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§ 16.3 INCOME TAX CHARITABLE DEDUCTIONThe IRS held (in the gift tax context) that annuity interests that will continuefor a term of years or for a period of lives in existence (technically, in being), plus aterm of years, can qualify as annuity interests. 8 In that case, an individual, A, createda trust and funded it with $250,000. The trust instrument provided that thetrustee of the trust must distribute at the end of each tax year an annuity of $20,000to qualified charitable organizations. The trust was to terminate on the earlier of aperiod of 30 years after the funding of the trust or 21 years after the death of thelast survivor of A’s children living on the date when the trust was created, in favorof A’s surviving children. When A created the trust, she had three children, aged53, 60, and 63. The IRS concluded that each of the payment periods was an allowablepayment period and that the lesser value of the two could be computed.The trust must provide for a specified distribution (as noted, at least annually)to one or more income beneficiaries for the life or lives of one or more individualsor for a term of years. 9 These individuals must be alive and ascertainableas of the funding of the trust. 10§ 16.3 INCOME TAX CHARITABLE DEDUCTIONA transfer of money or property to a charitable lead trust may or may not resultin a current “front-end” income tax charitable contribution deduction for thedonor. If certain conditions are met, a charitable deduction will be available forthe value of an income interest created by means of a charitable lead trust. Theseconditions are principally twofold.First, as noted, the income interest must be in the form of an annuity interestor a unitrust interest. 11 When this is done, the charitable contribution deductionis available for federal income, gift, and estate tax purposes, if other requirementsare satisfied. 12 The IRS issues rulings from time to time as to the qualificationof charitable lead interests. 13Second, for purposes of the income tax charitable deduction, the donor mustbe treated as the owner of the income interest, pursuant to the grantor trustrules. 14 (This is a federal tax law requirement, with the donor being the grantor.)This latter requirement means that the income as received by the charitable leadtrust is taxed to the donor/grantor. As discussed below, this fact makes an incometax deduction for a charitable gift in this context of limited likelihood and use.A charitable lead trust may be established in such a fashion that there is noincome tax charitable contribution deduction for the income interest involved.8 Rev. Rul. 85-49, 1985-1 C.B. 330.9 Reg. § 1.170A-6(c)(2)(1)(A), (ii)(A).10 Id.11 See § 16.2.12 IRC §§ 170(f)(2)(B), 2055(e)(2)(B), 2522(c)(2)(B). When the trustee of a charitable lead annuity trust has thediscretion to commute and prepay the charitable lead annuity interest prior to the expiration of the term of theannuity, the interest does not qualify as a guaranteed annuity interest (under IRC § 2522(c)(2)(B)), because (inpart) the charity does not have the right to receive periodic payments over a specified term, and thus there isno gift tax charitable deduction. Rev. Rul. 88-27, 1988-1 C.B. 331. This rationale was held applicable in connectionwith a charitable lead unitrust and the estate tax deduction. Priv. Ltr. Rul. 9734057.13 See, e.g., Priv. Ltr. Rul. 8736020.14 IRC § 170(f)(2)(B); Reg. § 1.170A-6(c)(1). The grantor trust rules are the subject of § 3.7. 517