Contents
Contents Contents
CHARITABLE LEAD TRUSTSmade pursuant to wills or revocable trusts when the decedent dies on or afterthat date. 52(d) ReformationsThe IRS will not disallow the charitable deduction when the charitable interest ispayable for the life of an individual other than one permitted under the rule, ifthe interest is reformed into a lead interest payable for a specified term of years.The term of years must be determined by taking the factor for valuing the annuityor unitrust interest for the named individual’s measuring life and identifyingthe term of years (rounded up to the next whole year) that corresponds to theequivalent term-of-years factor for an annuity or unitrust interest.In the case of inter vivos transfers, a judicial reformation must have beencommenced prior to the later of July 3, 2001, or the date prescribed in the rulesconcerning reformable interests occasioned by judicial proceedings. 53 Any judicialreformation must be accomplished within a reasonable time after it is commenced.A nonjudicial reformation is permitted if effective under state law,provided it is completed by the date on which a judicial reformation must becommenced. 54§ 16.9 CHARITABLE INCOME TRUSTSBroadly comparable to the charitable lead trust is the charitable income trust.Under this type of trust, the charitable organization that is the income interestbeneficiary is—literally—only entitled to the income of the trust. (With the usualcharitable lead trust, the income beneficiary is to be paid an annuity amount or aunitrust amount, and those amounts must be satisfied out of principal if thetrust’s income is insufficient to fund the payout(s).) No income, gift, or estate taxdeduction is available for this type of gift, 55 because the trust is not one of thetwo required forms. 56The charitable income trust has been used, in the context of gifts made duringthe donor’s lifetime, to:• Deflect the income of the trust from the income of the donor• Transfer property to a member of the donor’s family with a minimum of taxexposure52 Reg. § 20.2055-2(e)(3)(iii). Two exceptions from the application of the rule are provided for transfers pursuantto a will or revocable trust executed on or before April 4, 2000. One exception is for a decedent who dies onor before July 3, 2001, without having republished the will or amended the trust. The other exception is for adecedent who was, on April 4, 2000, under a mental disability regarding changes to the disposition of the decedent’sproperty, and either did not regain competence to dispose of the property before the date of death ordied prior to the later of 90 days after the date on which the decedent first regained competence or July 3, 2001,without having republished the will or amended the trust.53 IRC § 2055(e)(3)(C)(iii).54 Reg. § 20.2055-2(e)(3)(iii).55 See, e.g., Rev. Rul. 77-275, 1977-2 C.B. 346 (no estate tax charitable deduction).56 See § 16.2. 524
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CHARITABLE LEAD TRUSTSmade pursuant to wills or revocable trusts when the decedent dies on or afterthat date. 52(d) ReformationsThe IRS will not disallow the charitable deduction when the charitable interest ispayable for the life of an individual other than one permitted under the rule, ifthe interest is reformed into a lead interest payable for a specified term of years.The term of years must be determined by taking the factor for valuing the annuityor unitrust interest for the named individual’s measuring life and identifyingthe term of years (rounded up to the next whole year) that corresponds to theequivalent term-of-years factor for an annuity or unitrust interest.In the case of inter vivos transfers, a judicial reformation must have beencommenced prior to the later of July 3, 2001, or the date prescribed in the rulesconcerning reformable interests occasioned by judicial proceedings. 53 Any judicialreformation must be accomplished within a reasonable time after it is commenced.A nonjudicial reformation is permitted if effective under state law,provided it is completed by the date on which a judicial reformation must becommenced. 54§ 16.9 CHARITABLE INCOME TRUSTSBroadly comparable to the charitable lead trust is the charitable income trust.Under this type of trust, the charitable organization that is the income interestbeneficiary is—literally—only entitled to the income of the trust. (With the usualcharitable lead trust, the income beneficiary is to be paid an annuity amount or aunitrust amount, and those amounts must be satisfied out of principal if thetrust’s income is insufficient to fund the payout(s).) No income, gift, or estate taxdeduction is available for this type of gift, 55 because the trust is not one of thetwo required forms. 56The charitable income trust has been used, in the context of gifts made duringthe donor’s lifetime, to:• Deflect the income of the trust from the income of the donor• Transfer property to a member of the donor’s family with a minimum of taxexposure52 Reg. § 20.2055-2(e)(3)(iii). Two exceptions from the application of the rule are provided for transfers pursuantto a will or revocable trust executed on or before April 4, 2000. One exception is for a decedent who dies onor before July 3, 2001, without having republished the will or amended the trust. The other exception is for adecedent who was, on April 4, 2000, under a mental disability regarding changes to the disposition of the decedent’sproperty, and either did not regain competence to dispose of the property before the date of death ordied prior to the later of 90 days after the date on which the decedent first regained competence or July 3, 2001,without having republished the will or amended the trust.53 IRC § 2055(e)(3)(C)(iii).54 Reg. § 20.2055-2(e)(3)(iii).55 See, e.g., Rev. Rul. 77-275, 1977-2 C.B. 346 (no estate tax charitable deduction).56 See § 16.2. 524