Private Letter Rulings
PLR
199915058 Testamentary Lead Trust Reformation Under Sec. 2055(e):
Since many charitable trusts in wills fail to qualify under IRC provisions in effect as of date of death, Sec. 2055(e)(3) permits reformation and qualification of lead and remainder trusts. This 1997 testamentary lead trust required reformation. The reformed trust pays an annuity equal to 9.612% of the initial net fair market value of trust assets for a term of 18 years. While the payout is to a family foundation, there will still be a full charitable estate deduction under Sec. 2055 for the present value of the annuity payouts.
PLR
199947022 Lead Trust Plus Disclaimer Lead Trust Approved:
A woman's will created a testamentary 20-year charitable lead trust with a transfer of the remainder to her son. However, there is also a second lead trust that may be funded through exercise of a valid disclaimer by the son.
PLR
199952093 Lead Trust Commutation Approved With Full Annuity Payments:
Charitable lead trusts are qualified if they pay an "annuity amount" to a charity. Normally, annuity lead trusts will pay to charity for a term of years and then distribute the remainder to children or grandchildren. If the trustee is very successful in investments, there may be significant aggregation of trust value and the ability to pay the annuity to charity at an earlier date. This would accelerate both the benefit to the charity and the benefit to family.
PLR
200138018 Charitable Lead Annuity Trust Not Included in Donor's Estate:
Taxpayer created a family (non-grantor) charitable lead annuity trust, which was funded with publicly traded stock. The trust was to last for 10 years and had an 8% annuity payout. In addition, the trust document stated that the taxpayer - as well as taxpayer's spouse - was not permitted to serve as trustee of the CLAT.
PLR
200306008 CRAT With CLAT-Type Payout Produces Two Charitable Estate Tax Deductions:
Doug Donor created a testamentary trust that would benefit son and university. Specifically, son would receive a fixed amount each year from the trust and, upon his death, the trust assets would be distributed to university. Donor died and the trust was subsequently funded. The trust contained many of the required provisions of a charitable remainder annuity trust (CRAT). However, the trust failed to meet the minimum 5% annuity payout requirement. Therefore, trustees petitioned State Court to reform the terms of the trust to comply with Sec. 664.
PLR
201323007 Gift Tax Consequences of Charitable Lead Trust:
Taxpayer created a charitable lead annuity trust ("Trust") with Son 1 as sole trustee and a guaranteed annuity amount to be paid to a private foundation ("Foundation") founded by Taxpayer and Spouse for a term of years. Directors of Foundation are Taxpayer, Spouse, Son 1 and Son 2.
PLR
9734057 No Commutation of Lead Trust:
The Service has generally been reluctant to allow commutation of lead trust payments. In theory, under state law, both the income and remainder recipients own property interests. Thus, it should be permissible to buy or sell those interests at a fair value. Nevertheless, the Service has been reluctant to allow major changes in irrevocable trusts. Specifically, the Service has been reluctant to allow charitable lead trusts to accelerate payments to charities and, thereby, accelerate the remainder interests to families. In the view of the Service, allowing this commutation or acceleration of payments would be "inconsistent with the regulatory requirements for charitable lead interests." Thus, commutation does not seem to be a viable option.
PLR
9840036 Testamentary Lead Trust Drafting Provisions:
The testator and spouse desire to establish a lead trust upon the demise of the survivor. The Service rules that the present value of the unitrust interest in a testamentary charitable lead trust will qualify for an estate tax charitable deduction upon the survivor's death. The term of the charitable lead unitrust is to be set at the surviving spouse's death by calculating the amount necessary to produce an initial value for the remainder interest equal to the surviving spouse's available generation-skipping transfer tax exemption. The Service observes that the formula for determining the term of the charitable lead unitrust will be fixed and ascertainable as of the surviving spouse's death. With respect to generation-skipping transfer tax, the charitable lead unitrust will have an exclusion ratio of zero if the appropriate amount of the surviving spouse's exemption is allocated to the trust. Finally, the ordering rules for the payment of the unitrust amount will be disregarded for federal income tax purposes.