Rev. Rul. 88-81
1988-2 C.B. 127, 1988-39 I.R.B. 4.
Internal Revenue Service
Revenue Ruling
SAMPLE PROVISIONS FOR CHARITABLE REMAINDER TRUSTS
Published: September 26, 1988
SECTION 664. - CHARITABLE REMAINDER TRUSTS, 26 CFR 1.664-1: Charitable remainder trusts
Sample provisions for charitable remainder trusts. Sample provisions for charitable remainder trusts are provided for future changes to the applicable interest rates prescribed in the regulations. Rev. Ruls. 72-395, 80-123, and 82-165 modified.
SECTION 1. PURPOSE
The purpose of this revenue ruling is to provide sample provisions for inclusion in the governing instrument of a charitable remainder trust. The sample provisions conform to section 1.664- 1(a)(5)(i) of the Income Tax Regulations. If the sample provisions are used, future changes in the applicable interest rate prescribed in section 1.664-1(a)(5)(iv) will not require amendments to the governing instrument. These sample provisions are consistent with the rules that apply to governing instruments executed or amended after October 24, 1983.
SEC. 2. BACKGROUND
01 Section 1.664-1(a)(5)(i) of the regulations, as amended by T.D. 7955, 1984-1 C.B. 40, provides, in part, that for purposes of sections 2055 and 2106 of the Internal Revenue Code, a charitable remainder trust shall be deemed created at the date of death of the decedent (even though the trust is not funded until the end of a reasonable period of administration or settlement) if the obligation to pay the annuity or unitrust amount with respect to the property passing in trust at the death of the decedent begins as of the date of death of the decedent, even though the requirement to pay such amount is deferred in accordance with the rules provided in section 1.664-1(a)(5). If permitted by applicable local law or authorized by the provisions of the governing instrument, the requirement to pay such amount may be deferred until the end of the taxable year of the trust in which occurs the complete funding of the trust. Within a reasonable period after such time, the trust must pay (in the case of an underpayment) or must receive from the recipient (in the case of an overpayment) the difference between (a) any annuity or unitrust amounts actually paid, plus interest on such amounts computed at the rate of interest specified in section 1.664-1(a)(5)(iv), compounded annually, and (b) the annuity or unitrust amounts payable, plus interest on such amounts computed at the rate of interest specified in section 1.664-1(a)(5)(iv), compounded annually.
Section 1.664-1(a)(5)(iv) of the regulations, added by T.D. 7955, establishes the interest rates applicable to section 1.664- 1(a)(5)(i) as follows:
(a) 10 percent for instruments executed or amended on or after August 9, 1984;
(b) 6 percent or 10 percent for instruments executed or amended after October 24, 1983, and before August 9, 1984; and
(c) 6 percent for instruments executed before October 25, 1983, and not subsequently amended.
02 Rev. Rul. 72-395, 1972-2 C.B. 340, sets forth sample provisions for inclusion in the governing instrument of a charitable remainder trust that may be used to satisfy the requirements of section 664 of the Code (relating to charitable remainder trusts) and the regulations thereunder. Sections 5.02 and 7.02 of Rev. Rul. 72-395 provide sample provisions to satisfy the requirements of section 1.664-1(a)(5)(i) of the regulations.
03 Rev. Rul. 80-123, 1980-1 C.B. 205, holds that it is mandatory for the governing instrument of a testamentary charitable remainder trust to contain provisions to conform to section 1.664-1(a)(5) of the regulations. Rev. Rul. 80-123 modified Rev. Rul. 72-395 to the extent that Rev. Rul. 72-395 treated as optional the inclusion of provisions like the sample provisions set forth in sections 5.02 and 7.02 thereof.
04 Rev. Rul. 82-165, 1982-2 C.B. 117, provides sample provisions to replace the second paragraph of the sample provisions contained in sections 5.02 and 7.02 of Rev. Rul. 72-395. The replacement sample provisions were needed in order to deal adequately with corrective overpayments and underpayments as required by section 1.664-1(a)(5) of the regulations. The sample provisions in Rev. Rul. 82-165 refer to an interest rate of 6 percent, which was the interest rate on corrective payments set forth in section 1.664-1(a)(5) of the regulations prior to amendment by T.D. 7955.
SEC. 3. INSTRUCTIONS TO TAXPAYERS
01 CHARITABLE REMAINDER ANNUITY.
For governing instruments of charitable remainder annuity trusts, the following sample provision replaces the corresponding sample provision contained in Rev. Rul. 82-165:
The obligations to pay the annuity amount shall commence with the date of my death, but payment of the annuity amount may be deferred from the date of my death until the end of the taxable year of the trust in which occurs the complete funding of the trust. Within a reasonable time after the end of the taxable year in which the complete funding of the trust occurs, the trustee must pay to A, in the case of an underpayment, or must receive from A, in the case of an overpayment, the difference between:
(a) any annuity amounts actually paid, plus interest, compounded annually, computed for any period at the rate of interest that the federal income tax regulations under section 664 of the Internal Revenue Code prescribe for the trust for such computation for such period; and
(b) the annuity amounts payable, plus interest, compounded annually, computed for any period at the rate of interest that the federal income tax regulations under section 664 of the Internal Revenue Code prescribe for the trust for such computation for such period.
02 CHARITABLE REMAINDER UNITRUSTS.
For governing instruments of charitable remainder unitrusts, the following sample provision replaces the corresponding sample provision contained in Rev. Rul. 82-165:
The obligation to pay the unitrust amount shall commence with the date of my death, but payment of the unitrust amount may be deferred from the date of my death until the end of the taxable year of the trust in which occurs the complete funding of the trust. Within a reasonable time after the end of the taxable year in which the complete funding of the trust occurs, the trustee must pay to A, in the case of an underpayment, or must receive from A, in the case of an overpayment, the difference between:
(a) any unitrust amounts actually paid, plus interest, compounded annually, computed for any period at the rate of interest that the federal income tax regulations under section 664 of the Internal Revenue Code prescribe for the trust for such computation for such period, and
(b) the unitrust amounts payable, determined under the method described in section 1.664-1(a)(5)(ii) of the federal income tax regulations, plus interest, compounded annually, computed for any period at the rate of interest that the federal income tax regulations under section 664 of the Internal Revenue Code prescribe for the trust for such computation for such period.
SEC. 4. EFFECT ON OTHER DOCUMENTS
Rev. Rul. 72-395, 1972-2 C.B. 340, Rev. Rul. 80-123, 1980-1 C.B. 205, and Rev. Rul. 82-165, 1982-2 C.B. 117, are modified.
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