a guaranteed annuity interest is in trust and the present value of the charitable interest on the appropriate valuation date exceeds 60 percent of the aggregate value of all amounts in the trust, the charitable interest will not be considered a guaranteed annuity interest unless the governing instrument of the trust prohibits the acquisition and retention of assets that would give rise to a tax under § 4943 or 4944, as modified by §§ 4947(a)(2) and 4947(b)(3). Section 20.2055-2(e)(2)(vi)(e). These prohibitions are contained in the sample trust in section 4. See section 5.07 for a further discussion of the 60 percent test. See section 6.03 for an alternate provision that provides for an annuity amount stated as a specific dollar amount. (2)
Payment requirements. CLATs are not subject to any minimum or maximum payout requirements. The governing instrument of a CLAT must provide for the payment to a charitable organization of a fixed dollar amount or a fixed percentage of the initial net fair market value of the assets transferred to the trust. Alternatively, the governing instrument of a
11
CLAT may provide for an annuity amount that is initially stated as a fixed dollar or fixed percentage amount but increases during the annuity period, provided that the value of the annuity amount is ascertainable at the time of the decedent’s death. The annuity payments may be made in cash or in kind. If the trustee distributes appreciated property in satisfaction of the required annuity payment, the trust will realize capital gain on the assets distributed to satisfy part or all of the annuity payment and the trust will be allowed a § 642(c)(1) deduction for the realized capital gains. Rev. Rul. 83-75, 1983-1 C.B. 114. See section 5.03 for a discussion of the deferral of the requirement to pay the annuity amount until the end of the taxable year in which the trust is completely funded. (3)
Rule against perpetuities. An interest payable for a specified term of years may qualify as a guaranteed annuity interest even if the governing instrument contains a savings clause intended to ensure compliance with a rule against perpetuities. However, any such savings clause must utilize a period of vesting of not more than 21 years after the deaths of the measuring lives who are selected to maximize, rather than limit, the term of the trust. Section 20.2055-2(e)(2)(vi)(a).
(4)
Permissible term. Paragraph 1, Payment of Annuity Amount, of the sample trust provides for payment of the annuity amount for a specified term of years. Alternatively, the trust instrument may provide for payment of the annuity amount for the life or lives of one or more measuring lives or
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for the life or lives of one or more measuring lives plus a term of years. Rev. Rul. 85-49, 1985-1 C.B. 330. Only one or more of the following individuals may be used as measuring lives: the decedent’s spouse and an individual who, with respect to all remainder beneficiaries (other than charitable organizations described in § 170 or 2055), is either a lineal ancestor or the spouse of a lineal ancestor of those beneficiaries. Each person used as a measuring life for the annuity period must be living on the decedent’s date of death. Section 20.2055-2(e)(2)(vi)(a). See section 6.01 for an alternate provision that provides for an annuity period based on the life of an individual. (5)
Permissible recipients. A CLAT must have one or more charitable lead beneficiaries. The failure to designate a specific charitable beneficiary will not preclude the decedent’s estate from receiving a charitable deduction if the trust instrument provides for the selection by the trustee of a charitable beneficiary described in §§ 170(c) and 2055(a). Rev. Rul. 78-101, 1978-1 C.B. 301. See section 6.02 for an alternate provision that provides the trustee with the power to apportion the annuity amount among charitable beneficiaries.
(6)
Payment of annuity amount in installments. Paragraph 1, 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 calendar quarter. Alternatively, the trust instrument may specify that the annuity amount is
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to be paid in annual or other equal or unequal installments throughout the year. See ยง 20.2055-2(e)(2)(vi)(a). The amount of the charitable deduction will be affected by the frequency of the 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 ยง 20.2031-7. (7)
Excess income. Trust income in excess of the amount required to pay the annuity may be retained by the trust or distributed currently to the charitable beneficiary. The sample trust in section 4 provides for the retention of excess income by the trust. If, instead, the governing instrument provides for the payment of excess income to or for the use of the charitable beneficiary, no additional estate tax charitable deduction is available for the excess amounts of income distributed to the charitable beneficiary. See ยง 20.2055-2(e)(2)(vi)(d). However, the trust is entitled to a charitable income tax deduction under ยง 642(c)(1) for any amounts of excess income paid to the charitable beneficiary. See Situation 2 of Rev. Rul. 88-82, 1988-2 C.B. 336, for the transfer tax consequences of the payment of excess income to a noncharitable beneficiary. See section 5.07 for the private foundation rules applicable to charitable lead trusts.
(8)
Payment of part of annuity for private purposes. In general, no part of a charitable lead annuity interest may be payable for a private purpose before the expiration of all charitable lead annuity interests. However, there are two exceptions to this rule. The first exception arises when the
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amount payable for a private purpose is in the form of a guaranteed annuity interest and the trust’s governing instrument does not provide for any preference or priority in the payment of the private annuity as opposed to the charitable annuity. The second exception arises when, under the trust’s governing instrument, the amount that may be paid for a private purpose is payable only from a group of assets that is devoted exclusively to private purposes and to which § 4947(a)(2) is inapplicable by reason of § 4947(a)(2)(B). Note that an amount is not deemed to have been paid for a private purpose if it was paid for full and adequate consideration in money or money’s worth. Section 20.2055-2(e)(2)(vi)(f). See section 5.07 for the private foundation rules applicable to charitable lead trusts. .03
Annotations for Paragraph 2, Deferral Provision, of the Sample Trust. (1)
Deferral of requirement to pay annuity amount. The deferral provision in paragraph 2 of the sample trust authorizes the trustee to defer the payment of the annuity amount until the end of the taxable year of the trust in which the trust is completely funded.
(2)
Interest on annuity payments. The deferral provision in paragraph 2 of the sample trust provides for the payment of interest, compounded annually, with respect to any underpayment of the annuity amount during the period of estate administration. The sample trust requires that interest be computed at the § 7520 rate in effect on the date of the decedent’s death. To the extent that interest payable under state law exceeds the applicable
15
ยง 7520 rate, the payment of interest at the rate prescribed by state law will be deemed to satisfy the interest payment requirement set forth in the trust instrument. .04
Annotation for Paragraph 3, Proration of Annuity Amount, of the Sample Trust. (1)
Prorating the annuity amount. Paragraph 3, Proration of Annuity Amount, of the sample trust provides for the proration of the annuity amount in any short taxable year, including the last year of the annuity period.
.05
Annotation for Paragraph 4, Distribution Upon Termination of Annuity Period, of the Sample Trust. (1)
Generation-skipping transfer tax. If a CLAT has or may have a skip person, as defined in ยง 2613(a), as a remainder beneficiary, the transfer to the trust will be subject to the generation-skipping transfer (GST) tax. Under ยง 2651(f)(3), a charitable organization is deemed to be in the same generation as the decedent/donor of a charitable lead trust. Therefore, the GST potential of a charitable lead trust is dependent upon whether any noncharitable beneficiary is a skip person. GST tax liability is determined by multiplying the taxable amount by the applicable rate. The applicable rate is the inclusion ratio multiplied by the maximum federal estate tax rate. Section 2641(a). The rules for determining the inclusion ratio for a CLAT are set forth in ยง 2642(e) and confirm that the inclusion ratio is determined at the termination of the annuity period, rather than on the funding of the trust.
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.06
Annotation for Paragraph 5, Additional Contributions, of the Sample Trust. (1)
Additions to the trust. For purposes of qualification under this revenue procedure, the trust instrument must contain a provision that prohibits additional contributions. A CLAT that permits additional contributions will not qualify for safe harbor treatment under this revenue procedure.
.07
Annotation for Paragraph 6, Prohibited Transactions, of the Sample Trust. (1)
Prohibitions against certain investments and excess business holdings. Prohibitions against retaining any excess business holdings within the meaning of § 4943, as modified by §§ 4947(a)(2) and 4947(b)(3), and against investments that jeopardize the exempt purpose of the trust within the meaning of § 4944, as modified by §§ 4947(a)(2) and 4947(b)(3), are generally required. The sample trust in section 4 contains prohibitions against §§ 4943 and 4944 transactions. If the present value of the charitable interest does not exceed 60 percent of the aggregate value of all amounts in the trust, the trust instrument does not provide for the payment of any of the income interest to a noncharitable beneficiary, and the trust instrument does not provide for the payment of excess income to a noncharitable beneficiary, the references to §§ 4943 and 4944 may be removed from the trust instrument. Section 4947(b)(3)and §§ 53.49472(b)(1)(i) and 20.2055-2(e)(2)(vi)(e). See section 5.02(7) for a discussion of the payment of excess trust income to a noncharitable beneficiary. See section 5.02(8) for a discussion of the payment of part of the annuity for a
17
private purpose. .08
Annotation for paragraph 7, Taxable Year, of the Sample Trust. (1)
Calendar year. The taxable year of a charitable lead trust must be a calendar year. Section 644(a).
.09
Annotation for paragraph 10, Investment of Trust Assets, of the Sample Trust. (1)
Capital gains. Gains from the sale or exchange of capital assets may be allocated to the income or the principal of the trust. If the governing instrument is silent, capital gains are allocated in accordance with local law. Even if gains are allocated to principal, they will be deductible under § 642(c)(1) if they are paid to the charitable beneficiary as part of a charitable annuity payment. Rev. Rul. 83-75, 1983-1 C.B. 114.
SECTION 6. ALTERNATE PROVISIONS FOR SAMPLE TESTAMENTARY CHARITABLE LEAD ANNUITY TRUST .01
Annuity Period for the Life of One Individual. (1)
Explanation. As an alternative to establishing a CLAT for a term of years, the trust instrument of a testamentary CLAT may provide for payment of the annuity amount for the life or lives of an individual or individuals. However, only one or more of the following individuals may be used as measuring lives: the decedent’s spouse and an individual who, with respect to all remainder beneficiaries (other than charitable organizations described in § 170 or 2055), is either a lineal ancestor or the spouse of a lineal ancestor of those beneficiaries. A trust will satisfy the requirement
18
that each measuring life is a lineal ancestor (or the spouse of a lineal ancestor) of all noncharitable remainder beneficiaries, if on decedent’s date of death there is a less than 15 percent probability that individuals who are not lineal descendants of an individual who is a measuring life will receive any trust principal. The probability must be computed under the applicable tables in § 20.2031-7. Section 20.2055-2(e)(2)(vi)(a). (2)
Instruction for use. Replace the fifth and sixth sentences of paragraph 1, Payment of Annuity Amount, of the sample trust with the following sentences: The annuity period is the lifetime of [designated measuring life]. 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 date of death of [designated measuring life].
.02
Apportionment of the Annuity Amount in the Discretion of the Trustee. (1)
Explanation. The trustee of a testamentary charitable lead trust may be granted the power to apportion the annuity payment from time to time among a class of qualifying charitable beneficiaries.
(2)
Instruction for use. Replace the first three sentences of paragraph 1, Payment of Annuity Amount, of the sample trust with the following two sentences: In each taxable year of the trust during the annuity period, the Trustee shall pay to one or more members of a class
19
comprised of organizations described in §§ 170(c) and 2055(a) (hereinafter, collectively “the Charitable Organization”) an annuity amount equal to [number representing the annual annuity percentage to be paid to the Charitable Organization] percent of the initial net fair market value of all property passing to this trust, as finally determined for federal 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, from time to time may deem advisable. .03
Annuity Amount as a Specific Dollar Amount. (1)
Explanation. As an alternative to stating the annuity amount as a percentage of the initial net fair market value of the assets transferred to the trust, the annuity amount may instead be stated as a specific dollar amount.
(2)
Instructions for use. (a)
Replace the first sentence in paragraph 1, Payment of Annuity Amount, of the sample trust with the following sentence: In each taxable year of the trust during the annuity period, the Trustee shall pay to [designated charitable recipient] an annuity amount equal to [the stated dollar amount].
(b)
Delete the last sentence in paragraph 1, Payment of Annuity
20
Amount, of the sample trust concerning the incorrect valuation of trust assets. .04
Designation of an Alternate Charitable Beneficiary in the Trust Instrument. (1)
Explanation. The sample trust provides that in the event the charitable beneficiary designated in the trust instrument is not an organization described in §§ 170(c) and 2055(a) at the time any payment is to be made to it, the trustee shall distribute such payments to one or more organizations described in §§ 170(c) and 2055(a) as the trustee shall select. As an alternative, the trust instrument may specifically designate one or more alternate charitable beneficiaries.
(2)
Instruction for use. Replace the second sentence in paragraph 1, Payment of Annuity Amount, of the sample trust with the following two sentences: If [designated charitable recipient] is not an organization described in §§ 170(c) and 2055(a) at the time any payment is to be made to it, the Trustee shall instead distribute such payments to [designated substitute charitable recipient]. If neither [designated charitable recipient] nor [designated substitute charitable recipient] is an organization described in §§ 170(c) and 2055(a) at the time any payment is to be made to it, the Trustee shall instead distribute such payments to one or more organizations described in §§ 170(c)
21
and 2055(a) as the Trustee shall select, and in such proportions as the Trustee shall decide, from time to time, in the Trustee’s sole discretion. SECTION 7. DRAFTING INFORMATION The principal author of this revenue procedure is Stephanie N. Bland of the Office of Associate Chief Counsel (Passthroughs & Special Industries). For further information regarding this revenue procedure contact Stephanie N. Bland at (202) 6223090 or (202) 622-7830 (not a toll free call).
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GIFTS OF LIFE INSURANCE (excerpt from The Living Legacy, Charitable Gifts of Life Insurance, Leo Hodges and Jonathan G. Tidd, 1981)
There are essentially three ways of making a life insurance gift to charity: (1) by designating a charitable organization as the beneficiary of an insurance policy, (2) by assigning ownership of an insurance policy to charity, and (3) by giving charity a partial interest in an insurance policy. Advantages of a life insurance gift:
For the same out-of-pocket cost, many individuals can make a larger gift to charity through life insurance than through a bequest or lifetime gift, especially individuals of modest means who could not otherwise afford to make a substantial charitable contribution. Further, this charitable contribution can be made on the "installment plan" through life insurance premium payments.
A life insurance contribution can enable an individual to benefit charity without invading capital and depriving his or her family members of other estate assets. The gift is created by regular premium installments and can be financed out of current income.
A life insurance gift is self-executing, simple to arrange, and assures that the donor's wishes will be carried out.
Since life insurance proceeds payable to charity are not subject to probate, they avoid (1) the delays and costs of estate settlements; (2) creditor's claims; (3) will contests by disgruntled heirs; and (4) public scrutiny through probate court records. Of course, publicity can attend the gift if the donor wishes.
Life insurance assures the size of the gift in advance. The charity will receive a guaranteed sum, promptly and in cash, regardless of when the insured dies. Or, if the charity owns the policy, it may surrender the policy for its guaranteed cash value, or borrow on the cash value at an attractive interest rate, during the insured's lifetime.
The charity immediately receives dividends which will probably increase annually, access to the policy cash values and guaranteed growth. Upon the insured's death, the charity may, if it wishes, take advantage of the insurance company's investment facilities by leaving the proceeds on deposit with the company under a settlement option.
The donor can designate the charity as revocable beneficiary and still get important estate tax benefits. Even if the gift is irrevocable, the donor can deny his or her commitment by simply discontinuing premium gifts.
SAMPLE FORM - PAYABLE ON DEATH ACCOUNT
Wording generally found on bank account cards: PAYABLE ON DEATH ONLY TO: The undersigned request(s) the Bank to pay over the balance on deposit in the above account to the person named above 30 days after the date of death of the undersigned, subject to any outstanding uncollected items or items drawn on the account which have not been presented to the Bank for payment. That during the lifetime of the undersigned the person named above shall have no right to withdraw or write checks or drafts on this account. The undersigned reserves the right to cancel or change this designation at any time. This designation shall be binding upon the heirs, next of kin, legatees or personal representatives of the estate of the undersigned and shall control over any will, testament or other document, executed by or on behalf of the undersigned.
Beneficiary Designations of Retirement Plans and IRAs Retirement accounts, which include pension plans, profit sharing plans, stock bonus plans, Keogh Plans, 401(k) plans and Individual Retirement Accounts (IRAs), generate a number of tax consequences at the time of death of the owner. These tax consequences make qualified retirement assets and IRAs appropriate as charitable giving vehicles. Contributions to qualified retirement plans allow a deferral of the income tax on those assets. This incentive is provided to encourage taxpayers to save for retirement. However, this tax is only deferred. The assets and income generated by those assets inside the retirement plan is taxed on distribution. When an individual dies with assets remaining in a retirement plan, several taxes may be due: Income Taxes are owed on assets on which the decedent would have paid income tax if alive. This tax is assessed in the form of Income in Respect of a Decedent (IRD). The taxis incurred as distributions of untaxed contributions and earnings are made from the plan. This tax may run up to 39.6% at the federal tax rate, in addition to state taxes. Estate Tax will apply for the full market value of the asset in the decedent’s estate. The marginal rate for this tax is 55%. Finally, Generation Skipping Tax may apply if the owner directs that the plan assets be distributed to a beneficiary two or more generations below the owner. For example, the tax applies when property passes from a grandparent to a grandchild, since the grandchild is two generations younger than the donor-grandparent. This tax is assessed at a flat rate equal to the maximum estate tax rate (55% in 1998). Prior to the Taxpayer Relief Act of 1997, a fourth tax was due. This tax, the excess accumulation tax, was assessed at the rate of 15% on retirement plan assets with a value in excess of certain limits, and distributions in excess of $150,000 in a calendar year. Congress first suspended this tax for three years, and then repealed the tax altogether in TRA 1997. It is mentioned here because the tax figured prominently in many commentator’s remarks on retirement planning and the gift planner that is new to the field may have a hard time understanding those remarks without notice of the change in the law. The impact of these taxes on the retirement plan assets depends upon the beneficiary designations made by the taxpayer. For example, he or she may name a spouse and defer both income and estate taxes until the spouse’s death. Or, a child may be named as a beneficiary, which may trigger the estate tax on the assets but defer the income tax until distribution over the child’s lifetime. When the donor names the estate as beneficiary of a retirement plan, the transfer may trigger tax on IRD (income in respect of a decedent) in the retirement plan. In addition, estate tax will be due. Obviously the decision about how the beneficiary designation is structured is important and donors should be encouraged to discuss these options with a financial advisor.
Talking with donors: Few donors are aware of the taxes due on retirement plan assets. Retirement plans were originally designed to be used during life for support and maintenance. The huge growth of the securities markets in the 1990’s created enormous wealth inside these plans. Many taxpayers found that their retirement plan assets grew, even when they took the required annual distribution. As these plans began to represent a significant portion of total wealth, people began to consider retirement assets as part of the overall estate that would be passed to the next generation. Education is the best way to raise awareness about this issue. Include articles in your newsletter, raise the issue in board meetings, and focus on the topic in seminars. One of the simplest ways to plan a deferred gift is to name the nonprofit as the beneficiary of the retirement plan and use estate assets for distributions to family. Transfer requirements. Retirement plans can not be transferred to charity during life without triggering income tax on the transferred proceeds. The only way to transfer an IRA or retirement plan benefit without triggering tax is through a beneficiary designation. The donor has several options in structuring a retirement plan or IRA gift to charity: 1. The donor can make an outright gift of the IRA to a qualified charitable beneficiary by naming the charity (or several charities) as the beneficiary of the plan. When the donor wants to transfer only a portion of the IRA to charity, he or she should either split the IRA into pieces so that the charity is the sole beneficiary of a designated IRA, or name the charity as the beneficiary of a fractional (not pecuniary) interest. 2. A second option is to name a charitable remainder trust as the beneficiary of the retirement plan. Transfers of retirement plan assets to a charitable remainder trust should avoid tax assets to a charitable remainder trust should avoid tax on IRD since the charitable remainder trust is a non-taxable trust. It should also generate a charitable estate tax deduction for the charitable portion of the transfer. If the transfer to the charitable remainder trust pays income to the spouse only, the portion of the transfer that does not qualify for the charitable estate tax deduction will qualify for the marital estate tax deduction, thus avoiding all estate tax. The bottom line is the transfer to a charitable remainder trust may accomplish the dual goals of making distributions to family members as well as implementing a gift to charity. This method preserves an income stream to the decedent’s dependents, and may in some instances pass a greater amount of property to family members. 3. Finally, the donor may name the estate as the beneficiary of the proceeds, but specifically6 direct that the assets of the IRA or retirement plan be used to satisfy the bequest. A specific bequest of the retirement plan assets should avoid tax on IRD assets passing to the charity. In the absence of a specific bequest, IRD will be triggered. The best way to examine the impact of taxes on the value of an IRA or retirement plan asset is to look at a few examples. The first example assumes that Dad Donor has a $250,000 IRA and a
total estate of $2,000,000. The example compares the results of an outright gift of the IRA to family versus a gift of the IRA to a 6% charitable remainder trust. The second example assumes that Dad Donor has a $1,000,000 IRA and a total estate of $10,000,000. Again the example compares the difference between a gift to family and a gift of the IRA to a 6% charitable remainder trust. These calculations were made in February 2000. The chart below provides a quick review of the results of these examples. Pay particular attention to: the differences in the effective tax rates of the IRA, the value of the property passing to the family under will, and the income stream from the charitable remainder trust for the family in each scenario. Comparison of Results of Gifts of Retirement Assets to Charity
Total Tax on IRA
$250,000 IRA
$250,000 IRA
$1,000,000 IRA
$1,000,000 IRA
$2,000,000 Estate No Gift to Charity
$2,000,000 Estate Gift of IRA to 6% CRAT
$10,000,000 Estate No Gift to Charity
$10,000,000 Estate Gift of IRA to 6% CRAT
$166,950
$78,199
$728,200
$382,305
Effective Tax Rate
66.78%
27.29%
72.82%
33.36%
Property passing to family under will
$1,302,250
$1,234,022
$4,620,750
$4,703,809
Amount of after-tax income from CRAT to family
n/a
$300,000
n/a
$1,200,000
Amount of property passing to CRAT at end of term
n/a
$822,750
n/a
$3,291,000
Environmental Interview This interview is designed for use with current and/or prior owners or managers of the property. Date of Interview:
Interviewer:
Person Interviewed:
Relation to Property:
Property Description:
Environmental Site Assessment Type of Property Agricultural
Age of Buildings
Timber
Undeveloped Land
Commercial
Residential
Manufacturing
Other
A. Indicate prior uses of property. B. Are you aware of any environmentally sensitive situations on the property? Describe:
C. For uses identified in Question 1, has an environmental license or permit ever been issued? No _____ Yes _____ D. Are there any oil, fuel or chemical storage tanks on the property located above or below ground? No _____ Yes _____ E. Has an environmental assessment been previously conducted? No _____ Yes _____ If Yes, provide a copy of report. F. If available, attach maps or surveys that describe the property to this questionnaire. Attached _____
None available _____
G. If you are unable to furnish the information requested above, please advise us of a reliable source that may be able to furnish this information.
Property Inspection Checklist for Current Environmental Conditions Name of Inspector:
Date of Inspection:
Owner of Property:
Estimated Size:
Location of Property:
Current Use:
Number of years the current use has been in effect: Brief history of property use (list past use and former tenants, and source of information):
Environmental Site Inspection Checklist I. An on-site inspection revealed the following:
Yes
No
A. Stressed or denuded vegetation or unusual barren areas
______ ______
B. Discoloration, oil sheens or foul/unusual odors in water
______ ______
C. Dump site
______ ______
D. Tire/battery/chemical storage or disposal
______ ______
E. Storage drums
______ ______
F. Above or below ground storage tanks, vent or filler pipes
______ ______
G. Evidence of petroleum or oil products
______ ______
H. Evidence of PCB’s (electrical transformers, capacitors)
______ ______
I. Subject or adjoining property used for industrial purposes
______ ______
J. Existing structures: If yes, indicate if there is:
______ ______
1. Evidence of chemical spills/leaks
______ ______
2. Evidence of asbestos
______ ______
3. Any source of air emission
______ ______
K. Does property appear on National/State Hazardous Site list? L.
If “yes” to any of the above, describe:
______ ______
II. ( ) Based on the evaluation of known, discovered or observed environmental factors, there is no evidence of environmental contamination on this or neighboring properties, and no further action is recommended. ( ) Based on the evaluation of known, discovered or observed environmental factors, there is evidence of possible environmental contamination on this or neighboring properties and further investigation is recommended. (Complete “Evaluation of Known Environmental Factors Form� if this block is checked.)
Person Completing Form
Title
Date
Acceptance of Form Approved By
Title
Date
Evaluation of Known Environmental Factors Check the appropriate response to each statement based on all sources of information, including the Environmental Site Inspection Checklist.
Yes
No
A. This property (or adjacent property) appears on federal, state or other environmental agency list of sites identified for environmental investigation or cleanup.
______ ______
B. This property is developed and used for an industrial or manufacturing purpose.
______ ______
C. This property is undeveloped land used for landfill or waste dump purpose.
______ ______
D. The prior, current or proposed use of this property involves the generation, storage, treatment or disposal of any potentially hazardous materials, oil/petroleum products or other substances requlated by environmental laws and agencies. Specify:
______ ______
E. Activities on adjacent properties may have contributed to the environmental contamination of the subject property.
______ ______
F. This property is near a flood plain, wetland or ecologically sensitive area.
______ ______
G. The Environmental Site Inspection revealed evidence of possible environmental contamination.
______ ______
H. The donor has revealed potential sources or causes of environmental concern.
______ ______
I. This property is used for agricultural purposes.
______ ______
( ) Based on the evaluation of known environmental factors, there is no evidence of possible environmental contamination on this or neighboring properties, and no further action is recommended. ( ) Based on the evaluation of known environmental factors, there is evidence of possible environmental contamination on this or neighboring properties, and further investigation is recommended. Recommendations:
Person Completing Form
Title
Date
Acceptance of Form Approved By
Title
Date
IRA CHARITABLE ROLLOVER NOW MADE PERMANENT!
If your donors missed their chance to take advantage of the charitable IRA legislation in the past, they are in luck! On Dec. 18, 2015, the president signed into law the Protecting Americans from Tax Hikes Act of 2015. The new law made the IRA charitable rollover retroactive to Jan. 1, 2015, and will remain in effect for 2016 and beyond. Donors 70½ or older are once again eligible to move up to $100,000 from their IRAs directly to qualified charities without having to pay income tax on the money. Here is a recap of the IRA charitable rollover rules. Your donor can make a direct transfer if: 1.
The donor is age 70½ or older on the day of the gift.
2. The donor transfers up to $100,000 directly from the donor’s IRA to one or more qualified charities. This opportunity applies only to IRAs and not to other types of retirement plans. 3. The donor does not receive any goods or services in return for the rollover gift in order to qualify for tax-free treatment.
Please call us for more information, or to receive a sample form that you can share with your donors and their financial advisors! Thank you.
--Fred Hueston, Ph.D., CFRE— Senior Consultant, Hueston Consulting Group, LLC
COMPARISON OF DEDUCTIBLE CHARITABLE REMAINDER GIFTS
Remainder Interest In Personal Residence or Farm
-------- Charitable Remainder Trust ------Annuity Trust
Unitrust
A. Remainderman
170(c)
170(c)
170(c)
B. Income Beneficiaries
No Limitations
Individuals in being at time of transfer
Individuals in being at time of transfer
C. Period
No Limitations
Lives of beneficiaries or term of 20 years
Lives of beneficiaries or term of 20 years
D. Payment to Beneficiaries
Not Applicable
Must receive not less often than annually. Fixed amount which was not less than 5% of fair market value of assets at time of transfer
1. 2. 3. 4. 5.
6. IRC642(c)(5)(A) 7. IRC664(d)(1)(A) 8. IRC664(d)(2)(A) 9. IRC664(d)(3) 10. IRC642(c)(5)(F) 10a. IRC170(f)(3)
Must receive not less often than annually. Fixed percentage (not less than 5 %) of fair market value of assets computed annually. Without affecting computation of the deduction the donor may take income only if it is less than the percentage and in years where the income exceeds the percentage, that income may or may not be distributed to make up for past deficiencies
IRC 664(d)(1)(B) IRC 642(c)(5)(A) IRC664(d)(1)(A) IRC642(c)(5)(A) IRC664(d)(1)(A)
COMPARISON OF DEDUCTIBLE CHARITABLE REMAINDER GIFTS Remainder Interest In Personal Residence or Farm
-------- Charitable Remainder Trust ------Annuity Trust
Unitrust
E. Taxability of Payments
Not Applicable
No invasion for the benefit of beneficiaries permitted. Ordinary income to extent of income earned in year or accumulated; then short-term capital gain to extent of income earned in year or accumulated; then long-term capital gain to extent of income earned in year or accumulated; then corpus
No invasion for the benefit of beneficiaries permitted. Ordinary income to extent of income earned in year or accumulated; then short-term capital gain to extent of income earned in year or accumulated; then long-term capital gain to extent of income earned in year or accumulated; then corpus
F. Taxability of Trust
Not Applicable
Not taxable unless trust has unrelated business income
Not taxable unless trust has unrelated business income
11. IRC 664(b) 12. IRC 642(c)(5)(F) 12a. Annuity Trust – Proposed Regulations 1.664-2(a)(4); Unitrust - Proposed Regulations 1.664-3(a)(4); Pooled Income Fund Trust – Regulations 1.642(c)-5(b)(1) 13. IRC 642(c) 14. Long-term gains permanently set aside for charitable remainderman deductible; IRC 642(c)(3)
G. Investments
Not Applicable
Should be separately invested. Trustee cannot be prohibited from investing in such a way as to realize income or gain currently
Should be separately invested. Trustee cannot be prohibited from investing in such a way as to realize income or gain currently
COMPARISON OF DEDUCTIBLE CHARITABLE REMAINDER GIFTS Remainder Interest In Personal Residence or Farm
-------- Charitable Remainder Trust ------Annuity Trust
Unitrust
H. Trustee
Not Applicable
No statutory limitations
No statutory limitations
I. Additional Contributions
Not Applicable
Not permitted
Permitted subject to inclusion of required provisions in governing instrument
15. IRC 642(c)(5)(B) 16. To avoid claim of association taxable as corporation; IRC 7701(a)(3) 17. Proposed Regulations 1.664-l(a)(6) 18. IRC 642(c)(5)(C) 19. IRC 642(c)(5)(E) 20. Regulations 1.642(c)-5(b)(5) 21. Proposed Regulations 1.664-2(b) 21a. Proposed Regulations 1.664-3(b)
J. Status
Not Applicable
Subject to private foundation rules with certain minor exceptions
Subject to private foundation rules with certain minor exceptions
K. Funding with Appreciated Property
Not Applicable
No gain realized
No gain realized
L. Computation of Deduction
Discounted at 6% with depreciation on a straight-line basis
Based on percentage Based on percentage chosen (5% or over). chosen (5% or over). Estate tax tables Tables in regulations and publications
COMPARISON OF DEDUCTIBLE CHARITABLE REMAINDER GIFTS Remainder Interest In Personal Residence or Farm M. Limitation
Remainder treated as a gift to the charitable remainderman. If remainderman a “public charity” gift subject to 50% limitation (30% to extent appreciated longterm property) and carryover in case of both corporations and individuals
-------- Charitable Remainder Trust ------Annuity Trust
Unitrust
Remainder treated as a gift to the charitable remainderman. If remainderman a “public charity” gift subject to 50% limitation (30% to extent appreciated long-term property) and carryover in case of both corporations and individuals
Remainder treated as a gift to the charitable remainderman. If remainderman a “public charity” gift subject to 50% limitation (30% to extent appreciated long-term property) and carryover in case of both corporations and individuals
22. Section 4947(a)(2) and (b) 23. Regulations 1.642(c)-5(a)(3) 24. Revenue Ruling 55-275, 1955-1 C.B. 295 but see Revenue Ruling 60-370, 1960-2 C.B. 203 25. Proposed Regulations 1.664-2(d); Regulations 20.2031-10 26. IRS Publications 723 and 723B 27. IRC 170(b)(1)(A) 28. Alice Tully, 48 T.C. 235; Revenue Ruling 57-507, 1957-2 C.B. 511 29. IRC 642(c)(5) 30. IRC 170(f)(4)