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CHARITABLE REMAINDER TRUSTS(f) Characterization andOrdering Rules –Proposed Revisions 460§ 12.6 Early Terminations ofCharitable RemainderTrusts 463§ 12.7 Taxation of CharitableRemainder Trusts 464§ 12.8 Mandatory Provisions 466§ 12.9 Private Foundation Rules 466§ 12.10 Wealth ReplacementTrusts 468§ 12.11 Calculation of CharitableDeduction 472(a) Charitable RemainderAnnuity Trusts 472(b) Charitable RemainderUnitrusts 474(c) QualifiedContingencies 476In the realm of planned giving, the most common and most versatile charitablegift vehicle is the split-interest trust termed the charitable remainder trust. 1Essentially, a charitable remainder trust is what its name conveys: it is an entity bywhich property (including money) is split, using the legal fiction of contrivance ofinterests in a trust, into two types of interests: an income interest and a remainderinterest. The remainder interest is destined for one or more charitable organizations,while the income interest is retained by and/or created for one or more noncharitablebeneficiaries. If the trust is a qualified one, the gift of the remainderinterest gives rise to one or more federal tax charitable contribution deductions.This chapter focuses on the federal income tax charitable deduction. Theavailability of the federal gift and estate tax charitable deductions for gifts tocharitable remainder trusts is discussed in the estate and gift tax context. 2§ 12.1 DEFINITIONSThe federal tax law defining charitable remainder trusts and the operation ofthem is extensive. It is necessary, then, to begin with the basic terminology.(a) Basic TerminologyThe most fundamental definition of a qualified charitable remainder trust(CRT) is this: A CRT provides for a specified distribution, at least annually, toone or more beneficiaries, at least one of which is not a charitable organization,for one or more lives or for a term of years, with an irrevocable remainderinterest to be paid over to, or held for the benefit of, charity. 3 The contributionof the remainder interest must be deductible for federal income, gift, and/orestate tax purposes. 4The terms income interest and remainder interest are used in their singularform, in that the income interest and remainder interest in an item of propertyconstitute the total interest in the property. At the same time, there can be income1 The charitable remainder trust is the subject of IRC § 664. The term is used throughout to mean a trust that qualifiesunder that provision. The concepts of planned giving and split-interest trusts are discussed in Chapter 5.That chapter contains a general description of charitable remainder trusts.2 See Chapter 8.3 Reg. § 1.664-1(a)(1)(i).4 Reg. § 1.664-1(a)(1)(iii)(a). 406