IRS Allows Transfer of a Portion of CRT Assets to a New CRT

IRS Allows Transfer of a Portion of CRT Assets to a New CRT

News story posted in Letter Rulings on 4 May 1998| comments
audience: National Publication | last updated: 18 May 2011
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Summary

The Service has ruled privately that the transfer of a portion of a charitable remainder unitrust's assets into a new unitrust, followed by the assignment of the trustor's income interest in the new trust to the charitable remainderman, and the distribution of the new trust's assets to the remainderman will not adversely affect either trust's status as a charitable remainder unitrust.

Ltr. Rul. 9817010

PGDC SUMMARY:

The Service has ruled privately that the transfer of a portion of a charitable remainder unitrust's assets into a new unitrust, followed by the assignment of the trustor's income interest in the new trust to the charitable remainderman, and the distribution of the new trust's assets to the remainderman will not adversely affect either trust's status as a charitable remainder unitrust.

FULL TEXT:

Date: January 15, 1998

LEGEND:
Trust = * * *
Trustee = * * *
College = * * *
A = * * *
l = * * *
m = * * *
Cite 1 = * * *
Cite 2 = * * *

Dear * * *

This letter responds to a letter dated July 16, 1997, and subsequent correspondence, submitted by your authorized representative, requesting a ruling that a proposed transfer of a unitrust interest in a charitable remainder unitrust to an organization described in section 170(c) will not affect the assumed qualification of the charitable remainder unitrust under section 664 of the Internal Revenue Code and the applicable regulations.

FACTS

According to the information submitted, A established what is represented to be a charitable remainder unitrust, Trust. The Trustee of Trust is an unrelated third party. Trust is required to pay annually a unitrust amount to A for life equal to a fixed percentage, l [Editor's Note:Incorrect transcription. The amount cannot be less than 5%. The error is immaterial to the ruling] percent, of the net fair market value of Trust assets.

Article IV, section A, provides that upon the death of A, the Trustee shall distribute all of the then principal and income of the Trust, other than any amount due A to the charitable beneficiary, College.

Article IV, section B, provides that if the charitable beneficiary is not an organization described in each of sections 170(b)(1)(A), 170(c), 2055(a), and 2522(a), at the time when any principal or income of the Trust is to be distrusted to it, the Trustee shall distribute such principal or income to one or more other organizations then so described, as the Trustee shall select and such shares as the Trustee shall determine.

Trustee proposes to segregate certain Trust assets with an approximate fair market value of m into a separate trust (new trust) subject to the same terms that govern Trust. Trustee represents that the proposed segregation is permissible under state law. See Cite 1. A proposes to assign his unitrust interest in the new trust to College. Trustee represents that the unitrust interest in the new trust that College will receive will merge with its remainder interest in the new trust under state law. See Cite 2. Once the current and remainder interests in the new trust merge, the new trust will terminate and Trustee will distribute the trust assets in the new trust to College.

LAW

Section 664(d)(2) provides that a charitable remainder unitrust is a trust (A) from which a fixed percentage (which is not less than five percent) of the net fair market of its assets, valued annually, is to be paid, not less often than annually, to one or more persons (at least one of which is not an organization described in section 170(c) and, in the case of individuals, only to an individual who is living at the time of the creation of the trust) for a term of years (not in excess of 20 years) or for the life or lives of such individual or individuals, (B) from which no amount other than the payments described in subparagraph (A) may be paid to or for the use of any person other than an organization described in section 170(c), and (C) following the termination of the payments described in subparagraph (A), the remainder interest in the trust is to be transferred to, or for the use of, an organization described in section 170(c) or is to be retained by the trust for such use.

Section 1.664-1(a)(1)(iii)(a) provides that the term "charitable remainder trust" means a trust with respect to which a deduction is allowable under sections 170, 2055, 2106, or 2522 and which meets the description of a charitable remainder annuity trust (as described in section 1.664-2) or a charitable reminder unitrust (as described in section 1.664-3).

Section 1.664-3(a)(3)(ii) provides that a trust is not a charitable remainder unitrust if any person has the power to alter the amount paid to any named person other than an organization described in section 170(c) if such power would cause any person to be treated as the owner of the trust, or any portion thereof, if subpart E, part 1, subchapter J, chapter 1, subtitle A of the Code were applicable to such trust.

Section 1.664-3(a)(4) provides that no amount other than the unitrust amount may be paid to or for the use of any person other than an organization described in section 170(c). The governing instrument may provide that any amount other than the unitrust amount shall be paid (or may be paid in the discretion of the trustee) to an organization described in section 170(c) provided that, in the case of distributions in kind, the adjusted basis of the property distrusted is fairly representative of the adjusted basis of the property available for payment on the date of payment. For example, the governing instrument may provide that a portion of the trust assets may be distributed currently, or upon the death of one or more recipients, to an organization described in section 170(c).

CONCLUSIONS

After reviewing the facts and relevant documents submitted, we conclude that the proposed segregation of certain Trust assets into new trust subject to the same terms as Trust, the proposed assignment of A's unitrust interest in new trust to College, and the distribution of the assets of new trust to College will not adversely affect Trust's qualification as a charitable remainder unitrust if it otherwise meets the requirements of section 664 and the applicable regulations.

Except as specifically set forth above, no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the Code. Specifically, no opinion is expressed concerning (1) whether Trust or the new trust qualifies as a charitable remainder unitrust, (2) whether College is an organization described in section 170(c), (3) whether Trust can be segregated under state law, and (4) whether A's assignment of the unitrust interest in the new trust to College merges with College's remainder interest in the new trust under state law.

This ruling is directed only to the taxpayer who requested it. Section 6110(j)(3) of the Code provides that it may not be used or cited as precedent.

Pursuant to a power of attorney on file in this office, a copy of this letter will be sent to your authorized representative.

Sincerely yours,

Donna M. Young
Senior Technician Reviewer,
Branch 3
Office of the Assistant
Chief Counsel
(Passthroughs and Special Industries)

Enclosures (2)
Copy of this letter
Copy for section 6110 purposes
____________________________________________________________ Date Published: 04-24-98

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