Letting Charity Benefit Early

As the name implies, in a charitable remainder trust, charity receives trust assets at the termination of the income interest.  But it is possible to give charity a portion of the income interest, or allow income distributions at the discretion of an independent trustee.

The IRS has approved a trust in which the donor and charitable remainderman were co-income beneficiaries of a charitable remainder annuity trust.  An independent trustee had the power to sprinkle the trust’s annuity payments with at least 20% required to be paid to the donor (Letter Ruling 9052038).  In another favorable ruling, the IRS allowed an independent trustee to pay up to 75% of the unitrust amount to a charity, saying such a provision did not violate Code §664.  The amount that the noncharitable income beneficiaries receive must be more than “de minimus”, the IRS said (Letter Ruling 200832017).

Naming a charity as an income beneficiary of a charitable remainder trust does not increase the donor’s income tax charitable deduction [Reg. §1.664-3(d)].


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