Contents

§ 16.8 ANTI-ABUSE RULE CONCERNING INCOME INTERESTS(b) Anti-Abuse Rule in GeneralPursuant to this rule, the permissible term for guaranteed annuity interests andunitrust interests (essentially income interests in deduction-qualifying charitablelead trusts) must be either a specified term of years (no limit) or the life of one ormore certain individuals living at the date of the transfer. The only individualswhose lives may be used as measuring ones in this setting are those of the donor,the donor’s spouse, and an individual who, with respect to all remainder beneficiaries(other than charitable organizations), is either a lineal ancestor or thespouse of a lineal ancestor of those beneficiaries. A trust will satisfy the requirementthat all noncharitable remainder beneficiaries be lineal descendants of theindividual whose life is the measuring life, or the life of that individual’s spouse,if there is less than a 15 percent probability that individuals who are not linealdescendants will receive any trust corpus. 48 (This rule is not applicable to annuityand unitrust interests payable from charitable remainder trusts.)An interest payable for a specified term of years can qualify as a guaranteedannuity or unitrust interest even if the governing instrument contains a savingsclause intended to ensure compliance with a rule against perpetuities. This savingsclause must utilize a period for vesting of 21 years after the deaths of measuringlives that are selected to maximize, rather than limit, the term of thetrust. 49 In the preamble to the final anti-abuse rules, the IRS “acknowledge[d]that there may be situations in which the grantor, for a valid estate planningobjective, may desire to use an individual as a measuring life who does not satisfythe criteria in the regulations” (e.g., when a remainder beneficiary is dependenton a non-family member for support and the trust corpus is intended to providethat support after the death of the non-family member). The government added,however, that “in these situations the grantor’s objectives can be satisfiedthrough the use of other permissible estate planning techniques.” This commentaryconcluded with the observation that when a charitable lead trust is utilized,the IRS believes the final rules “allow adequate flexibility for achieving legitimateestate planning objectives while providing reasonable safeguards to precludeabusive arrangements.” 50(c) Effective DateThe rule applies generally to transfers to inter vivos (lifetime) charitable leadtrusts made on or after April 4, 2000. If a transfer is made to a trust on or afterthat date that uses the life of an individual other than a permissible one, thetrust may be reformed to satisfy this rule. 51 Also, the rule applies to transfers48 Reg. §§ 1.170A-6(c)(2)(i)(A), (ii)(A) (income tax rule); 20.2055-2(e)(2)(vi)(a), (vii)(a) (estate tax rule);25.2522(c)-3(c)(2)(vi)(a), (vii)(a) (gift tax rule).49 Reg. §§ 1.170A-6(c)(2)(i)(A), (ii)(A) (income tax rule); 20.2055-2(e)(2)(vi)(a), (vii)(a) (estate tax rule);25.2522(c)-3(c)(2)(vi)(a), (vii)(a) (gift tax rule).50 1041 Fed. Reg. 66 (January 5, 2001).51 Reg. §§ 1.170A-6(e) (income tax rule); 25.2522(c)-3(e) (gift tax rule). 523