Friday April 19, 2024

Rev. Rul. 73-610

GiftLaw Note: Donor created an irrevocable trust to pay an annuity payment stream to his wife for life with remainder to charity. The trust was funded with payment producing assets and an antique collection. The trust was not created as a charitable remainder annuity trust. The trust document allowed the spouse use of the antique collection for her life. Advice has been requested as to whether this trust would qualify as a CRAT. The IRS determined that in order for the trust to be a CRAT it must operate as a CRAT from creation. In this case the spouse was given use of the antique collection for her life and thus, the trust did not operate exclusively as a charitable remainder trust. Further, the trustee did not have the ability to invest the trust assets in a manner that could result in the annual realization of a reasonable amount of income or gain from the sale or disposition of trust assets. The court determined that the trust was not a CRAT.

Rev. Rul. 73-610, 1973-2 C.B. 213

Sec. 664

Headnote

Qualification as charitable remainder annuity trust. An irrevocable trust to which grantor contributed income producing assets and an antique collection to be retained by the sole life income beneficiary during her lifetime does not qualify as a charitable remainder annuity trust under section 664 of the Code.

Rev. Rul. 73-610
Advice has been requested whether a trust qualifies as a charitable remainder annuity trust under section 664 of the Internal Revenue Code of 1954 and the applicable Income Tax Regulation under the circumstances described below.
The grantor of the irrevocable trust contributed a collection of antiques in addition to income producing assets to the trust at the time of its creation. The governing instrument of the trust provides that the grantor's spouse, who is the sole income beneficiary of the trust for her life, shall have use of the antique collection for her life. At her death, the antique collection and all the remaining assets in the trust are to be distributed to an organization described in section 170(c) of the Code.

In all other respects the trust instrument complies with the provisions of section 664 of the Code and the regulations applicable thereto concerning creation of annuity amount for a period of years or life, creation of remainder interest in charity, selection of alternative charitable beneficiary if remaindermen do not qualify under section 170(c) at the time of distribution, computation of annuity amount in short and final taxable years, prohibition of additional contributions, and prohibitions governing private foundations.

Section 1.664-1(a)(4) of the regulations provides that in order for a trust to be a charitable remainder trust, it must meet the definition of and function exclusively as a charitable remainder trust from the creation of the trust.

Section 1.664-1(a)(3) of the regulations provides that a trust is not a charitable remainder trust if the provisions of the trust include a provision that restricts the trustee from investing the trust assets in a manner that could result in the annual realization of a reasonable amount of income or gain from the sale or disposition of trust assets.

In the instant case retention of a life estate in the antique collection by the grantor's spouse restricts the trustee from investing all the trust assets in a manner that could result in the annual realization of a reasonable amount of income or gain from the sale or disposition of trust assets. Accordingly, the trust does not comply with the aforementioned regulations and, therefore, does not qualify as a charitable remainder annuity trust under section 664 of the Code and the regulations applicable thereto. Thus, the contribution to the trust is not deductible as a charitable contribution for Federal income tax purposes.