cle pt ii - gfmlaw.coma. charitable remainder trusts 1. overview and definition generally, a...

II. CHARITABLE REMAINDER AND CHARITABLE LEAD TRUSTS

BRYAN E. KEENAN

GORDON, FOURNARIS, & MAMMARELLA P.A.

WILMINGTON, DELAWARE

UNDERSTANDING AND DRAFTING TRUSTS IN DELAWARE PART II. CHARITABLE REMAINDER AND CHARITABLE LEAD TRUSTS


II. CHARITABLE REMAINDER AND CHARITABLE LEAD TRUSTS

A client’s estate plan and charitable objectives may be advanced by giving a

partial interest in property to a charity. The interest may be either a remainder interest or

an income interest. The following table summarizes the different interests in charitable

remainder and charitable lead (or income) trusts.

Income Remainder

Charitable Remainder Trust Non-Charity Charity

Charitable Lead Trust Charity Non-Charity

A charitable contribution deduction, whether for income, gift or estate tax

purposes, does not necessary follow a gift of a partial interest in property in trust for the

benefit of a charity.1 Qualifying for the charitable contribution deduction requires

following a host of statutory requirements.

1 E.g., Treas. Reg. § 1.170A-6(a)(1).



A. Charitable Remainder Trusts

1. Overview and Definition

Generally, a charitable remainder in trust is not eligible for the income, gift or

estate tax purposes unless the trust is a charitable remainder annuity trust or charitable

remainder unitrust described in Section 664 of the Code.2 A charitable remainder trust is

an irrevocable trust that provides for a specified distribution, at least annually, to one or

more beneficiaries, at least one of which is not a charity, for life or for a term of years,

with an irrevocable remainder interest to be held for the benefit of, or paid over to, one

or more charities.3

2. Types

Charitable remainder trusts are divided into two classes, charitable remainder

annuity trusts and charitable remainder unitrusts. An annuity trust pays a fixed dollar

amount to the income beneficiary each year, while a unitrust pays a fixed percentage of

the value of the trust corpus to the income beneficiary each year.

Charitable remainder trusts may be either inter vivos or testamentary.

2 Code §§ 170(f)(2) (A) (income tax), 2055(e)(2),(estate tax), 2522(c)(2) (gift tax). 3 Treas. Reg. § 1.664-1(a)(1)(i).



3. Qualification and Requirements

General.

A. Trust must be valid under local law.4

B. Trust must be irrevocable.5

C. At least one noncharitable income recipient.6

1. Interests of two or more noncharitable income recipients

may be concurrent or successive.7

2. Individuals must be living at time of trust creation.8

a. Includes class gifts.9

(1) Exception where period is term of years.10

3. Payments may be made to and for the benefit of the

income beneficiary.11

4 Treas. Reg. § 1.664-1(a)(1)(i); Rev. Procs. 89-20, 89-21, 90-31 and 90-32. 5 E.g., Treas. Reg. § 1.664-1(a)(1)(i). 6 Code § 664(d)(1)(A), (2)(A); Treas. Reg. §§ 1.664-1(a)(1)(i), 1.664-2(a)(3)(i), 1.664-3(a)(3)(i). 7 Rev. Procs. 90-30, 90-31 and 90-32. 8 Code § 664(d)(1)(A), (2)(A); Treas. Reg. §§ 1.664-2(a)(3)(i), 1.664-3(a)(3)(i). 9 Treas. Reg. §§ 1.664-2(a)(3)(i), 1.664-3(a)(3)(i). 10 Treas. Reg. §§ 1.664-2(a)(3)(i), 1.664-3(a)(3)(i).



a. Therefore, can be a trust for an incompetent

person.12

b. And, can be a trust for a financially disabled

person.13

4. Individual income recipient not required; may be payable

to a limited partnership.14

D. Payments no less frequently than annually.15

E. Payments for life or term of years.16

1. Trust term may be life or term of years not more than

20.17

a. Recipient’s life must be used as measuring life.18

11 Treas. Reg. §§ 1.664-2(a)(3)(i), 1.664-3(a)(3)(i). 12 Rev. Rul. 72-270; Priv. Ltr. Ruls. 9619042, 9619043, 9619044, 9232019. 13 Rev. Rul. 2002-20. 14 Priv. Ltr. Rul. 9419021. 15 Code § 664(d)(1)(A), (2)(A); Treas. Reg. §§ 1.664-1(a)(1)(i), 1.664-2(a)(1)(i), 1.664-3(a)(1)(i)(a). 16 Code § 664(d)(1)(A), (2)(A); Treas. Reg. § 1.664-1(a)(1)(i). 17 Code § 664(d)(1)(A), (2)(A); Treas. Reg. §§ 1.664-3(a)(5)(i), 1.664-2(a)(5)(i). 18 Treas. Reg. §§ 1.664-3(a)(5)(i), 1.664-2(a)(5)(i).



b. Trust may provide that payments cease with the

regular payment next preceding termination of the

period.19

2. Exception for “qualified contingencies” that cut term

short.20

a. Includes divorce, remarriage or earlier death of an

individual.21

3. Acceleration and commutation permitted.22

F. Payment amount.23

1. is a sum certain not less than 5 percent of the initial fair

market value of trust property (CRAT), or

19 Treas. Reg. §§ 1.664-3(a)(5)(i), 1.664-2(a)(5)(i). 20 Code § 664(f). 21 Rev. Rul. 76-291; Priv. Ltr. Ruls. 9511029, 9322031. 22 Code § 664(d)(1)(A), (2)(A); Treas. Reg. § 1.664-2(a)(5), 3(a)(5); Priv. Ltr. Ruls. 9138024 (acceleration provision in trust agreement), 8948023 (commutation by agreement of remainder beneficiaries to purchase life interests). 23 Treas. Reg. § 1.664-1(a)(1)(i).



2. is a fixed percentage not less than 5 percent of the fair

market value of the trust assets, valued annually

(CRUT).24

3. Payment amount cannot exceed 50 percent.25

4. Payment methods may not be combined.26

5. Testamentary trust cannot bear administrative expenses or

debts.27

6. Value of unmarketable assets must be determined by an

independent trustee or by a current qualified appraisal

from a qualified appraiser.28

a. Consider prohibiting hard-to-value assets.29

7. Distribution in kind from CRAT or non-income exception

CRUT is deemed a sale of property by the recipient.30

24 Code § 664(d)(1)(A), (2)(A). 25 Code § 664(d)(1)(A), (2)(A). 26 Treas. Reg. § 1.664-1(a)(2). 27 Treas. Reg. § 1.664-1(a)(6), Egs., (3), (4) and (5). 28 Treas. Reg. § 1.664-1(a)(7)(i). 29 See Priv. Ltr. Rul. 9138024.



G. For short taxable years, the trust must provide proration

formula.31

H. For last taxable year, the trust must provide proration formula.32

1. Trust may provide that payments cease with the regular

payment next preceding termination of the period.33

I. Cannot restrict the trustee’s investments.34

1. Note that although the Regulations do not require the trust

to contain a provision that there are no restrictions, the

Service’s sample trusts contain such a provision. See last

paragraph of each sample trust agreement in Rev. Procs.

89-20, 89-21, 90-30, 90-31 and 90-32.

J. Can be no power to alter amounts paid to noncharitable recipients

if power would result in a grantor trust.35

30 Treas. Reg. § 1.664-1(d)(5). 31 Treas. Reg. §§ 1.664-2(a)(1)(iv)(a), Reg. §1.664-3(a)(1)(v)(a). 32 Treas. Reg. §§ 1.664-2(a)(1)(iv)(b), 1.664-3(a)(1)(v)(b). 33 Treas. Reg. §§ 1.664-3(a)(5)(i), 1.664-2(a)(5)(i). 34 35 Treas. Reg. §§ 1.664-2(a)(3)(ii), 1.664-3(a)(3)(ii).



1. Independent trustee may sprinkle income.36

K. No amount may be paid to anyone else but a charitable

organization.37

1. Can be no power to invade, alter, amend or revoke for

benefit of anyone other than charitable organization.38

2. Trust should expressly provide to avoid adverse state

law.39

3. Testamentary trust cannot bear administrative expenses or

debts.40

a. If there is a secondary income beneficiary, trust

should obligate that person to pay death taxes

associated with his or her interest.41

36 Rev. Rul. 77-73, 1977-1 C.B. 175. 37 Code § 664(c)(1)(B), (2)(B); Treas. Reg. §§ 1.664-2(a)(4), 1.664-3(a)(4). 38 Treas. Reg. §§ 1.664-2(a)(4), 1.664-3(a)(4). 39 Rev. Rul. 77-58, 1977-1 C.B. 175. 40 Treas. Reg. §1.664-1(a)(6), Egs., (3), (4) and (5). 41 Rev. Rul. 82-128, 1982-2 C.B. 71; Priv. Ltr. Ruls. 9225026, 8819021.



4. This does not exclude trustee’s commissions that are

reasonable and ordinarily paid under state law.42

L. Remainder must go to one or more Code Section 170(c), Section

2055(a) and Section 2522(a) organizations.43

1. Trust must provide for alternative remainder beneficiaries

if intended organization doesn’t qualify at time income

interest terminates.44

2. Trust may provide that grantor or income beneficiary may

substitute charitable beneficiary.45

3. To avoid limitations on income tax deduction for gifts to

private foundations, trust should also reference

organizations described in Section 170(b)(1)(A).46

42 Priv. Ltr. Ruls. 8033026, 8035078. 43 Code § 664(d)(1)(C), (2)(C); Treas. Reg. §§ 1.664-2(a)(6)(i), 1.664-3(a)(6)(i). 44 Treas. Reg. §§ 1.664-2(a)(6)(iv), 1.664-3(a)(6)(iv). 45 Rev. Ruls. 76-7, 76-8, 1976-1 C.B. 179; Priv. Ltr. Rul. 200034109. 46 See Priv. Ltr. Rul. 9240017.



M. Value of remainder must be at least 10 percent of the initial fair

market value of the trust property (CRAT) or trust assets, valued

at time of contribution (CRUT).47

N. Testamentary trust may defer payment to end of year of full

funding.48

1. Local law or trust must permit.49

2. Must provide formula for retroactively determining

payments to beneficiary.50

O. Certain private foundation rules apply under Sections 4947(a)(2)

and 4947(b)(3)(B).51

1. Code Section 4941, self-dealing.

2. Code Section 4943, excess business holdings.

3. Code Section 4944, jeopardy investments.

47 Code § 664(d)(1)(D), (2)(D). 48 Treas. Reg. § 1.664-1(a)(5)(i). 49 Treas. Reg. § 1.664-1(a)(1)(i). 50 Treas. Reg. § 1.664-1(a)(1)(i), (ii); Rev. Rul. 82-165, 1982-2 C.B. 117, modified by Rev. Rul. 88-81, 1988-2 C.B. 127 and Rev. Rul 92-57, 1992-2 C.B. 123. 51 Treas. Reg. § 1.664-1(b).



4. Code Section 4945, taxable expenditures.

P. Trust must provide for correction of valuation where payments

are tied to value of assets.52

1. Trust must pay underpayment and recipient must restore

overpayment.53

Q. For the gift tax and estate tax charitable deduction, the possibility

that the charitable transfer will not become effective must be so

remote as to be negligible (test: possibility that income

beneficiary will survive exhaustion of the trust’s assets must be

not more than 5 percent).54

1. Applies to all CRATs.

2. Does not apply to net income only CRUT.

52 Treas. Reg. §§ 1.664-2(a)(1)(iii), 1.664-3(a)(1)(iii). 53 Treas. Reg. §§ 1.664-2(a)(1)(iii), 1.664-3(a)(1)(iii). 54 Treas. Reg. § 20.2055-2(b)(i), 25.2522(c)-3(b)(1); Moor Est. v. Comm’r, T.C. Memo. 1982-299; Rev. Rul. 77-374, 1977-2 C.B. 329.



3. Applies to other CRUTs where payout rate is high and

either initial asset value is small or the income recipient is

young.55

R. A CRT with too many donors will be an association, not

qualifying as a CRT.56

Charitable Remainder Annuity Trusts.

A. Sum certain is a stated dollar amount that is the same each year

during the trust term.57

1. Can be reduced on death of a recipient or expiration of

term of years if there is a distribution to Section 170(c)

organization.58

2. May be expressed as a fraction or percentage of initial fair

market value as finally determined.59

55 GCM 37770 (Nov. 30, 1978). 56 Priv. Ltr. Rul. 9547004 (grandparents and grandchildren contributed property). See also Priv. Ltr. Rul. 200203034 (S Corporation and sole stockholder grantors). 57 Treas. Reg. § 1.664-2(a)(1)(ii). 58 Treas. Reg. § 1.664-2(a)(1)(ii). 59 Treas. Reg. § 1.664-2(a)(1)(iii).



B. Minimum annuity amount is 5 percent of initial fair market

value.60



organization.61

C. Maximum annuity amount is 50 percent of initial fair market

value.62

D. Trust must prohibit additional contributions.63

Charitable Remainder Unitrusts.

A. Trust must provide for a fixed percentage paid not less often than

annually.64

1. Trust may limit payment to amount of income for taxable

year (“income-only CRUT”).65 For example, if the net

60 Treas. Reg. § 1.664-2(a)(2)(i). 61 Treas. Reg. § 1.664-2(a)(2)(ii). 62 Code § 664(c)(1)(A). 63 Treas. Reg. § 1.664-2(b). 64 Treas. Reg. § 1.664-3(a)(1)(i)(a). 65 Code § 664(d)(3)(A); Treas. Reg. §1.664-3(a)(1)(i)(b)(1).



value of the trust’s assets on the valuation date are one

million dollars and the unitrust percentage is 5 percent,

the unitrust amount will be $50,000.00. If income is only

$30,000.00, a straight CRUT will have to distribute

$20,000.00 of principal. A NICRUT will only distribute

the $30,000.00 income.

a. Trust may also provide for make up provision to

extent income exceeds unitrust amount

(“NIMCRUT”).66 Going back to the previous

example, assume the same unitrust payment in

year two, but trust income is $60,000.00. The

NICRUT will distribute only $50,000.00; the

NIMCRUT will distribute $60,000.00.

b. Beneficiaries of an income-only CRUT or a

NIMCRUT are limited to the donor, the donor’s

66 Code § 664(d)(3)(B); Treas. Reg. § 1.664-3(a)(1)(i)(b)(2).



U.S. citizen spouse, or both the donor and the

donor’s U.S. citizen spouse.67

c. Post-contribution appreciation may be allocated to

income only if permitted by local law and the trust

instrument.68

d. NIMCRUT must prohibit allocation of pre-

contribution gain to income on sale of contributed

asset. 69

e. Can switch or “flip” from an income exception

method or a straight unitrust payment during the

term.70

(1) Trigger must be a specific date or an event

not in control of the trustee or any other

person (for example, the sale of non-

marketable assets or the marriage, divorce,

67 Treas. Reg. § 25.2702-1(c)(3)(i). 68 69 70 Treas. Reg. § 1.664-3(a)(1)(i)(c).



death or birth of a child with respect to any

individual).71

(2) Flip must occur at beginning of taxable

year following triggering date or event.72

(3) Unmade up income from prior NIMCRUT

years forfeited on flip.73

2. Percentage is fixed if it is the same throughout the term.

a. May reduce percentage on distribution to Section

170(c) organization following death of an income

recipient.74

b. The trust must provide for correction of

valuations.75

3. Income in excess of Unitrust amount may be paid to a

charitable organization.76

71 Treas. Reg. § 1.664-3(a)(1)(i)(c)(1), (a)(1)(i)(d). 72 Treas. Reg. § 1.664-3(a)(1)(i)(c)(2). 73 Treas. Reg. § 1.664-3(a)(1)(i)(c)(3). 74 Treas. Reg. § 1.664-3(a)(1)(ii). 75 Treas. Reg. § 1.664-3(a)(1)(iii).



a. Basis of distributed property must be fairly

reflective of all property available for

distribution.77

B. If trust doesn’t pick valuation date(s), trustee may elect on first

Form 1041.78

1. If the valuation date is a date other than the first day of

the year, the trust must provide that where no valuation

date occurs in a short taxable year, the trust assets will be

valued as of the last day of such short taxable year or as

of the day on which such noncharitable interests

terminate.79

C. Minimum unitrust amount is 5 percent of fair market value.80



organization.81 76 Treas. Reg. § 1.664-3(a)(4). 77 Treas. Reg. § 1.664-3(a)(4). 78 Treas. Reg. § 1.664-3(a)(1)(iv). 79 Treas. Reg. § 1.664-3(a)(1)(v)(a)(3), (b)(1). 80 Treas. Reg. § 1.664-3(a)(2)(i).



D. Maximum unitrust amount is 50 percent of fair market value.82

E. Trust must prohibit additional contributions.83

1. Exception if trust requires revaluation on date of

additional contribution and payment of prorated increased

unitrust amount.84

2. Contribution must not cause CRUT to fail 10 percent

charitable remainder interest rule.

The Internal Revenue Service Sample CRT Forms

The Internal Revenue Service has issued sample charitable remainder trust

forms. Appendix B contains a table organizing the Service’s forms by type of trust. It

must be emphasized that the sample forms do not represent best or current practices and

should not be used without substantial modification.

Most recently, the Internal Revenue Service issued replacement Charitable

Remainder Annuity Trust forms in Internal Revenue Bulletin 2003-31. While these

81 Treas. Reg. § 1.664-3(a)(2)(ii). 82 Code § 664(d)(2)(A). 83 Treas. Reg. § 1.664-3(b). 84 Treas. Reg. § 1.664-3(b).



sample forms are a substantial improvement over prior forms, they remain incomplete.

Among other issues:

• The final payment at the income beneficiary’s death may be prorated to

the date of death. Alternately, the payments may cease with the last

payment preceding the income beneficiary’s death. Most practitioners

use the second alternative, but the forms provide for the prorated stub

period annuity payment.

• The default language does not limit the charitable remainder beneficiary

to public charities described in Section 170(b)(1)(A) of the Code.

• In the case of a testamentary CRAT, the Code Section 7520 rate at the

date of death will not be known at the time of drafting. Therefore, a

testamentary CRAT should always contain language reducing the

amount of the annuity to the extent necessary to avoid failing the 10

percent minimum remainder requirement of Section 664 of the Code or

the 5 percent exhaustion test of Revenue Ruling 77-374. The sample

testamentary forms do not contain such language.



Calculating value of remainder

Unless trust provides otherwise, payouts are assumed to be made at beginning of

period.85 The remainder is valued using tables provided by the Internal Revenue Service

with the interest rate equal to the current rate under Section 7520 of the Code. Most

practitioners use commercially available software for this purpose; the author uses

Number Cruncher, published by Leimberg & LeClaire.

Charitable Contribution Acknowledgments

Code Section 170(f)(8) does not apply to charitable remainder trusts.86

4. Tax Benefits

Charitable Contribution Deduction

A properly structured charitable remainder trust will allow the donor to take an

income, gift or estate tax charitable deduction for the present value of the remainder

interest.

The general income tax rule is that a donor does not receive a charitable income

tax deduction for a gift of a remainder interest.87 However, a donor will receive a

85 Treas. Reg. §1.664-4(a)(3). 86 Treas. Reg. § 1.170A-13(f)(13). 87 Code § 170(f)(2)(A).



charitable income tax deduction for a remainder interest in trust where the trust is

charitable remainder trust described in Section 665 of the Code.88

The same rules apply to the gift and estate taxes. The general rule is that there is

no deduction for a charitable remainder interest,89 with an except for a charitable

remainder trust described in Section 664 of the Code.90

Tax-Exempt Trust

A charitable remainder trust is exempt from income tax, except for any year in

which it has unrelated business taxable income or debt-financed income.91 If a

charitable remainder trust has either or both unrelated business taxable income or debt-

financed income, tax exemption is lost for the entire year on all income of the trust.92

Thus, a donor may create a charitable remainder and contribute highly

appreciated assets to the trust. The donor will not be taxed on the gain resulting from

the trustee’s sale of the contributed assets.

88 Id. 89 Code §§ 2522(c)(2); 2055(e)(2). 90 Code §§ 2522(c)(2)(A); 2055(e)(2)(A). 91 Code § 664(c); Treas. Reg. § 1.664-1(a)(1)(i). 92 Treas. Reg. § 1.664-1(c). The regulation was held valid in Leila G. Newhall Unitrust v. Com’r., 104 T.C. 236 (1995, aff’d, 105 F.3d 482 (9th Cir. 1997).



The tax-free growth of assets in a charitable remainder trust is not without cost,

however. A charitable remainder trust reduces the amount assets that ultimately pass to

the donor’s family. Coupling a charitable remainder trust with an irrevocable life

insurance trust can solve this problem, if the amount of the life insurance at least equals

the amount that will pass to charity.

Taxation of Distributions

The taxation of the annuity or unitrust amount received by the income

beneficiary does not turn on the actual income received by the trust during the year.

Instead, the payments are deemed to be made initially from ordinary income, second

from capital gains, third from other income (typically, tax-exempt income) and finally

from principal. Each tier is determined on a cumulative basis. The character of amounts

distributed during the year is made as of the end of the trust’s taxable year.93

5. Variations

The variations in charitable remainder trusts are as follows:

Annuity Trust – pays a fixed dollar amount each year (“CRAT”).

Standard Unitrust – Pays an amount equal to a fixed percentage of the net fair

market value of the trust’s assets, recalculated annually (“CRUT”). 93 Treas. Reg. § 1.652(b)-3(c).



Net Income Unitrust – Pays an amount equal to the lower of the actual income

or the unitrust amount (“NICRUT”).

Net Income With Makeup Unitrust – Same as the net income unitrust, except

that deficiencies in earlier years are made in later years if actual income is greater than

the unitrust amount (NIMCRUT”).

Flip Unitrust – Starts as a net income unitrust, but converts to a standard unitrust

on the occurrence of a specified triggering event (“FLIP CRUT”).

6. Examples

Donor owns one million dollars of low basis stock of a single issuer. The stock

pays a dividend of 2 percent, or $20,000.00 per year. Donor wants to diversify the

portfolio, if for no other reason that to reduce the risk inherent in a non-diversified

portfolio. If Donor sells the stock and federal and stated combined capital gain taxes are

20 percent, Donor will be able to reinvest $800,000.00. If the dividend rate of the

diversified portfolio remains 2 percents, Donor’s annual income from this portfolio will

drop to $16,000.00 per year.

Instead, Donor could transfer the stock to a charitable remainder trust. After the

charitable remainder sells the stock, the annual income from the portfolio will remain



$20,000.00, because the charitable remainder trust will be able to reinvest the entire one

million dollars.

Charitable remainder trusts have been paired with irrevocable life insurance

trusts, sometimes referred to as “wealth replacement” plans. Appreciated assets are

contributed to the charitable remainder trust and the trustee sells the assets and invests

the proceeds. The income payment to the beneficiary each year is to cover at least the

insurance premium costs. The plan will work if attention is paid to several issues:

• The donor must have sufficient assets outside of the charitable remainder

trust to provide support or the charitable remainder trust must provide

large enough distributions to cover the donor’s anticipated expenses.

• The donor’s estate plan may need to provide for a gift to charity at death

to avoid estate tax.

• The policy must be adequate to actually replace the donor’s wealth.

• The policy must be structured so that it will not lapse.

Returning to the prior example, assume that Donor at age 65 creates and fund a

charitable remainder unitrust in October 2000.



Charitable Remainder Unitrust Trust Type: Life Transfer Date: 10/2000 IRC Section 7520 Rate: 7.60% FMV of Trust: $1,000,000 Growth of Trust: 6.00% Percentage Payout: 7.000% Payment Period: Annual Months Valuation Precedes Payout: 0 Lives: 1 Ages: 65 Payout Sequence Factor: 1.000000 Adjusted Payout Rate: 7.000% Remainder Factor: 0.34961 Present Value of Remainder Interest = $1,000,000.00 x 0.34961: $349,610.00 Donor's Deduction: $349,610.00 Donor's Deduction as Percentage of Amount Transferred: 34.961%

Beginning 6.00% Year Principal Growth Payment Remainder

1 1,000,000.00 55,800.00 70,000.00 985,800.00 2 985,800.00 55,007.64 69,006.00 971,801.64 3 971,801.64 54,226.56 68,026.11 958,002.09 4 958,002.09 53,456.52 67,060.15 944,398.46 5 944,398.46 52,697.40 66,107.89 930,987.97 6 930,987.97 51,949.08 65,169.16 917,767.89 7 917,767.89 51,211.44 64,243.75 904,735.58



8 904,735.58 50,484.24 63,331.49 891,888.33 9 891,888.33 49,767.36 62,432.18 879,223.51

10 879,223.51 49,060.68 61,545.65 866,738.54 11 866,738.54 48,363.96 60,671.70 854,430.80 12 854,430.80 47,677.20 59,810.16 842,297.84 13 842,297.84 47,000.16 58,960.85 830,337.15 14 830,337.15 46,332.84 58,123.60 818,546.39 15 818,546.39 45,674.88 57,298.25 806,923.02 16 806,923.02 45,026.28 56,484.61 795,464.69 17 795,464.69 44,386.92 55,682.53 784,169.08 18 784,169.08 43,756.68 54,891.84 773,033.92 19 773,033.92 43,135.32 54,112.37 762,056.87 20 762,056.87 42,522.72 53,343.98 751,235.61

Summary: 1,000,000.00 977,537.88 1,226,302.27 751,235.61

Shortly after funding the charitable remainder unitrust, stock market rates of

return drop dramatically. If growth drops to from 6 percent to 2 percent, the annual

payments become as follows:

Beginning 2.00% Year Principal Growth Payment Remainder

1 1,000,000.00 20,000.00 70,000.00 950,000.00 2 950,000.00 19,000.00 66,500.00 902,500.00 3 902,500.00 18,050.00 63,175.00 857,375.00 4 857,375.00 17,147.50 60,016.25 814,506.25 5 814,506.25 16,290.13 57,015.44 773,780.94 6 773,780.94 15,475.62 54,164.67 735,091.89 7 735,091.89 14,701.84 51,456.43 698,337.30



8 698,337.30 13,966.75 48,883.61 663,420.43 9 663,420.43 13,268.41 46,439.43 630,249.41

10 630,249.41 12,604.99 44,117.46 598,736.94 11 598,736.94 11,974.74 41,911.59 568,800.09 12 568,800.09 11,376.00 39,816.01 540,360.09 13 540,360.09 10,807.20 37,825.21 513,342.08 14 513,342.08 10,266.84 35,933.95 487,674.98 15 487,674.98 9,753.50 34,137.25 463,291.23 16 463,291.23 9,265.82 32,430.39 440,126.67 17 440,126.67 8,802.53 30,808.87 418,120.34 18 418,120.34 8,362.41 29,268.42 397,214.32 19 397,214.32 7,944.29 27,805.00 377,353.60 20 377,353.60 7,547.07 26,414.75 358,485.92

Summary: 1,000,000.00 977,537.88 1,226,302.27 751,235.61

Will the donor be able to afford the life insurance premiums?

Perhaps our donor is willing to give up the upside potential of the charitable

remainder unitrust and decides to go with the charitable remainder annuity trust to avoid

the risk of reduced annual payments.

Charitable Remainder Annuity Trust Trust Type: Life Transfer Date: 10/2000 IRC Section 7520 Rate: 7.60% FMV of Trust: $1,000,000.00 Growth of Trust: 6.00% Percentage Payout: 7.000%



Payment Period: Annual Payment Timing: End Lives: 1 Ages: 65 Exhaustion Method: IRS

Amount of Annuity: $70,000.00 One Life Annuity Factor 8.5947 Payout Frequency Factor: 1.0000 Present Value of Annuity = Annuity Payout times Factors: $601,629.00 Charitable Remainder = FMV of Trust less PV of Annuity: $398,371.00 Charitable Deduction for Remainder Interest: $398,371.00 Donor's Deduction as Percentage of Amount Transferred: 39.837%

Year Beginning

Principal 6.00%. Growth Payment Remainder

1 1,000,000.00 60,000.00 70,000.00 990,000.00 2 990,000.00 59,400.00 70,000.00 979,400.00 3 979,400.00 58,764.00 70,000.00 968,164.00 4 968,164.00 58,089.84 70,000.00 956,253.84 5 956,253.84 57,375.23 70,000.00 943,629.07 6 943,629.07 56,617.74 70,000.00 930,246.81 7 930,246.81 55,814.81 70,000.00 916,061.62 8 916,061.62 54,963.70 70,000.00 901,025.32 9 901,025.32 54,061.52 70,000.00 885,086.84

10 885,086.84 53,105.21 70,000.00 868,192.05 11 868,192.05 52,091.52 70,000.00 850,283.57 12 850,283.57 51,017.01 70,000.00 831,300.58 13 831,300.58 49,878.03 70,000.00 811,178.61 14 811,178.61 48,670.72 70,000.00 789,849.33



Year Beginning

Principal 6.00%. Growth Payment Remainder

15 789,849.33 47,390.96 70,000.00 767,240.29 16 767,240.29 46,034.42 70,000.00 743,274.71 17 743,274.71 44,596.48 70,000.00 717,871.19 18 717,871.19 43,072.27 70,000.00 690,943.46 19 690,943.46 41,456.61 70,000.00 662,400.07 20 662,400.07 39,744.00 70,000.00 632,144.07

Summary: 1,000,000.00 1,032,144.07 1,400,000.00 632,144.07

And, after the stock market “corrects”:

Year Beginning

Principal 2.00%

Growth Payment Remainder 1 1,000,000.00 20,000.00 70,000.00 950,000.00 2 950,000.00 19,000.00 70,000.00 899,000.00 3 899,000.00 17,980.00 70,000.00 846,980.00 4 846,980.00 16,939.60 70,000.00 793,919.60 5 793,919.60 15,878.39 70,000.00 739,797.99 6 739,797.99 14,795.96 70,000.00 684,593.95 7 684,593.95 13,691.88 70,000.00 628,285.83 8 628,285.83 12,565.72 70,000.00 570,851.55 9 570,851.55 11,417.03 70,000.00 512,268.58

10 512,268.58 10,245.37 70,000.00 452,513.95 11 452,513.95 9,050.28 70,000.00 391,564.23 12 391,564.23 7,831.28 70,000.00 329,395.51 13 329,395.51 6,587.91 70,000.00 265,983.42 14 265,983.42 5,319.67 70,000.00 201,303.09 15 201,303.09 4,026.06 70,000.00 135,329.15 16 135,329.15 2,706.58 70,000.00 68,035.74 17 68,035.74 1,360.71 69,396.45 0.00



Year Beginning

Principal 2.00%

Growth Payment Remainder 18 0.00 0.00 0.00 0.00 19 0.00 0.00 0.00 0.00 20 0.00 0.00 0.00 0.00

Summary: 1,000,000.00 189,396.45 1,189,396.45 0.00

Uh-oh!

When a taxpayer is contributed the maximum to his or her retirement plans,

consider a net income charitable remainder unitrust to which contributions are made

each year. The trust will invest in tax free securities, resulting in no income to

distribute. At retirement, the investment strategy can change to provide income

distributions to the donor.

B. Charitable Lead Trusts

1. Overview and Definition

Charitable lead trusts are the mirror image of charitable remainder trusts. In a

charitable lead trust, the income interest goes to charity and the remainder interest

passes to a non-charitable beneficiary. Generally, a charitable income interest in trust is

not eligible for the income, gift or estate tax purposes unless the interest is a guaranteed



annuity or unitrust interest.94 It is the guaranteed annuity or unitrust interest that makes

a charitable lead trust “qualified.”

2. Types

Charitable lead trusts follow into three main types, the Qualified Non-Grantor

Charitable Lead Trust, the Qualified Grantor Charitable Lead Trust (or just Grantor

Charitable Lead Trust) and the Non-Qualified, Non-Grantor Charitable Lead Trust.

Qualified Non-Grantor Charitable Lead Trust

A. Guaranteed annuity or unitrust interest

B. Inter vivos

1. No income tax charitable deduction (but no income tax,

which equates to a 100 percent deduction of the income on which the

grantor would otherwise be taxed)

2. Gift tax charitable deduction

3. Remove appreciating assets from grantor’s estate

4. Avoid percentage limitations on charitable contribution

deductions

94 Code §§ 170(f)(2) (A) (income tax), 2055(e)(2),(estate tax), 2522(c)(2) (gift tax).



C. Testamentary

1. Estate tax charitable contribution deduction

2. Estate inclusion results in basis step up

Qualified Grantor Charitable Lead Trust

A. Guaranteed annuity or unitrust interest

B. Inter vivos grantor trust

1. Grantor taxed on trust income

2. Immediate income tax charitable contribution deduction

3. Estate inclusion

Non-Qualified, Non-Grantor Charitable Lead Trust

A. Not a guaranteed annuity or unitrust interest

B. Inter vivos

1. No initial gift tax charitable contribution deduction

2. Annual trust income tax deduction equal to income

3. Avoid AMT

4. Avoid private foundation restrictions



3. Qualification and Requirements

General.

A. Trust must be valid under local law.

B. Trust must be irrevocable.

Qualified CLTs

A Qualified CLT is a trust meeting the several statutory definitions that qualify

the income interest for one or more tax deductions under Section 170(f)(2),

2055(e)(2)(B), and 2522(c)(2)(B). These definitions are substantially identical.

To be qualified, the income interest must be paid in the form of a fixed annuity

or unitrust amount.95 The charitable lead may provide that the trustees will select the

charitable beneficiary, rather than designating a specific charity.96 Alternatively, the

trustee may be granted the power to allocate the payment among beneficiaries.97 To

avoid an incomplete gift, the grantor should not serve as the trustee if the trustee will

have to power to alter the beneficial enjoyment of a charitable beneficiary (or the trust

instrument should appoint a special trustee for this purpose).

95 Code §§ 170(f)(2); 2055(e)(2)(B); 2522(c)(2)(B); Treas. Reg. §§ 1.170A-6(c)(2)(i) and (ii); 20.2055-2(e)(2)(vi) and (vii); 25.2522(c)-3(c)(2)(vi) and (vii). 96 Ltr. Ruls. 2000-43-029, 1997-48-009, 1993-31-015, 1980-51-159. 97 Ltr. Rul. 1980-51-159.



As is the case for charitable remainder trusts, the trust instrument should name

alternate charitable beneficiaries in case one or the name beneficiaries loses its tax

exemption. Again, the donor should not retain this power.

The charitable lead annuity trust is an irrevocable trust under which a sum

certain is to be distributed periodically, but not less than annually, to one or more

charitable beneficiaries. The annuity interest may be paid for a term of years or during

the life or lives of one or more individuals who are living when the trust is created.

There is no maximum limitation on the number of years for a term of years lead

interest.

The annuity amount must be determinable when the trust is established. This

does not limit the trust to stating a fixed dollar amount. Instead, the trust may use a

formula to determine the annuity payment. For example, the trust could provide that the

annuity amount equals a stated percentage of the fair market value of the trust corpus as

of the funding date. There is no minimum or maximum annuity amount.

It is possible to adjust the annuity amount by the use of term interests. For

example, the trust could provide for an annual payment of X dollars for the life of an

individual and an annual payment of Y dollars for a term of years following expiration



of the life time. As another example, the trust may stack terms of years, with a different

annuity amount during each term.

The trust document must prohibit certain conduct under the private foundation

rules under Code Section 4941 (self-dealing), Code Section 4943 (excess business

holdings), Code Section 4944 (jeopardy investments) and Code Section 4945 (taxable

expenditures). However, where the present value of all of the income interests is 60

percent or less on the valuation date, the trust does not have to prohibit excess business

holdings or jeopardy investments.

The charitable lead unitrust is an irrevocable trust under which a fixed

percentage of the fair market value of the trust’s assets, valued annually, is distributed

periodically, but not less than annually, to one or more charitable beneficiaries. The

unitrust amount may be paid for a term of years or during the life or lives of one or

more individuals who are living when the trust is created. Again, there is no limit on the

length of a term of years. The unitrust amount may not be limited to trust income.98 The

unitrust percentage must be the same for the entire trust term.99

Although there is no prohibition on additional contributions in the regulations on

additional contributions to charitable lead annuity trusts, there is no method for 98 Rev. Rul. 77-300, 1977-2 C.B. 352; Ltr. Rul. 1979-18-102. 99 Treas. Reg. §§ 1.170A-6(c)(2)(ii)(A), 20.2055-2(e)(2)(vii)(a), 25.2522(c)-3(c)(2)(vii)(a).



adjusting the annuity amount for the additional contribution. Most practitioners

conclude that additional contributions must be prohibited.100

All assets and liabilities are taken into account with computing the fair market

value of the charitable lead unitrust’s assets. The same valuation date and methodology

should be used each year. In the absence of direction in the trust instrument, the trustee

selects the date and method on the first trust income tax return.101

Unlike the charitable remainder trust, neither the charitable lead annuity trust

nor the charitable lead unitrust may use contingencies to terminate the income interest

and accelerate the vesting of the remainder.

Both the charitable lead annuity trust and the charitable lead unitrust may

provide for concurrent non-charitable income interests. However, a separate trust for the

non-charitable beneficiary may be preferable.

The trust agreement should allocate trustee’s fees to income so that the trust may

deduct them.

100 Edward Jay Beckwith, Charitable Lead Trusts Re-Examined: “The Dawning of a Golden Age?”, 2003 INST. ON EST. PLAN. ¶ 501.4. 101 Treas. Reg. §§ 1.170A-6(c)(2)(ii), 20.2055-2(e)(2)(vii), 25.2522(c)-3(c)(2)(vii).



Non-Qualified CLTs

Non-qualified charitable lead trusts will provide that all of the trust’s taxable

income will paid to charitable beneficiaries, rather than a guaranteed annuity or unitrust

interest.

Unlike a qualified charitable lead trust, the non-qualified lead trust is structured

to avoid a completed gift on formation. This may be done by giving the grantor the

power to determine the charitable beneficiary. The gift will then be complete only as the

income is paid to the charitable beneficiary. This gift will qualify for the gift tax

charitable contribution deduction.

4. Tax Benefits

Please see the review of the tax benefits of charitable lead trusts under 2, Types,

above.

5. Examples

Qualified Grantor CLTs have been used to obtain income tax charitable

contribution deductions in high income years and “recapturing” the income in lower

income years. Consider a Qualified Grantor CLT in light of declining personal income

tax rates. The taxpayer will obtain an up-front charitable contribution deduction when

rates are high. The taxpayer will have income from the trust in later years, when rates



are lower. An additional strategy is to use tax-exempt securities to avoid the income in

later years.

Consider a Qualifed Non-Grantor CLT to pass assets on to the next generation.

Assume Parents own a commercial rental property worth $2,000,000 and generating

$100,000.00 (5 percent) in income each year. The property is free of debt and is

expected to appreciate at the rate of at least 2 percent each year. Parents have sufficient

other sources of income that they do not need the income generated by the property.

If Parents make a gift of the property to their children, they will use up their

entire gift tax lifetime exclusions. Using a 15 year term charitable lead annuity trust

substantially reduces the value of the gift, removes the income from Parents’ estates and

removes the appreciation from their estates.

Charitable Lead Annuity Trust 10/26/2003 Trust Type: Term Transfer Date: 10/2003 Code Section 7520 Rate (August 2003 Best Rate): 3.20% FMV of Trust: $2,000,000.00 Growth of Trust: 2.00% Percentage Payout: 7.500% Payment Period: Annual Payment Timing: End Term: 15 Exhaustion Method: IRS



Annual Payout: $150,000.00 Annual Payment: $150,000.00 Term Certain Annuity Factor: 11.7671 Payout Frequency Factor: 1.0000 Present Value of Annuity: $1,765,065.00 Remainder Interest = FMV of Trust less PV of Annuity: $234,935.00 Charitable Deduction for Income Interest: $1,765,065.00 Donor's Deduction as Percentage of Amount Transferred: 88.253%

The gift equal to the value of the remainder interest, $234,935, will leave

Parents with over $1,750,000 of their combined gift tax lifetime exclusions remaining.

Beginning 2.00% Year Principal Growth Remainder Income Payment

1 $2,000,000.00 $40,000.00 $2,040,000.00 $100,000.00 $100,000.00 2 2,040,000.00 40,800.00 2,080,800.00 100,000.00 100,000.00 3 2,080,800.00 41,616.00 2,122,416.00 100,000.00 100,000.00 4 2,122,416.00 42,448.32 2,164,864.32 100,000.00 100,000.00 5 2,164,864.32 43,297.29 2,208,161.61 100,000.00 100,000.00 6 2,208,161.61 44,163.23 2,252,324.84 100,000.00 100,000.00 7 2,252,324.84 45,046.50 2,297,371.34 100,000.00 100,000.00 8 2,297,371.34 45,947.43 2,343,318.76 100,000.00 100,000.00 9 2,343,318.76 46,866.38 2,390,185.14 100,000.00 100,000.00 10 2,390,185.14 47,803.70 2,437,988.84 100,000.00 100,000.00 11 2,437,988.84 48,759.78 2,486,748.62 100,000.00 100,000.00 12 2,486,748.62 49,734.97 2,536,483.59 100,000.00 100,000.00 13 2,536,483.59 50,729.67 2,587,213.26 100,000.00 100,000.00 14 2,587,213.26 51,744.27 2,638,957.53 100,000.00 100,000.00 15 2,638,957.53 52,779.15 2,691,736.68 100,000.00 100,000.00 Summary: $2,000,000.00 $691,736.68 $2,691,736.68 $1,500,000.00 $1,500,000.00



If Parents did not create the Charitable Lead Trust, the after tax income would

accumulate and grow in their estates:

Beginning 2.00% Year Principal Growth Income Tax (40%) Net Remainder

1 $2,000,000.00 $40,000.00 $100,000.00 $40,000.00 $60,000.00 $2,100,000.00 2 2,100,000.00 42,000.00 105,000.00 42,000.00 63,000.00 2,205,000.00 3 2,205,000.00 44,100.00 110,250.00 44,100.00 66,150.00 2,315,250.00 4 2,315,250.00 46,305.00 115,762.50 46,305.00 69,457.50 2,431,012.50 5 2,431,012.50 48,620.25 121,550.63 48,620.25 72,930.38 2,552,563.13 6 2,552,563.13 51,051.26 127,628.16 51,051.26 76,576.89 2,680,191.28 7 2,680,191.28 53,603.83 134,009.56 53,603.83 80,405.74 2,814,200.85 8 2,814,200.85 56,284.02 140,710.04 56,284.02 84,426.03 2,954,910.89 9 2,954,910.89 59,098.22 147,745.54 59,098.22 88,647.33 3,102,656.43

10 3,102,656.43 62,053.13 155,132.82 62,053.13 93,079.69 3,257,789.25 11 3,257,789.25 65,155.79 162,889.46 65,155.79 97,733.68 3,420,678.72 12 3,420,678.72 68,413.57 171,033.94 68,413.57 102,620.36 3,591,712.65 13 3,591,712.65 71,834.25 179,585.63 71,834.25 107,751.38 3,771,298.28 14 3,771,298.28 75,425.97 188,564.91 75,425.97 113,138.95 3,959,863.20 15 3,959,863.20 79,197.26 197,993.16 79,197.26 118,795.90 4,157,856.36

Summary: $2,000,000.00 $863,142.54 $4,157,856.36

The following table compares the accumulation and charitable lead trust

strategies:

Accumulation CLT Gross Amount to Children $4,157,856.36 $2,691,736.68 Less Estate Tax (50%) 2078928.179 Less Gift Tax Adjustment 117,467.50 Net to Children $2,078,928.18 $2,574,269.18 Difference 495,341.00



Appendix A

Table Comparing Charitable Remainder and Charitable Lead Trusts

CRT

[Qualified] Grantor CLT

Qualified Non-Grantor

CLT

Non-Qualified, Non-Grantor

CLT

Inter Vivos Yes Yes Yes Yes

Testamentary Yes No Yes No

Income Tax Charitable Deduction

Yes When Formed No No

Gift Tax Charitable Deduction

Yes Yes Yes Only to Income Actually Paid

Estate Tax Charitable Deduction

Yes No Yes No

Tax-Exempt Trust Yes Yes; Grantor Taxed

No; § 642(c) Deduction

No; § 642(c) Deduction

Income Only Payment If Unitrust No No Yes

Guaranteed Annuity or Unitrust

Yes Yes Yes No

Payout Less Than 5 Percent No Yes Yes Yes

Term More Than 20 Years No Yes Yes Yes

Subject to Private Foundation Rules Yes Yes Yes No

Measuring Life Must Be Beneficiary

Yes No No No

Term May Be For More Than 1 Life Yes Yes Yes Yes



Appendix B

The Internal Revenue Service’s Sample Charitable Remainder Trust Forms

Type Term Interests Procedure Section CB

CRUT

Inter vivos Single Life 89-20 4 1989-1 CB 841

Two Lives Consecutive 90-30 4 1990-1 CB 534

Consecutive and concurrent 90-30 5 1990-1 CB 534

Testamentary Single Life 90-30 6 1990-1 CB 534



NIMCRUT

Inter vivos Single Life 90-31 4 1990-1 CB 539



Testamentary Single Life 90-31 7 1990-1 CB 539



CRAT

Inter vivos Single Life 2003-53 2003-31 IRB 230

Two Lives Consecutive 2003-55 2003-31 IRB 242

Consecutive and concurrent 2003-56 2003-31 IRB 249

Years 2003-54 2003-31 IRB 236

Testamentary Single Life 2003-57 2003-31 IRB 257

Two Lives Consecutive 2003-59 2003-31 IRB 268

Consecutive and concurrent 2003-60 2003-31 IRB 274

Years 2003-58 2003-31 IRB 262



Rev. Proc. 89-20, 1989-1 C.B. 841 SECTION 1. PURPOSE

This revenue procedure makes available a sample form of declaration of trust that meets the requirements for a charitable remainder unitrust as described in section 664(d)(2) of the Internal Revenue Code.

SEC. 2. BACKGROUND

The Internal Revenue Service receives and responds to requests for rulings dealing with the qualification of trusts as charitable remainder trusts and the availability of deductions for contributions made to such trusts. In many of these requests, the trust instruments and charitable objectives are very similar. Consequently, in order to provide a service to taxpayers and to save the time and expense involved in requesting and processing a ruling on a proposed charitable remainder unitrust, taxpayers who make transfers to a trust that substantially follows the sample trust instrument contained herein can be assured that the Service will recognize the trust as meeting all of the requirements of a charitable remainder unitrust, provided the trust operates in a manner consistent with the terms of the trust instrument and provided it is a valid trust under applicable local law.

SEC. 3. SCOPE AND OBJECTIVE

The sample declaration of trust made available by section 4 of this revenue procedure meets all of the applicable requirements under section 664(d)(2) of the Code for an inter vivos charitable remainder unitrust providing for unitrust payments during one life, followed by distribution of the trust assets to the charitable remainder beneficiary, if the trust document also creates a valid trust under local law. If the trust instrument makes reference to this revenue procedure and adopts a document substantially similar to the sample, the Service will recognize the trust as satisfying all of the applicable requirements of section 664(d)(2) of the Code and the corresponding regulations. Moreover, for transfers to a qualifying charitable remainder unitrust, the remainder interest will be deductible under sections 170(f)(2)(A) and 2522(c)(2)(A) for income and gift tax purposes, respectively. Therefore, it will not be necessary for a taxpayer to request a ruling as to the qualification of a substantially similar trust, and the Service generally will not issue such a ruling. See Rev. Proc. 89-19, page 59, this Bulletin. The Service, however, will continue to issue rulings to taxpayers who create trusts that are not substantially similar to the sample trusts.

SEC. 4. SAMPLE CHARITABLE REMAINDER UNITRUST

On this day of , 19 , I, , (hereinafter referred to as "the Donor") desiring to establish a charitable remainder unitrust, within the meaning of Rev. Proc. 89-20 and section 664(d)(2) of the Internal Revenue Code (hereinafter referred to as "the Code") hereby create the Charitable Remainder Unitrust and designate as the initial Trustee.

1. Funding of Trust. The Donor transfers to the Trustee the property described in Schedule A, and the Trustee accepts such property and agrees to hold, manage and distribute such property of the Trust under the terms set forth in this Trust instrument.

2. Payment of Unitrust Amount. The Trustee shall pay to [a living individual] (hereinafter referred to as "the Recipient") in each taxable year of the Trust during the Recipient's life a unitrust amount equal to [at least five] percent of the net fair market value of the assets of the Trust valued as of the first day of each taxable year of the Trust (the "valuation date"). The unitrust amount shall be paid in equal quarterly



amounts from income and, to the extent that income is not sufficient, from principal. Any income of the Trust for a taxable year in excess of the unitrust amount shall be added to principal. If the net fair market value of the Trust assets is incorrectly determined, then within a reasonable period after the value is finally determined for Federal tax purposes, the Trustee shall pay to the Recipient (in the case of an undervaluation) or receive from the Recipient (in the case of an overvaluation) an amount equal to the difference between the unitrust amount properly payable and the unitrust amount actually paid.

3. Proration of the Unitrust Amount. In determining the unitrust amount, the Trustee shall prorate the same on a daily basis for a short taxable year and for the taxable year of the Recipient's death.

4. Distribution to Charity. Upon the death of the Recipient, the Trustee shall distribute all of the then principal and income of the Trust (other than any amount due Recipient or Recipient's estate, under paragraphs 2 and 3, above) to (hereinafter referred to as the Charitable Organization). If the Charitable Organization is not an organization described in sections 170(c), 2055(a), and 2522(a) of the Code at the time when any principal or income of the Trust is to be distributed to it, then the Trustee shall distribute such principal or income to such one or more organizations described in sections 170(c), 2055(a), and 2522(a) as the Trustee shall select in its sole discretion.

5. Additional Contributions. If any additional contributions are made to the Trust after the initial contribution, the unitrust amount for the year in which the additional contribution is made shall be [the same percentage as in paragraph 1] percent of the sum of (a) the net fair market value of the Trust assets as of the first day of the taxable year (excluding the assets so added and any income from, or appreciation on, such assets) and (b) that proportion of the value of the assets so added that was excluded under (a) that the number of days in the period that begins with the date of contribution and ends with the earlier of the last day of the taxable year or the Recipient's death bears to the number of days in the period that begins on the first day of such taxable year and ends with the earlier of the last day in such taxable year or the Recipient's death. In the case where there is no valuation date after the time of contribution, the assets so added shall be valued at the time of contribution.

6. Prohibited Transactions. The income of the Trust for each taxable year shall be distributed at such time and in such manner as not to subject the Trust to tax under section 4942 of the Code. Except for the payment of the unitrust amount to the Recipient, the Trustee shall not engage in any act of self-dealing, as defined in section 4941(d), and shall not make any taxable expenditures, as defined in section 4945(d). The Trustee shall not make any investments that jeopardize the charitable purpose of the Trust, within the meaning of section 4944, or retain any excess business holdings, within the meaning of section 4943.

7. Successor Trustee. The Donor reserves the right to dismiss the Trustee and to appoint a successor Trustee.

8. Taxable Year. The taxable year of the Trust shall be the calendar year.

9. Governing Law. The operation of the Trust shall be governed by the laws of the State of . However, the Trustee is prohibited from exercising any power or discretion granted under said laws that would be inconsistent with the qualification of the Trust under section 664(d)(2) of the Code and the corresponding regulations.

10. Limited Power of Amendment. The Trust is irrevocable. However, the Trustee shall have the power, acting alone, to amend the Trust in any manner required for the sole purpose of ensuring that the Trust



qualifies and continues to qualify as a charitable remainder unitrust within the meaning of section 664(d)(2) of the Code.

11. Investment of Trust Assets. Nothing in this Trust instrument shall be construed to restrict 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 WITNESS WHEREOF and [TRUSTEE] by its duly authorized officer have signed this agreement the day and year first above written.

[DONOR]

[TRUSTEE]

By

[Acknowledgements, Witnesses, etc.]

SEC. 5 APPLICATION

The Service will recognize a trust as meeting all of the requirements of a qualified charitable remainder unitrust under section 664(d)(2) of the Code if the trust instrument makes reference to this document and is substantially similar to the sample provided in section 4, provided the trust operates in a manner consistent with the terms of the trust instrument and provided it is a valid trust under applicable local law. A trust that contains substantive provisions in addition to those provided by section 4 (other than provisions necessary to establish a valid trust under applicable local law) or that omits any of these provisions will not necessarily be disqualified, but neither will it be assured of qualification under the provisions of this revenue procedure.

SEC. 6. EFFECTIVE DATE

This revenue procedure is effective for ruling requests received in the National Office after February 27, 1989, the date of publication of this revenue procedure in the Internal Revenue Bulletin.

DRAFTING INFORMATION

The principal author of this revenue procedure is John McQuillan of the Office of Assistant Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue procedure, contact John McQuillan on (202) 535-9540 (not a toll-free call).




This revenue procedure makes available five sample forms of trust that meet the requirements for a charitable remainder unitrust as described in section 664(d)(2) of the Internal Revenue Code.

SEC. 2. BACKGROUND

The Internal Revenue Service receives and responds to requests for rulings dealing with the qualification of trusts as charitable remainder trusts and the availability of deductions for contributions made to such trusts. In many of these requests, the trust instruments and charitable objectives are very similar. Consequently, in order to provide a service to taxpayers and to save the time and expense involved in requesting and processing a ruling on a proposed charitable remainder unitrust, this revenue procedure allows taxpayers who make transfers to a trust that substantially follows one of the sample forms of trust contained herein to be assured that the Service will recognize the trust as meeting all of the requirements of a charitable remainder unitrust, provided that the trust operates in a manner consistent with the terms of the instrument creating the trust and provided it is a valid trust under applicable local law.


Section 4 of Rev. Proc. 89-20, 1989-1 C.B. 841, provides a sample form of trust for an inter vivos charitable remainder unitrust providing for unitrust payments during one life that meets all of the applicable requirements of section 664(d)(2) of the Code. This revenue procedure amplifies Rev. Proc. 89-20 by providing the following additional sample forms of trust.

Sec. 4 -- Sample Inter Vivos Charitable Remainder Unitrust: Two Lives, Consecutive Interests;

Sec. 5 -- Sample Inter Vivos Charitable Remainder Unitrust: Two Lives, Concurrent and Consecutive Interests;

Sec. 6 -- Sample Testamentary Charitable Remainder Unitrust: One Life;

Sec. 7 -- Sample Testamentary Charitable Remainder Unitrust: Two Lives, Consecutive Interests; and

Sec. 8 -- Sample Testamentary Charitable Remainder Unitrust: Two Lives, Concurrent and Consecutive Interests.

In all cases, the termination of the life interests must be followed by distribution of the trust assets to the charitable remainder beneficiary, and the trust must be a valid trust under applicable local law. If the trust provisions are substantially similar to those in one of the samples provided in sections 4 through 8 of this revenue procedure or in section 4 of Rev. Proc. 89-20, the Service will recognize the trust as satisfying all of the applicable requirements of section 664(d)(2) of the Code and the corresponding regulations. A document will be considered to be substantially similar to one of the samples even though, for example, the wording is varied to comport with local law and practice as necessary to create trusts, define legal relationships, pass property by bequest, provide for the appointment of alternative and successor trustees, or designate alternative charitable remaindermen. Moreover, for transfers to a qualifying charitable remainder unitrust, the remainder interest will be deductible under sections 170(f)(2)(A), 2055(e)(2)(A), and 2522(c)(2)(A) for income, estate, and gift tax purposes, respectively, if the charitable remainder beneficiary otherwise meets all of the requirements of those provisions.



Therefore, it will not be necessary for a taxpayer to request a ruling on the qualification of a substantially similar trust. A trust that contains substantive provisions in addition to those provided by sections 4 through 8 of this revenue procedure or by section 4 of Rev. Proc. 89-20 (other than provisions necessary to establish a valid trust under applicable local law) or that omits any of these provisions will not necessarily be disqualified but neither will it be assured of qualification under the provisions of this revenue procedure.

SEC. 4. SAMPLE INTER VIVOS CHARITABLE REMAINDER UNITRUST: TWO LIVES, CONSECUTIVE INTERESTS

On this * * * day of * * *, 19* * *, I, * * * (hereinafter referred to as "the Donor"), desiring to establish a charitable remainder unitrust, within the meaning of section 4 of Rev. Proc. 90-30 and section 664(d)(2) of the Internal Revenue Code (hereinafter referred to as "the Code") hereby create the * * * Charitable Remainder Unitrust and designate * * * as the initial Trustee. [Alternate or successor trustees may also be designated if desired.]

1. Funding of Trust. The Donor transfers to the Trustee the property described in Schedule A, and the Trustee accepts such property and agrees to hold, manage, and distribute such property of the Trust under the terms set forth in this Trust instrument.

2. Payment of Unitrust Amount. In each taxable year of the Trust, the Trustee shall pay to [a living individual] during his or her lifetime, and after his or her death to [a living individual] (hereinafter referred to as "the Recipients"), for such time as he or she survives, a unitrust amount equal to [at least 5] percent of the net fair market value of the assets of the Trust valued as of the first day of each taxable year of the Trust (the "valuation date"). The unitrust amount shall be paid in equal quarterly amounts from income and, to the extent that income is not sufficient, from principal. Any income of the Trust for a taxable year in excess of the unitrust amount shall be added to principal. If for any year the net fair market value of the Trust assets is incorrectly determined, then within a reasonable period after the value is finally determined for federal tax purposes, the Trustee shall pay to the Recipients (in the case of an undervaluation) or receive from the Recipients (in the case of an overvaluation) an amount equal to the difference between the unitrust amount properly payable and the unitrust amount actually paid.

3. Payment of Federal Estate Taxes and State Death Taxes. The lifetime unitrust interest of the second Recipient will take effect upon the death of the first Recipient only if the second Recipient furnishes the funds for payment of any federal estate taxes or state death taxes for which the Trustee may be liable upon the death of the first Recipient. [This provision is mandatory only if all or a portion of the trust may be subject to such taxes on the death of the first recipient.]

4. Proration of the Unitrust Amount. In determining the unitrust amount, the Trustee shall prorate the same on a daily basis for a short taxable year and for the taxable year ending with the survivor Recipient's death.

5. Distribution to Charity. Upon the death of the survivor Recipient, the Trustee shall distribute all of the then principal and income of the Trust (other than any amount due either of the Recipients or their estates under the provisions above) to * * * (hereinafter referred to as "the Charitable Organization"). If the Charitable Organization is not an organization described in sections 170(c), 2055(a), and 2522(a) of the Code at the time when any principal or income of the Trust is to be distributed to it, then the Trustee shall distribute such principal or income to such one or more organizations described in sections 170(c), 2055(a), and 2522(a) as the Trustee shall select in its sole discretion.



6. Additional Contributions. If any additional contributions are made to the Trust after the initial contribution, the unitrust amount for the year in which the additional contribution is made shall be [the same percentage as in paragraph 2] percent of the sum of (a) the net fair market value of the Trust assets as of the valuation date (excluding the assets so added and any income from, or appreciation on, such assets) and (b) that proportion of the fair market value of the assets so added that was excluded under (a) that the number of days in the period that begins with the date of contribution and ends with the earlier of the last day of the taxable year or the date of death of the survivor Recipient bears to the number of days in the period that begins on the first day of such taxable year and ends with the earlier of the last day in such taxable year or the date of death of the survivor Recipient. In the case where there is no valuation date after the time of contribution, the assets so added shall be valued as of the time of contribution.

7. Prohibited Transactions. The Trustee shall make distributions at such time and in such manner as not to subject the Trust to tax under section 4942 of the Code. Except for the payment of the unitrust amount to the Recipients, the Trustee shall not engage in any act of self-dealing, as defined in section 4941(d), and shall not make any taxable expenditures, as defined in section 4945(d). The Trustee shall not make any investments that jeopardize the charitable purpose of the Trust, within the meaning of section 4944 and the regulations thereunder, or retain any excess business holdings, within the meaning of section 4943(c).


9. Governing Law. The operation of the Trust shall be governed by the laws of the State of * * *. The Trustee, however, is prohibited from exercising any power or discretion granted under said laws that would be inconsistent with the qualification of the Trust under section 664(d)(2) of the Code and the corresponding regulations.

10. Limited Power of Amendment. The Trust is irrevocable. The Trustee, however, shall have the power, acting alone, to amend the Trust in any manner required for the sole purpose of ensuring that the Trust qualifies and continues to qualify as a charitable remainder unitrust within the meaning of section 664(d)(2) of the Code.


SEC. 5. SAMPLE INTER VIVOS CHARITABLE REMAINDER UNITRUST: TWO LIVES, CONCURRENT AND CONSECUTIVE INTEREST

On this * * * day of * * *, 19* * *, I, * * * (hereinafter referred to as "the Donor"), desiring to establish a charitable remainder unitrust, within the meaning of section 5 of Rev. Proc. 90-30 and section 664(d)(2) of the Internal Revenue Code (hereinafter referred to as "the Code") hereby create the * * * Charitable Remainder Unitrust and designate * * * as the initial Trustee. [Alternate or sucessor trustees may also be designated if desired.]


2. Payment of Unitrust Amount. In each taxable year of the Trust, the Trustee shall pay to [a living individual] and [a living individual] (hereinafter referred to as "the Recipients"), in equal shares during



their lifetimes, a unitrust amount equal to [at least 5] percent of the net fair market value of the assets of the Trust valued as of the first day of each taxable year of the Trust (the "valuation date"). Upon the death of the first of the Recipients to die, the survivor Recipient shall be entitled to receive the entire unitrust amount. The unitrust amount shall be paid in equal quarterly amounts from income and, to the extent that income is not sufficient, from principal. Any income of the Trust for a taxable year in excess of the unitrust amount shall be added to principal. If for any year the net fair market value of the Trust assets is incorrectly determined, then within a reasonable period after the value is finally determined for federal tax purposes, the Trustee shall pay to the Recipients (in the case of an undervaluation) or receive from the Recipients (in the case of an overvaluation) an amount equal to the difference between the unitrust amount properly payable and the unitrust amount actually paid.

3. Payment of Federal Estate Taxes and State Death Taxes. The lifetime unitrust interest of the survivor Recipient will continue in effect upon the death of the first Recipient to die only if the survivor Recipient furnishes the funds for payment of any federal estate taxes or state death taxes for which the Trustee may be liable upon the death of the first Recipient to die. [This provision is mandatory only if all or a portion of the trust may be subject to such taxes on the death of the first recipient to die.]



6. Additional Contributions. If any additional contributions are made to the Trust after the initial contribution, the unitrust amount for the year in which the additional contribution is made shall be [the same percentage as in paragraph 2] percent of the sum of (a) the net fair market value of the Trust assets as of the valuation date (excluding the assets so added and any income from, or appreciation on, such assets) and (b) that proportion of the fair market value of the assets so added that was excluded under (a) that the number of days in the period that begins with the date of contribution and ends with the earlier of the last day of the taxable year or the date of death of the survivor Recipient bears to the number of days in the period that begins on the first day of such taxable year and ends with the earlier of the last day in such taxable year or the date of death of the survivor Recipient. In the case where there is no valuation date after the time of contribution, the assets so added shall be valued as of the time of contribution.






10. Limited Power of Amendment. The Trust is irrevocable. The Trustee, however, shall have the power, acting alone, to amend the Trust in any manner required for the sole purpose of ensuring that the Trust qualifies and continues to qualify as a charitable remainder unitrust within the meaning of section 664(d)(2) of the Code.


SEC. 6. SAMPLE TESTAMENTARY CHARITABLE REMAINDER UNITRUST: ONE LIFE

All the rest, residue, and remainder of my property and estate, real and personal, of whatever nature and wherever situated, [Alternatively, if not a residuary bequest, describe or identify the bequest] I give, devise, and bequeath to my Trustee in trust. It being my intention to establish a charitable remainder unitrust within the meaning of section 6 of Rev. Proc. 90-30 and section 664(d)(2) of the Internal Revenue Code (hereinafter referred to as "the Code"), such Trust shall be known as the * * * Charitable Remainder Unitrust and I hereby designate * * * as the initial Trustee. [Alternate or successor trustees may also be designated if desired.]

1. Payment of Unitrust Amount. In each taxable year of the Trust, the Trustee shall pay to [a living individual] (hereinafter referred to as "the Recipient") during the Recipient's life a unitrust amount equal to [at least 5] percent of the net fair market value of the assets of the Trust valued as of the first day of each taxable year of the Trust (the "valuation date"). The unitrust amount shall be paid in equal quarterly amounts from income and, to the extent that income is not sufficient, from principal. Any income of the Trust for a taxable year in excess of the unitrust amount shall be added to principal. If for any year the net fair market value of the Trust assets is incorrectly determined, then within a reasonable period after the value is finally determined for federal tax purposes, the Trustee shall pay to the Recipient (in the case of an undervaluation) or receive from the Recipient (in the case of an overvaluation) an amount equal to the difference between the unitrust amount properly payable and the unitrust amount actually paid.

2. Deferral Provision. 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 such date 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 the Recipient (in the case of an underpayment) or receive from the Recipient (in the case of an overpayment) the difference between: (1) 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 Code prescribe for the Trust for such computation for such period; and (2) the unitrust amounts payable, plus interest, compounded annually, computed for any period at the rate of interest that the federal income tax regulations under section 664 prescribe for the Trust for such computation for such period.



3. Proration of the Unitrust Amount. In determining the unitrust amount, the Trustee shall prorate the same on a daily basis for a short taxable year and for the taxable year ending with the Recipient's death.

4. Distribution to Charity. Upon the death of the Recipient, the Trustee shall distribute all of the then principal and income of the Trust (other than any amount due the Recipient or the Recipient's estate under the provisions above) to * * * (hereinafter referred to as "the Charitable Organization"). If the Charitable Organization is not an organization described in sections 170(c) and 2055(a) of the Code at the time when any principal or income of the Trust is to be distributed to it, then the Trustee shall distribute such principal or income to such one or more organizations described in sections 170(c) and 2055(a) as the Trustee shall select in its sole discretion.

5. Additional Contributions. No additional contributions shall be made to the Trust after the initial contribution. The initial contribution, however, shall consist of all property passing to the Trust by reason of my death.

6. Prohibited Transactions. The Trustee shall make distributions at such time and in such manner as not to subject the Trust to tax under section 4942 of the Code. Except for the payment of the unitrust amount to the Recipient, the Trustee shall not engage in any act of self-dealing, as defined in section 4941(d), and shall not make any taxable expenditures, as defined in section 4945(d). The Trustee shall not make any investments that jeopardize the charitable purpose of the Trust, within the meaning of section 4944 and the regulations thereunder, or retain any excess business holdings, within the meaning of section 4943(c).



9. Limited Power of Amendment. The Trustee shall have the power, acting alone, to amend the Trust in any manner required for the sole purpose of ensuring that the Trust qualifies and continues to qualify as a charitable remainder unitrust within the meaning of section 664(d)(2) of the Code.

10. Investment of Trust Assets. Nothing herein shall be construed to restrict 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.

SEC. 7. SAMPLE TESTAMENTARY CHARITABLE REMAINDER UNITRUST: TWO LIVES, CONSECUTIVE INTERESTS

All the rest, residue, and remainder of my property and estate, real and personal, of whatever nature and wherever situated, [Alternatively, if not a residuary bequest, describe or identify the bequest] I give, devise, and bequeath to my Trustee in trust. It being my intention to establish a charitable remainder unitrust within the meaning of section 7 of Rev. Proc. 90-30 and section 664(d)(2) of the Internal Revenue Code (hereinafter referred to as "the Code"), such Trust shall be known as the * * * Charitable Remainder Unitrust and I hereby designate * * * as the initial Trustee. [Alternate or successor trustees may also be designated if desired.]

1. Payment of Unitrust Amount. In each taxable year of the Trust, the Trustee shall pay to [a living individual] during his or her lifetime, and after his or her death to [a living individual] (hereinafter



referred to as "the Recipients"), for such time as he or she survives, a unitrust amount equal to [at least 5] percent of the net fair market value of the assets of the Trust valued as of the first day of each taxable year of the Trust (the "valuation date"). The unitrust amount shall be paid in equal quarterly amounts from income and, to the extent that income is not sufficient, from principal. Any income of the Trust for a taxable year in excess of the unitrust amount shall be added to principal. If for any year the net fair market value of the Trust assets is incorrectly determined, then within a reasonable period after the value is finally determined for federal tax purposes, the Trustee shall pay to the Recipients (in the case of an undervaluation) or receive from the Recipients (in the case of an overvaluation) an amount equal to the difference between the unitrust amount properly payable and the unitrust amount actually paid.

2. Deferral Provision. 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 such date 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 the Recipients (in the case of an underpayment) or receive from the Recipients (in the case of an overpayment) the difference between: (1) 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 Code prescribe for the Trust for such computation for such period, and (2) the unitrust amounts payable, plus interest, compounded annually, computed for any period at the rate of interest that the federal income tax regulations under section 664 prescribe for the Trust for such computation for such period.


4. Distribution to Charity. Upon the death of the survivor Recipient, the Trustee shall distribute all of the then principal and income of the Trust (other than any amount due either of the Recipients of their estates under the provisions above) to * * * (hereinafter referred to as "the Charitable Organization"). If the Charitable Organization is not an organization described in sections 170(c) and 2055(a) of the Code at the time when any principal or income of the Trust is to be distributed to it, then the Trustee shall distribute such principal or income to such one or more organizations described in sections 170(c) and 2055(a) as the Trustee shall select in its sole discretion.




8. Governing Law. The operation of the Trust shall be governed by the laws of the State of * * *. The Trustee, however, is prohibited from exercising any power or discretion granted under said laws that



would be inconsistent with the qualification of the Trust under section 664(d)(2) of the Code and the corresponding regulations.



SEC. 8. SAMPLE TESTAMENTARY CHARITABLE REMAINDER UNITRUST: TWO LIVES, CONCURRENT AND CONSECUTIVE INTERESTS

All the rest, residue, and remainder of my property and estate, real or personal, of whatever nature and wherever situated, [Alternatively, if not a residuary bequest, describe or identify the bequest] I give, devise, and bequeath to my Trustee in trust. It being my intention to establish a charitable remainder unitrust within the meaning of section 8 of Rev. Proc. 90-30 and section 664(d)(2) of the Internal Revenue Code (hereinafter referred to as "the Code"), such Trust shall be known as the * * * Charitable Remainder Unitrust and I hereby designate * * * as the initial Trustee. [Alternate or successor trustees may also be designated if desired.]

1. Payment of Unitrust Amount. In each taxable year of the Trust, the Trustee shall pay to [a living individual] and [a living individual] (hereinafter referred to as "the Recipients"), in equal shares during their lifetimes, a unitrust amount equal to [at least 5] percent of the net fair market value of the assets of the Trust valued as of the first day of each taxable year of the Trust (the "valuation date"). Upon the death of the first of the Recipients to die, the survivor Recipient shall be entitled to receive the entire unitrust amount. The unitrust amount shall be paid in equal quarterly amounts from income and, to the extent that income is not sufficient, from principal. Any income of the Trust for a taxable year in excess of the unitrust amount shall be added to principal. If for any year the net fair market value of the Trust assets is incorrectly determined, then within a reasonable period after the value is finally determined for federal tax purposes, the Trustee shall pay to the Recipients (in the case of an undervaluation) or receive from the Recipients (in the case of an overvaluation) an amount equal to the difference between the unitrust amount properly payable and the unitrust amount actually paid.

2. Deferral Provision. 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 such date 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 the Recipients (in the case of an underpayment) or receive from the Recipients (in the case of an overpayment) the difference between: (1) 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 Code prescribe for the Trust for such computation for such period; and (2) the unitrust amounts payable, plus interest, compounded annually, computed for any period at the rate of interest that the federal income tax regulations under section 664 prescribe for the Trust for such computation for such period.




4. Distribution to Charity. Upon the death of the survivor Recipient, the Trustee shall distribute all of the then principal and income of the Trust (other than any amount due either of the Recipients or their estates under the provisions above) to * * * (hereinafter referred to as "the Charitable Organization"). If the Charitable Organization is not an organization described in sections 170(c) and 2055(a) of the Code at the time when any principal or income of the Trust is to be distributed to it, then the Trustee shall distribute such principal or income to such one or more organizations described in sections 170(c) and 2055(a) as the Trustee shall select in its sole discretion.







SEC. 9. EFFECT ON OTHER REVENUE PROCEDURES

Rev. Proc. 89-20 is amplified.


This revenue procedure is effective on and after June 18, 1990, the date of publication of this revenue procedure in the Internal Revenue Bulletin.




This revenue procedure makes available six sample forms of trust that meet the requirements for a charitable remainder unitrust as described in section 664(d)(2) and (3) of the Internal Revenue Code.

SEC. 2. BACKGROUND

The Internal Revenue Service receives and responds to requests for rulings dealing with the qualification of trusts as charitable remainder trusts and the availability of deductions for contributions made to such trusts. In many of these requests, the trust instruments and charitable objectives are very similar. Consequently, in order to provide a service to taxpayers and to save the time and expense involved in requesting and processing a ruling on a proposed charitable remainder unitrust, this revenue procedure allows taxpayers who make transfers to a trust that substantially follows one of the sample forms of trust contained herein to be assured that the Service will recognize the trust as meeting all of the requirements of a charitable remainder unitrust, provided that the trust operates in a manner consistent with the terms of the instrument creating the trust and provided it is a valid trust under applicable local law.


The sample forms of trust meet all of the applicable requirements of sections 664(d)(2) and (3) of the Code and include:

Sec. 4 -- Sample Inter Vivos Charitable Remainder Unitrust: One Life;

Sec. 5 -- Sample Inter Vivos Charitable Remainder Unitrust: Two Lives, Consecutive Interests;

Sec. 6 -- Sample Inter Vivos Charitable Remainder Unitrust: Two Lives, Concurrent and Consecutive Interests;

Sec. 7 -- Sample Testamentary Charitable Remainder Unitrust: One Life;

Sec. 8 -- Sample Testamentary Charitable Remainder Unitrust: Two Lives, Consecutive Interests; and

Sec. 9 -- Sample Testamentary Charitable Remainder Unitrust: Two Lives, Concurrent and Consecutive Interests.

In all cases, the termination of the life interests must be followed by a distribution of the trust assets to the charitable remainder beneficiary, and the trust must be a valid trust under applicable local law.

If the trust provisions are substantially similar to those in one of the samples provided in sections 4 through 9, the Service will recognize the trust as satisfying all of the applicable requirements of section 664(d)(2) and (3) of the Code and the corresponding regulations. A document will be considered to be substantially similar to one of the samples even though, for example, the wording is varied to comport with local law and practice as necessary to create trusts, define legal relationships, pass property by bequest, provide for the appointment of alternative and successor trustees, or designate alternative charitable remaindermen. Moreover, for transfers to a qualifying charitable remainder unitrust, the remainder interest will be deductible under sections 170(f)(2)(A), 2055(e)(2)(A), and 2522(c)(2)(A) for income, estate, and gift tax purposes, respectively, if the charitable remainder beneficiary otherwise meets all of the requirements of those provisions. Therefore, it will not be necessary for a taxpayer to request a ruling on the qualification of a substantially similar trust. A trust that contains substantive provisions in



addition to those provided by sections 4 through 9 (other than provisions necessary to establish a valid trust under applicable local law) or that omits any of these provisions will not necessarily be disqualified, but it will not be assured of qualification under the provisions of this revenue procedure.

SEC. 4. SAMPLE INTER VIVOS CHARITABLE REMAINDER UNITRUST: ONE LIFE

On this * * * day of * * *, 19* * *, I, * * * (hereinafter referred to as "the Donor"), desiring to establish a charitable remainder unitrust within the meaning of section 4 of Rev. Proc. 90-31 and section 664(d)(2) and (3) of the Internal Revenue Code (hereinafter referred to as "the Code") hereby create the * * * * * * Charitable Remainder Unitrust and designate * * * as the initial Trustee. [Alternate or successor trustees may also be designated if desired.]


2. Payment of Unitrust Amount. In each taxable year of the Trust, the Trustee shall pay to [a living individual] (hereinafter referred to as "the Recipient") during the Recipient's life a unitrust amount equal to the lesser of: (a) the Trust income for the taxable year, as defined in section 643(b) of the Code and the regulations thereunder, and (b) [at least 5] percent of the net fair market value of the assets of the Trust valued as of the first day of each taxable year of the Trust (the "valuation date"). The unitrust amount for any year shall also include any amount of Trust income for such year that is in excess of the amount required to be distributed under (b) (above) to the extent that the aggregate of the amounts paid in prior years was less than the aggregate of the amounts computed as [same percentage as in (b) above] percent of the net fair market value of the Trust assets on the valuation dates.

The unitrust amount shall be paid in quarterly installments. Any income of the Trust for a taxable year in excess of the unitrust amount shall be added to principal. If for any year the net fair market value of the Trust assets is incorrectly determined, then within a reasonable period after the value is finally determined for federal tax purposes, the Trustee shall pay to the Recipient (in the case of an undervaluation) or receive from the Recipient (in the case of an overvaluation) an amount equal to the difference between the unitrust amount properly payable and the unitrust amount actually paid.


4. Distribution to Charity. Upon the death of the Recipient, the Trustee shall distribute all of the then principal and income of the Trust (other than any amount due the Recipient or the Recipient's estate under the provisions above) to * * * (hereinafter referred to as "the Charitable Organization"). If the Charitable Organization is not an organization described in sections 170(c), 2055(a), and 2522(a) of the Code at the time when any principal or income of the Trust is to be distributed to it, then the Trustee shall distribute such principal or income to such one or more organizations described in sections 170(c), 2055(a), and 2522(a) as the Trustee shall select in its sole discretion.

5. Additional Contributions. If any additional contributions are made to the Trust after the initial contribution, the unitrust amount for the year in which the additional contribution is made shall be equal to the lesser of (a) the Trust income for the taxable year, as defined in section 643(b) of the Code and the regulations thereunder, and (b) [the same percentage as in paragraph 2] percent of the sum of (1) the net fair market value of the Trust assets as of the valuation date (excluding the assets so added and any



income from, or appreciation on, such assets) and (2) that proportion of the fair market value of the assets so added that was excluded under (1) that the number of days in the period that begins with the date of contribution and ends with the earlier of the last day of the taxable year or the day of the Recipient's death bears to the number of days in the period that begins on the first day of such taxable year and ends with the earlier of the last day in such taxable year or the day of the Recipient's death. In the case where there is no valuation date after the time of contribution, the assets so added shall be valued as of the time of contribution. The unitrust amount for any such year shall also include any amount of Trust income for such year that is in excess of the amount required to be distributed under (b) above to the extent that the aggregate of the amounts paid in prior years was less than the aggregate of the amounts computed as [same percentage as in (b) above] percent of the net fair market value of the Trust assets on the valuation dates.



8. Governing Law. The operation of the Trust shall be governed by the laws of the State of * * *. The Trustee, however, is prohibited from exercising any power or discretion granted under said laws that would be inconsistent with the qualification of the Trust under section 664(d)(2) and (3) of the Code and the corresponding regulations.

9. Limited Power of Amendment. The Trust is irrevocable. The Trustee, however, shall have the power, acting alone, to amend the Trust in any manner required for the sole purpose of ensuring that the Trust qualifies and continues to qualify as a charitable remainder unitrust within the meaning of section 664(d)(2) and (3) of the Code.


SEC. 5. SAMPLE INTER VIVOS CHARITABLE REMAINDER UNITRUST: TWO LIVES, CONSECUTIVE INTERESTS

On this * * * day of * * *, 19* * *, I, * * * (hereinafter referred to as "the Donor"), desiring to establish a charitable remainder unitrust within the meaning of section 5 of Rev. Proc. 90-31 and section 664(d)(2) and (3) of the Internal Revenue Code (hereinafter referred to as "the Code") hereby create the * * * Charitable Remainder Unitrust and designate * * * as the initial Trustee. [Alternate or successor trustees may also be designated if desired.]


2. Payment of Unitrust Amount. In each taxable year of the Trust, the Trustee shall pay to [a living individual] (hereinafter referred to as "the Recipients"), for such time as he or she survives, a unitrust



amount equal to the lesser of: (a) the Trust income for the taxable year, as defined in section 643(b) of the Code and the regulations thereunder, and (b) [at least 5] percent of the net fair market value of the assets of the Trust valued as of the first day of each taxable year of the Trust (the "valuation date"). The unitrust amount for any year shall also include any amount of Trust income for such year that is in excess of the amount required to be distributed under (b) (above) to the extent that the aggregate of the amounts paid in prior years was less than the aggregate of the amounts computed as [same percentage as in (b) above] percent of the net fair market value of the Trust assets on the valuation dates.

The unitrust amount shall be paid in quarterly installments. Any income of the Trust for a taxable year in excess of the unitrust amount shall be added to principal. If for any year the net fair market value of the Trust assets is incorrectly determined, then within a reasonable period after the value is finally determined for federal tax purposes, the Trustee shall pay to the Recipients (in the case of an undervaluation) or receive from the Recipients (in the case of an overvaluation) an amount equal to the difference between the unitrust amount properly payable and the unitrust amount actually paid.

3. Payment of Federal Estate Taxes and State Death Taxes. The lifetime unitrust interest of the second Recipient will take effect upon the death of the first Recipient only if the second Recipient furnishes the funds for payment of any federal estate taxes or state death taxes for which the Trustee may be liable upon the death of the first Recipient. [This provision is mandatory only if all or a portion of the trust may be subject to such taxes on the death of the first recipient.]



6. Additional Contributions. If any additional contributions are made to the Trust after the initial contribution, the unitrust amount for the year in which the additional contribution is made shall be equal to the lesser of (a) the Trust income for the taxable year, as defined in section 643(b) of the Code and the regulations thereunder, and (b) [the same percentage as in paragraph 2] percent of the sum of (1) the net fair market value of the Trust assets as of the valuation date (excluding the assets so added and any income from, or appreciation on, such assets) and (2) that proportion of the fair market value of the assets so added that was excluded under (1) that the number of days in the period that begins with the date of contribution and ends with the earlier of the last day of the taxable year or the date of death of the survivor Recipient bears to the number of days in the period that begins on the first day of such taxable year and ends with the earlier of the last day in such taxable year or the date of death of the survivor Recipient. In the case where there is no valuation date after the time of contribution, the assets so added shall be valued as of the time of contribution. The unitrust amount for any such year shall also include any amount of Trust income for such year that is in excess of the amount required to be distributed under (b) above to the extent that the aggregate of the amounts paid in prior years was less than the aggregate of



the amounts computed as [same percentage as in (b) above] percent of the net fair market value of the Trust assets on the valuation dates.






SEC. 6. SAMPLE INTER VIVOS CHARITABLE REMAINDER UNITRUST: TWO LIVES, CONCURRENT AND CONSECUTIVE INTERESTS

On this * * * day of * * *, 19* * *, I, * * * (hereinafter referred to as "the Donor"), desiring to establish a charitable remainder unitrust, within the meaning of section 6 of Rev. Proc. 90-31 and section 664(d)(2) and (3) of the Internal Revenue Code (hereinafter referred to as "the Code") hereby create the * * * Charitable Remainder Unitrust and designate * * * as the initial Trustee. [Alternate or successor trustees may also be designated if desired.]


2. Payment of Unitrust Amount. In each taxable year of the Trust, the Trustee shall pay to [a living individual] and [a living individual] (hereinafter referred to as "the Recipients") in equal shares during their lifetimes, a unitrust amount equal to the lesser of: (a) the Trust income for the taxable year, as defined in section 643(b) of the Code and the regulations thereunder, and (b) [at least 5] percent of the net fair market value of the assets of the Trust valued as of the first day of each taxable year of the Trust (the "valuation date"). The unitrust amount for any year shall also include any amount of Trust income for such year that is in excess of the amount required to be distributed under (b) (above) to the extent that the aggregate of the amounts paid in prior years was less than the aggregate of the amounts computed as [same percentage as in (b) above] percent of the net fair market value of the Trust assets on the valuation dates.



Upon the death of the first of the Recipients to die, the survivor Recipient shall be entitled to receive the entire unitrust amount. The unitrust amount shall be paid in quarterly installments. Any income of the Trust for a taxable year in excess of the unitrust amount shall be added to principal. If for any year the net fair market value of the Trust assets is incorrectly determined, then within a reasonable period after the value is finally determined for federal tax purposes, the Trustee shall pay to the Recipients (in the case of an undervaluation) or receive from the Recipients (in the case of an overvaluation) an amount equal to the difference between the unitrust amount properly payable and the unitrust amount actually paid.

3. Payment of Federal Estate Taxes and State Death Taxes. The lifetime unitrust interest of the survivor Recipient will continue in effect upon the death of the first Recipient to die only if the survivor Recipient furnishes the funds for payment of any federal estate taxes or state death taxes for which the Trustee may be liable upon the death of the first Recipient to die. [This provision is mandatory only if all or a portion of the trust may be subject to such taxes on the death of the first recipient to die.]

4. Proration of the Unitrust Amount. In determining the unitrust amount, the Trustee shall prorate the same on a daily basis for a short taxable year and for the taxable year ending with the survivor's death.


6. Additional Contributions. If any additional contributions are made to the Trust after the initial contribution, the unitrust amount for the year in which the additional contribution is made shall be equal to the lesser of (a) the Trust income for the taxable year, as defined in section 643(b) of the Code and the regulations thereunder, and (b) [the same percentage as in paragraph 2] percent of the sum of (1) the net fair market value of the Trust assets as of the valuation date (excluding the assets so added and any income from, or appreciation on, such assets) and (2) that proportion of the fair market value of the assets so added that was excluded under (1) that the number of days in the period that begins with the date of contribution and ends with the earlier of the last day of the taxable year or the date of death of the survivor Recipient bears to the number of days in the period that begins on the first day of such taxable year and ends with the earlier of the last day in such taxable year or the date of death of the survivor Recipient. In the case where there is no valuation date after the time of contribution, the assets so added shall be valued as of the time of contribution. The unitrust amount for any such year shall also include any amount of Trust income for such year that is in excess of the amount required to be distributed under (b) above to the extent that the aggregate of the amounts paid in prior years was less than the aggregate of the amounts computed as [same percentage as in (b) above] percent of the net fair market value of the Trust assets on the valuation dates.

7. Prohibited Transactions. The Trustee shall make distributions at such time and in such manner as not to subject the Trust to tax under section 4942 of the Code. Except for the payment of the unitrust amount to the Recipients, the Trustee shall not engage in any act of self-dealing, as defined in section 4941(d), and shall not make any taxable expenditures, as defined in section 4945(d). The Trustee shall not make any investments that jeopardize the charitable purpose of the Trust, within the meaning of section 4944



and the regulations thereunder, or retain any excess business holdings, within the meaning of section 4943(c).





SEC. 7. SAMPLE TESTAMENTARY CHARITABLE REMAINDER UNITRUST: ONE LIFE

All the rest, residue, and remainder of my property and estate, real and personal, of whatever nature and wherever situated. [Alternatively, if not a residuary bequest, describe or identify the bequest.] I give, devise, and bequeath to my Trustee in trust. It being my intention to establish a charitable remainder unitrust within the meaning of section 7 of Rev. Proc. 90-31 and section 664(d)(2) and (3) of the Internal Revenue Code (hereinafter referred to as "the Code"), such Trust shall be known as the * * * Charitable Remainder Unitrust and I hereby designate * * * as the initial Trustee. [Alternate or successor trustees may also be designated if desired.]

1. Payment of Unitrust Amount. In each taxable year of the Trust, the Trustee shall pay to [a living individual] (hereinafter referred to as "the Recipient") during the Recipient's life a unitrust amount equal to the lesser of: (a) the Trust income for the taxable year, as defined in section 643(b) of the Code and the regulations thereunder, and (b) [at least 5] percent of the net fair market value of the assets of the Trust valued as of the first day of each taxable year of the Trust (the "valuation date"). The unitrust amount for any year shall also include any amount of Trust income for such year that is in excess of the amount required to be distributed under (b) (above) to the extent that the aggregate of the amounts paid in prior years was less than the aggregate of the amounts computed as [same percentage as in (b) above] percent of the net fair market value of the Trust assets on the valuation dates.

The unitrust amount shall be paid in quarterly installments. Any income of the Trust for a taxable year in excess of the unitrust amount shall be added to principal. If for any year the net fair market value of the Trust assets is incorrectly determined, then within a reasonable period after the value is finally determined for federal tax purposes, the Trustee shall pay to the Recipient (in the case of an undervaluation) or receive from the Recipient (in the case of an overvaluation) an amount equal to the difference between the unitrust amount properly payable and the unitrust amount actually paid.

2. Deferral Provision. 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 such date 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 the



Recipient (in the case of an underpayment) or receive from the Recipient (in the case of an overpayment) the difference between: (1) 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 Code prescribe for the Trust for such computation for such period; and (2) the unitrust amounts payable, plus interest compounded annually, computed for any period at the rate of interest that the federal income tax regulations under section 664 prescribe for the Trust for such computation for such period.


4. Distribution to Charity. Upon the death of the Recipient, the Trustee shall distribute all of the then principal and income of the Trust (other than any amount due the Recipient or the Recipient's estate under the provisions above) to * * * (hereinafter referred to as "the Charitable Organization"). If the Charitable Organization is not an organization described in sections 170(c) and 2055(a) of the Code at the time when any principal or income of the Trust is to be distributed to it, then the Trustee shall distribute such principal or income to such one or more organizations described in sections 170(c) and 2055(a) as the Trustee shall select in its sole discretion.

5. Additional Contributions. No additional contributions shall be made to the Trust after the initial contribution. The initial contribution, however, shall be deemed to consist of all property passing to the Trust by reason of my death.




9. Limited Power of Amendment. The Trustee shall have the power, acting alone, to amend the Trust in any manner required for the sole purpose of ensuring that the Trust qualifies and continues to qualify as a charitable remainder unitrust within the meaning of section 664(d)(2) and (3) of the Code.


SEC. 8. SAMPLE TESTAMENTARY CHARITABLE REMAINDER UNITRUST: TWO LIVES, CONSECUTIVE INTERESTS

All the rest, residue, and remainder of my property and estate, real and personal, of whatever nature and wherever situated. [Alternatively, if not a residuary bequest, describe or identify the bequest.] I give,



devise, and bequeath to my Trustee in trust. It being my intention to establish a charitable remainder unitrust within the meaning of section 8 of Rev. Proc. 90-31 and section 664(d)(2) and (3) of the Internal Revenue Code (hereinafter referred to as "the Code"), such Trust shall be known as the * * * Charitable Remainder Unitrust and I hereby designate * * * as the initial Trustee. [Alternate or successor trustees may also be designated if desired.]

1. Payment of Unitrust Amount. In each taxable year of the Trust, the Trustee shall pay to [a living individual] during his or her lifetime, and after his or her death, to [a living individual] (hereinafter referred to as "the Recipients"), for such time as he or she survives, a unitrust amount equal to the lesser of: (a) the Trust income for the taxable year, as defined in section 643(b) of the Code and the regulations thereunder, and (b) [at least 5] percent of the net fair market value of the assets of the Trust valued as of the first day of each taxable year of the Trust (the "valuation date"). The unitrust amount for any year shall also include any amount of Trust income for such year that is in excess of the amount required to be distributed under (b) (above) to the extent that the aggregate of the amounts paid in prior years was less than the aggregate of the amounts computed as [same percentage as in (b) above] percent of the net fair market value of the Trust assets on the valuation dates.

The unitrust amount shall be paid in quarterly installments. Any income of the Trust for a taxable year in excess of the unitrust amount shall be added to principal. If for any year the net fair market value of the Trust assets is incorrectly determined, then within a reasonable period after the value is finally determined for federal tax purposes, the Trustee shall pay to the Recipients (in the case of an undervaluation) or receive from the Recipients (in the case of an overvaluation) an amount equal to the difference between the unitrust amount properly payable and the unitrust amount actually paid.

2. Deferral Provision. 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 such date 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 the Recipients (in the case of an underpayment) or receive from the Recipients (in the case of an overpayment) the difference between: (1) 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 Code prescribe for the trust for such computation for such period; and (2) the unitrust 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 Code prescribe for the Trust for such computation for such period.











SEC. 9. SAMPLE TESTAMENTARY CHARITABLE REMAINDER UNITRUST: TWO LIVES, CONCURRENT AND CONSECUTIVE INTERESTS

All the rest, residue, and remainder of my property and estate, real and personal, of whatever nature and wherever situated, [Alternatively, if not a residuary bequest, describe or identify the bequest.] I give, devise, and bequeath to my Trustee in trust. It being my intention to establish a charitable remainder unitrust within the meaning of section 9 of Rev. Proc. 90-31 and section 664(d)(2) and (3) of the Internal Revenue Code (hereinafter referred to as "the Code"), such Trust shall be known as the * * * Charitable Remainder Unitrust and I hereby designate * * * as the initial Trustee. [Alternate or successor trustees may also be designated if desired.]

1. Payment of Unitrust Amount. In each taxable year of the Trust, the Trustee shall pay to [a living individual] and [a living individual] (hereinafter referred to as "the Recipients"), in equal shares during their lifetimes, a unitrust amount equal to the lesser of: (a) the Trust income for the taxable year, as defined in section 643(b) of the Code and the regulations thereunder, and (b) [at least 5] percent of the net fair market value of the assets of the Trust valued as of the first day of each taxable year of the Trust (the "valuation date"). The unitrust amount for any year shall also include any amount of Trust income for such year that is in excess of the amount required to be distributed under (b) (above) to the extent that the aggregate of the amounts paid in prior years was less than the aggregate of the amounts computed as [same percentage as in (b) above] percent of the net fair market value of the trust assets on the valuation dates.



Upon the death of the first of the Recipients to die, the survivor Recipient shall be entitled to receive the entire unitrust amount. The unitrust amount shall be paid in quarterly installments. Any income of the Trust for a taxable year in excess of the unitrust amount and which is not paid pursuant to the second preceding sentence shall be added to principal. If for any year the net fair market value of the Trust assets is incorrectly determined, then within a reasonable period after the value is finally determined for federal tax purposes, the Trustee shall pay to the Recipients (in the case of an undervaluation) or receive from the Recipients (in the case of an overvaluation) an amount equal to the difference between the unitrust amount properly payable and the unitrust amount actually paid.

2. Deferral Provision. 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 such date 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 the Recipients (in the case of an underpayment) or receive from the Recipients (in the case of an overpayment) the difference between: (1) 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 Code prescribe for the Trust for such computation for such period; and (2) the unitrust 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 Code prescribe for the Trust for such computation for such period.






8. Governing Law. The operation of the Trust shall be governed by the laws of the State of * * *. The Trustee, however, is prohibited from exercising any power or discretion granted under said laws that



would be inconsistent with the qualification of the Trust under section 664(d)(2) and (3) of the Code and the corresponding regulations.




This revenue procedure is effective on and after June 18, 1990, the date of publication of this revenue procedure in the Internal Revenue Bulletin.



Bulletin No. 2003-31August 4, 2003

HIGHLIGHTSOF THIS ISSUEThese synopses are intended only as aids to the reader inidentifying the subject matter covered. They may not berelied upon as authoritative interpretations.

INCOME TAX

Rev. Proc. 2003–53, page 230.Sample inter vivos charitable remainder annuity trust(CRAT) for one measuring life. This procedure contains asample declaration of trust that meets the requirements undersection 664 of the Code and 1.664–2 of the regulations for aninter vivos charitable remainder annuity trust for one measuringlife. This procedure also contains annotations to the sampletrust and alternate provisions that may be integrated into thesample trust. Rev. Proc. 89–21 superseded.

Rev. Proc. 2003–54, page 236.Sample inter vivos charitable remainder annuity trust(CRAT) for a term of years. This procedure contains a sam-ple declaration of trust that meets the requirements under sec-tion 664 of the Code and 1.664–2 of the regulations for an intervivos charitable remainder annuity trust with a term of years an-nuity period. This procedure also contains annotations to thesample trust and alternate provisions that may be intergratedinto the sample trust.

Rev. Proc. 2003–55, page 242.Sample inter vivos charitable remainder annuity trust(CRAT) with consecutive interests for two measuringlives. This procedure contains a sample declaration of trustthat meets the requirements under section 664 of the Code and1.664–2 of the regulations for an inter vivos charitable remain-der annuity trust with consecutive interests for two measuringlives. This procedure also contains annotations to the sampletrust and alternate provisions that may be integrated into thesample trust. Section 4 of Rev. Proc. 90–32 superseded.

Rev. Proc. 2003–56, page 249.Sample inter vivos charitable remainder annuity trust(CRAT) with concurrent and consecutive interests fortwo measuring lives. This procedure contains a sample dec-laration of trust that meets the requirements under section 664of the Code and 1.664–2 of the regulations for an inter vivoscharitable remainder annuity trust with concurrent and consec-utive interests for two measuring lives. This procedure alsocontains annotations to the sample trust and alternate provi-sions that may be integrated into the sample trust. Section 5of Rev. Proc. 90–32 superseded.

Rev. Proc. 2003–57, page 257.Sample testamentary charitable remainder annuitytrust (CRAT) for one measuring life. This procedurecontains a sample declaration of trust that meets the require-ments under section 664 of the Code and 1.664–2 of theregulations for a testamentary charitable remainder annuitytrust for one measuring life. This procedure also containsannotations to the sample trust and alternate provisions thatmay be integrated into the sample trust. Section 6 of Rev.Proc. 90–32 superseded.

Rev. Proc. 2003–58, page 262.Sample testamentary charitable remainder annuitytrust (CRAT) for a term of years. This procedure containsa sample declaration of trust that meets the requirementsunder section 664 of the Code and 1.664–2 of the regulationsfor a testamentary charitable remainder annuity trust with aterm of years annuity period. This procedure also containsannotations to the sample trust and alternate provisions thatmay be integrated into the sample trust.

(Continued on the next page)

Announcements of Disbarments and Suspensions begin on page 281.

Finding Lists begin on page ii.

Index for July begins on page iv.

Rev. Proc. 2003–59, page 268.Sample testamentary charitable remainder annuitytrust (CRAT) with consecutive interests for two mea-suring lives. This procedure contains a sample declarationof trust that meets the requirements under section 664 ofthe Code and 1.664–2 of the regulations for a testamentarycharitable remainder annuity trust with consecutive interestsfor two measuring lives. This procedure also contains anno-tations to the sample trust and alternate provisions that maybe integrated into the sample trust. Section 7 of Rev. Proc.90–32 superseded.

Rev. Proc. 2003–60, page 274.Sample testamentary charitable remainder annuitytrust (CRAT) with concurrent and consecutive interestsfor two measuring lives. This procedure contains a sampledeclaration of trust that meets the requirements under section664 of the Code and 1.664–2 of the regulations for a testa-mentary charitable remainder annuity trust with concurrentand consecutive interests for two measuring lives. Thisprocedure also contains annotations to the sample trust andalternate provisions that may be integrated into the sampletrust. Section 8 of Rev. Proc. 90–32 superseded.

August 4, 2003 2003-31 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous

26 CFR 601.201: Rulings and determination letters.(Also Part I, §§ 170, 664, 2055, 2522; 1.170A–6, 1.664–2, 20.2055–2, 25.2522(c)–3.)

Rev. Proc. 2003–53

SECTION 1. PURPOSE

This revenue procedure contains an annotated sample declaration of trust and alternate provisions that meet the requirements of§ 664(d)(1) of the Internal Revenue Code for an inter vivos charitable remainder annuity trust (CRAT) providing for annuity paymentsfor one measuring life followed by the distribution of trust assets to a charitable remainderman.

SECTION 2. BACKGROUND

Previously, the Internal Revenue Service issued sample trust instruments for certain types of CRATs. The Service is updating thepreviously issued samples and issuing new samples for additional types of CRATs; annotations and alternate sample provisions areincluded as further guidance. In addition to the sample trust instrument included in this revenue procedure for an inter vivos CRATproviding for annuity payments for one measuring life, samples are provided in separate revenue procedures for:

(a) an inter vivos CRAT providing for annuity payments for a term of years (see Rev. Proc. 2003–54);(b) an inter vivos CRAT providing for annuity payments payable consecutively for two measuring lives (see Rev. Proc.

2003–55, superceding section 4 of Rev. Proc. 90–32, 1990–1 C.B. 546);(c) an inter vivos CRAT providing for annuity payments payable concurrently and consecutively for two measuring lives (see

Rev. Proc. 2003–56, superceding section 5 of Rev. Proc. 90–32);(d) a testamentary CRAT providing for annuity payments for one measuring life (see Rev. Proc. 2003–57, superceding section

6 of Rev. Proc. 90–32);(e) a testamentary CRAT providing for annuity payments for a term of years (see Rev. Proc. 2003–58);(f) a testamentary CRAT providing for annuity payments payable consecutively for two measuring lives (see Rev. Proc.

2003–59, superceding section 7 of Rev. Proc. 90–32); and(g) a testamentary CRAT providing for annuity payments payable concurrently and consecutively for two measuring lives (see

Rev. Proc. 2003–60, superceding section 8 of Rev. Proc. 90–32).

SECTION 3. SCOPE AND OBJECTIVE

Section 4 of this revenue procedure provides a sample declaration of trust for an inter vivos CRAT with one measuring life that iscreated by an individual who is a citizen or resident of the United States. Section 5 of this revenue procedure provides annotations tothe provisions of the sample trust. Section 6 of this revenue procedure provides samples of alternate provisions concerning: (.01) thestatement of the annuity amount as a specific dollar amount; (.02) the payment of part of the annuity to an organization described in§ 170(c); (.03) a qualified contingency; (.04) the last annuity payment to the recipient; (.05) the restriction of the charitable remainder-man to a public charity; (.06) a retained right to substitute the charitable remainderman; and (.07) a power of appointment to designatethe charitable remainderman.

For transfers to a qualifying CRAT, as defined in § 664(d)(1), the remainder interest will be deductible by a citizen or resident ofthe United States under §§ 170(f)(2)(A), 2055(e)(2)(A), and 2522(c)(2)(A) for income, estate, and gift tax purposes, respectively, ifthe other requirements of §§ 170(f)(2)(A), 2055(e)(2)(A), and 2522(c)(2)(A) (that is, the requirements not relating to the provisionsof the governing instrument) are also met. The Service will recognize a trust as a qualified CRAT meeting all of the requirements of§ 664(d)(1) if the trust operates in a manner consistent with the terms of the trust instrument, if the trust is a valid trust under applicablelocal law, and if the trust instrument: (i) is substantially similar to the sample in section 4 of this revenue procedure; or (ii) properlyintegrates one or more alternate provisions from section 6 of this revenue procedure into a document substantially similar to the samplein section 4 of this revenue procedure. A trust instrument that contains substantive provisions in addition to those provided in section4 of this revenue procedure (other than properly integrated alternate provisions from section 6 of this revenue procedure, or provisionsnecessary to establish a valid trust under applicable local law that are not inconsistent with the applicable federal tax requirements),or that omits any of the provisions of section 4 of this revenue procedure (unless an alternate provision from section 6 of this revenueprocedure is properly integrated), will not necessarily be disqualified, but neither will that trust be assured of qualification under theprovisions of this revenue procedure. The Service generally will not issue a letter ruling on whether an inter vivos trust created by anindividual and with one measuring life qualifies as a CRAT. The Service, however, generally will issue letter rulings on the effect ofsubstantive trust provisions, other than those contained in sections 4 and 6 of this revenue procedure, on the qualification of a trust asa CRAT.

2003-31 I.R.B. 230 August 4, 2003

SECTION 4. SAMPLE INTER VIVOS CHARITABLE REMAINDER ANNUITY TRUST — ONE LIFE

On this day of , 20__, I, (hereinafter “the Donor”), desiring to establish a chari-table remainder annuity trust, within the meaning of Rev. Proc. 2003–53 and § 664(d)(1) of the Internal Revenue Code (hereinafter“the Code”), hereby enter into this trust agreement with as the initial trustee (hereinafter “the Trustee”). This trustshall be known as the Charitable Remainder Annuity Trust.

1. Funding of Trust. The Donor hereby transfers and irrevocably assigns, on the above date, to the Trustee the property describedin Schedule A, and the Trustee accepts the property and agrees to hold, manage, and distribute the property under the terms set forthin this trust instrument.

2. Payment of Annuity Amount. In each taxable year of the trust during the annuity period, the Trustee shall pay to [permissiblerecipient] (hereinafter “the Recipient”) an annuity amount equal to [a number no less than 5 and no more than 50] percent of theinitial net fair market value of all property transferred to the trust, valued as of the above date (that is, the date of the transfer). Thefirst day of the annuity period shall be the date the property is transferred to the trust and the last day of the annuity period shall bethe date of the Recipient’s death. The annuity amount shall be paid in equal quarterly installments at the end of each calendar quarterfrom income, and to the extent income is not sufficient, from principal. Any income of the trust for a taxable year in excess of theannuity amount shall be added to principal. If the initial net fair market value of the trust assets is incorrectly determined, then withina reasonable period after the value is finally determined for federal tax purposes, the Trustee shall pay to the Recipient (in the caseof an undervaluation) or receive from the Recipient (in the case of an overvaluation) an amount equal to the difference between theannuity amount(s) properly payable and the annuity amount(s) actually paid.

3. Proration of Annuity Amount. The Trustee shall prorate the annuity amount on a daily basis for any short taxable year. In thetaxable year of the trust during which the annuity period ends, the Trustee shall prorate the annuity amount on a daily basis for thenumber of days of the annuity period in that taxable year.

4. Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principal and incomeof the trust (other than any amount due the Recipient or the Recipient’s estate under the provisions above) to [designated remain-derman] (hereinafter “the Charitable Organization”). If the Charitable Organization is not an organization described in §§ 170(c),2055(a), and 2522(a) of the Code at the time when any principal or income of the trust is to be distributed to it, then the Trustee shalldistribute the then principal and income to one or more organizations described in §§ 170(c), 2055(a), and 2522(a) of the Code as theTrustee shall select, and in the proportions as the Trustee shall decide, in the Trustee’s sole discretion.

5. Additional Contributions. No additional contributions shall be made to the trust after the initial contribution.6. Prohibited Transactions. The Trustee shall not engage in any act of self-dealing within the meaning of § 4941(d) of the Code, as

modified by § 4947(a)(2)(A) of the Code, and shall not make any taxable expenditures within the meaning of § 4945(d) of the Code,as modified by § 4947(a)(2)(A) of the Code.

7. Taxable Year. The taxable year of the trust shall be the calendar year.8. Governing Law. The operation of the trust shall be governed by the laws of the State of . How-

ever, the Trustee is prohibited from exercising any power or discretion granted under said laws that would be inconsistent with thequalification of the trust as a charitable remainder annuity trust under § 664(d)(1) of the Code and the corresponding regulations.

9. Limited Power of Amendment. This trust is irrevocable. However, the Trustee shall have the power, acting alone, to amend thetrust from time to time in any manner required for the sole purpose of ensuring that the trust qualifies and continues to qualify as acharitable remainder annuity trust within the meaning of § 664(d)(1) of the Code.

10. Investment of Trust Assets. Nothing in this trust instrument shall be construed to restrict the Trustee from investing the trustassets in a manner that could result in the annual realization of a reasonable amount of income or gain from the sale or disposition oftrust assets.

SECTION 5. ANNOTATIONS REGARDING SAMPLE INTER VIVOS CHARITABLE REMAINDERANNUITY TRUST — ONE LIFE

.01 Annotations for Introductory Paragraph and Paragraph 1, Funding of Trust, of the Sample Trust.

(1) Factors concerning qualification of trust. A deduction must be allowable under § 170, § 2055, or § 2522 for propertycontributed to the trust. Section 1.664–1(a)(1)(iii)(a) of the Income Tax Regulations. The trust must meet the definitionof and function exclusively as a charitable remainder trust from the creation of the trust. Section 1.664–1(a)(4). Solely forpurposes of § 664, a trust is deemed created at the earliest time that neither the grantor nor any other person is treated asthe owner of the entire trust under subpart E, part 1, subchapter J, chapter 1, subtitle A of the Code (subpart E), but in noevent prior to the time property is first transferred to the trust. Neither the donor nor the donor’s spouse shall be treatedas the owner of the trust under subpart E merely because he or she is named as a recipient of the annuity amount. Section1.664–1(a)(4). In addition, funding the trust with certain types of assets may disqualify it as a charitable remainder trust.See § 1.664–1(a)(7) and Rev. Rul. 73–610, 1973–2 C.B. 213.

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(2) Valuation of unmarketable assets. If the trust is funded with unmarketable assets, the initial net fair market value of theassets must be determined exclusively by an independent trustee, as defined in § 1.664–1(a)(7)(iii), or must be determinedby a current “qualified appraisal” from a “qualified appraiser,” as defined in § 1.170A–13(c)(3) and (c)(5), respectively.Section 1.664–1(a)(7).

(3) Income tax deductibility limitations. The amount of the charitable deduction for income tax purposes is affected by a numberof factors, including the type of property contributed to the trust, the type of charity receiving the property, whether theremainder interest is paid outright to charity or held in further trust, and the donor’s adjusted gross income (with certainadjustments). See § 170(b) and (e); § 1.170A–8; Rev. Rul. 80–38, 1980–1 C.B. 56; and Rev. Rul. 79–368, 1979–2 C.B.109. See section 6.05 of this revenue procedure for an alternate provision that restricts the charitable remainderman to apublic charity (as defined therein).

(4) Trustee provisions. Alternate or successor trustees may be designated in the trust instrument. In addition, the trust instru-ment may contain other administrative provisions relating to the trustee’s duties and powers, as long as the provisions donot conflict with the rules governing charitable remainder trusts under § 664 and the regulations thereunder.

(5) Identity of donor. For purposes of qualification under this revenue procedure, the donor may be an individual or a husbandand wife. Appropriate adjustments should be made to the introductory paragraph if a husband and wife are the donors.Terms such as “grantor” or “settlor” may be substituted for “donor.”

.02 Annotations for Paragraph 2, Payment of Annuity Amount, of the Sample Trust.

(1) Permissible recipients. For a CRAT with an annuity period based on the life of one individual, the annuity amount mustgenerally be paid to that individual and the individual must be living at the time of the creation of the trust. See Rev. Rul.2002–20, 2002–1 C.B. 794, for situations in which the annuity amount may be paid to a trust for the benefit of an individualwho is financially disabled. An organization described in § 170(c) may receive part, but not all, of the annuity amount.Section 664(d)(1)(A) and § 1.664–2(a)(3)(i). See section 6.02 of this revenue procedure for an alternate provision thatprovides for payment of part of the annuity to an organization described in § 170(c).

(2) Percentage requirements. The sum certain annuity amount must be at least 5 percent and not more than 50 percent of theinitial net fair market value of the assets placed in trust. Section 664(d)(1)(A). Even if the sum certain annuity amount is atleast 5 percent and not more than 50 percent of the initial net fair market value of the assets placed in trust, no deduction willbe allowable under § 2055 or § 2522 if the probability that the trust corpus will be exhausted before the death of the recipientexceeds 5 percent. Rev. Rul. 77–374, 1977–2 C.B. 329 and Rev. Rul. 70–452, 1970–2 C.B. 199. See §§ 1.7520–3(b)and 25.7520–3(b) for special rules that may be applicable in valuing interests transferred to CRATs. In addition, the value(determined under § 7520) of the charitable remainder interest must be at least 10 percent of the initial net fair market valueof all property placed in the trust. Section 664(d)(1)(D).

(3) Payment of annuity amount in installments. Paragraph 2, Payment of Annuity Amount, of the sample trust specifies thatthe annuity amount is to be paid in equal quarterly installments at the end of each quarter. However, the trust instrumentmay specify that the annuity amount is to be paid to the recipient annually or in equal or unequal installments throughoutthe year. See § 1.664–2(a)(1)(i). The amount of the charitable deduction will be affected by the frequency of payment, bywhether the installments are equal or unequal, and by whether each installment is payable at the beginning or end of theperiod. See § 1.664–2(c) and § 20.2031–7(d)(2)(iv).

(4) Payment of annuity amount by close of taxable year. Generally, the annuity amount for any taxable year must be paid beforethe close of the taxable year for which it is due. For circumstances under which the annuity amount may be paid within areasonable time after the close of the taxable year, see § 1.664–2(a)(1)(i)(a).

(5) Early distributions to charity. The trust instrument may provide that an amount other than the annuity shall be paid (ormay be paid in the discretion of the trustee) to an organization described in § 170(c). If such a distribution is made in kind,the adjusted basis of the property distributed must be fairly representative of the adjusted basis of the property available fordistribution on the date of distribution. Section 1.664–2(a)(4).

.03 Annotations for Paragraph 3, Proration of Annuity Amount, of the Sample Trust.

(1) Prorating annuity amount. To compute the annuity amount in a short taxable year and in the taxable year in which theannuity period terminates, see § 1.664–2(a)(1)(iv)(a) and (b), respectively.

(2) Determining annuity amount payable in year of recipient’s death. Paragraph 3, Proration of Annuity Amount, of the sampletrust specifies that the annuity amount shall be prorated on a daily basis. See section 6.04 of this revenue procedure foran alternate provision that provides for the termination of the annuity amount with the last regular payment preceding therecipient’s death.

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.04 Annotations for Paragraph 4, Distribution to Charity, of the Sample Trust.

(1) Minimum value of remainder. As noted in section 5.02(2) of this revenue procedure, the value (determined under § 7520)of the charitable remainder interest is required to be at least 10 percent of the initial net fair market value of all propertyplaced in the trust. Section 664(d)(1)(D).

(2) Designated remainderman. Any named charitable remainderman must be an organization described in § 170(c) at the timeof the transfer to the charitable remainder annuity trust. See § 664(d)(1)(C). Any named charitable remainderman also mustbe an organization described in § 2522(a) to qualify for the gift tax charitable deduction and an organization described in§ 2055(a) to qualify for the estate tax charitable deduction. See Rev. Rul. 77–385, 1977–2 C.B. 331. If it is determineda deduction under § 2055(a) will not be necessary in any event, all references to § 2055(a) in the trust instrument may bedeleted. The trust instrument may restrict the charitable remainderman to an organization described in §§ 170(c), 2055(a),and 2522(a), but grant to a trustee or other person the power to designate the actual charitable remainderman. The gift ofthe remainder interest will be incomplete for gift tax purposes if, for example: (i) the donor retains the power to substitutethe charitable remainderman; or (ii) the trust instrument provides the trustee with the power to designate the charitableremainderman and the donor is not prohibited from serving as trustee. See § 25.2511–2(c). Note, however, that an incometax charitable deduction is available even if the donor has the authority to substitute the charitable remainderman or thetrustee has the authority to designate the charitable remainderman. Rev. Rul. 68–417, 1968–2 C.B. 103; Rev. Rul. 79–368,1979–2 C.B. 109. See section 6.06 of this revenue procedure for an alternate provision in which the donor retains the rightto substitute the charitable remainderman. See section 6.07 of this revenue procedure for an alternate provision in whichthe recipient is granted a power of appointment to designate the charitable remainderman.

(3) Multiple remaindermen. The remainder interest may pass to more than one charitable organization as long as each organi-zation is described in §§ 170(c), 2522(a), and, if needed, § 2055(a). Section 1.664–2(a)(6)(i).

(4) Alternative remaindermen. The trust instrument of a CRAT must provide a means for selecting alternative charitable re-maindermen in the event the designated organization is not qualified at the time any payments are to be made to it from thetrust. Section 1.664–2(a)(6)(iv).

.05 Annotations for Paragraph 6, Prohibited Transactions, of the Sample Trust.

(1) Payment of the annuity amount. Payment of the annuity amount to the recipient is not considered an act of self-dealingwithin the meaning of § 4941(d), as modified by § 4947(a)(2)(A), or a taxable expenditure within the meaning of § 4945(d),as modified by § 4947(a)(2)(A). Section 53.4947–1(c)(2) of the Foundation and Similar Excise Taxes Regulations.

(2) Prohibitions against certain investments and excess business holdings. Prohibitions against investments that jeopardizethe exempt purpose of the trust for purposes of § 4944, as modified by § 4947(a)(2)(A), and against retaining any excessbusiness holdings for purposes of § 4943, as modified by § 4947(a)(2)(A), are required if the trust provides for payment ofpart of an annuity amount to an organization described in § 170(c) and gift and estate tax charitable deductions are soughtfor this interest. See § 4947(b)(3). See section 6.02 of this revenue procedure for an alternate provision that provides forpayment of part of the annuity to an organization described in § 170(c).

(3) Trust to continue in existence for benefit of charity. The governing instrument requirements of § 508(e) must be includedin the trust instrument if, after the termination of the annuity period: (i) the trust instrument provides that the trust shallcontinue in existence for the benefit of the charitable remainderman and, as a result, the trust will become subject to the pro-visions of § 4947(a)(1); and (ii) the trust will be treated as a private foundation within the meaning of § 509(a), as modifiedby § 4947(a)(1). Except as provided in paragraph 6 of the sample trust, the trust instrument may limit the application ofthe provisions of § 508(e) to the period after the termination of the annuity period when the trust continues in existence forthe benefit of the charitable remainderman. Note that when the trust provides for the trust corpus to be retained, in wholeor in part, in trust for the charitable remainderman, the higher deductibility limitations in § 170(b)(1)(A) for the income taxcharitable deduction will not be available (even if the charitable remainderman is restricted to a public charity) because thecontribution of the trust corpus is made “for the use of” rather than “to” the charitable remainderman. See § 1.170A–8(b).

SECTION 6. ALTERNATE PROVISIONS FOR SAMPLE INTER VIVOS CHARITABLEREMAINDER ANNUITY TRUST — ONE LIFE

.01 Annuity Amount Stated as a Specific Dollar Amount.

(1) Explanation. As an alternative to stating the annuity amount as a fraction or percentage of the initial net fair market valueof the assets transferred to the trust, the annuity amount may be stated as a specific dollar amount. Section 1.664–2(a)(1)(ii)and (iii). In either case, the annuity amount must be not less than 5 percent nor more than 50 percent of the initial net fairmarket value of all property placed in trust. Section 664(d)(1)(A).

(2) Instructions for use.

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(a) Replace the first sentence of paragraph 2, Payment of Annuity Amount, of the sample trust with the following sentence:In each taxable year of the trust during the annuity period, the Trustee shall pay to [permissible recipient] (hereinafter“the Recipient”) an annuity amount equal to [the stated dollar amount].

(b) Delete the last sentence of paragraph 2, Payment of Annuity Amount, of the sample trust concerning the incorrect valu-ation of trust assets.

.02 Payment of Part of the Annuity to an Organization Described in § 170(c).

(1) Explanation. An organization described in § 170(c) may receive part, but not all, of any annuity amount. Section664(d)(1)(A). If a gift tax charitable deduction and, if needed, an estate tax charitable deduction are sought for the presentvalue of the annuity interest passing to a charitable organization, the trust instrument must contain additional provisions.First, the trust instrument must specify the portion of each annuity payment that is payable to the noncharitable recipientand to the charitable organization described in §§ 170(c), 2522(a), and, if needed, § 2055(a). Second, the trust instrumentmust contain a means for selecting an alternative qualified charitable organization if the designated organization isnot a qualified organization at the time when any annuity amount is to be paid to it. Third, the trust instrument mustcontain prohibitions against investments that jeopardize the exempt purpose of the trust for purposes of § 4944, asmodified by § 4947(a)(2)(A), and against retaining any excess business holdings for purposes of § 4943, as modified by§ 4947(a)(2)(A).

(2) Instructions for use.(a) Replace paragraph 2, Payment of Annuity Amount, of the sample trust with the following paragraph:

Payment of Annuity Amount. The annuity amount is equal to [a number no less than 5 and no more than 50] percentof the initial net fair market value of all property transferred to the trust, valued as of the above date (that is, the dateof the transfer). In each taxable year of the trust during the annuity period, the Trustee shall pay [the percentage ofthe annuity amount payable to the noncharitable recipient] percent of the annuity amount to [permissible recipient](hereinafter “the Recipient”) and [the percentage of the annuity amount payable to the charitable recipient] percentof the annuity amount to [an organization described in §§ 170(c), 2055(a), and 2522(a) of the Code] (hereinafter“the Charitable Recipient”). The first day of the annuity period shall be the date the property is transferred to thetrust and the last day of the annuity period shall be the date of the Recipient’s death. If the Charitable Recipient isnot an organization described in §§ 170(c), 2055(a), and 2522(a) of the Code at the time when any annuity paymentis to be distributed to it, then the Trustee shall distribute that annuity payment to one or more organizations describedin §§ 170(c), 2055(a), and 2522(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shalldecide, in the Trustee’s sole discretion. The annuity amount shall be paid in equal quarterly installments at the end ofeach calendar quarter from income, and to the extent income is not sufficient, from principal. Any income of the trustfor a taxable year in excess of the annuity amount shall be added to principal. If the initial net fair market value of thetrust assets is incorrectly determined, then within a reasonable period after the value is finally determined for federaltax purposes, the Trustee shall pay to the Recipient and the Charitable Recipient (in the case of an undervaluation)or receive from the Recipient and the Charitable Recipient (in the case of an overvaluation) an amount equal to thedifference between the annuity amount(s) properly payable and the annuity amount(s) actually paid.

(b) Replace the first parenthetical in paragraph 4, Distribution to Charity, of the sample trust with the following parenthetical:(other than any amount due the Recipient or the Recipient’s estate and the Charitable Recipient under the provisionsabove).

(c) Add the following sentence after the first and only sentence in paragraph 6, Prohibited Transactions, of the sample trust:The Trustee shall not make any investments that jeopardize the exempt purpose of the trust for purposes of § 4944 ofthe Code, as modified by § 4947(a)(2)(A) of the Code, or retain any excess business holdings for purposes of § 4943of the Code, as modified by § 4947(a)(2)(A) of the Code.

.03 Qualified Contingency.

(1) Explanation. Under § 664(f), payment of the annuity amount may terminate upon the earlier of the occurrence of a qualifiedcontingency (as defined in § 664(f)(3)) or the death of the recipient. The amount of the charitable deduction, however, willbe determined without regard to a qualified contingency. See § 664(f)(2).

(2) Instruction for use. Replace the second sentence of paragraph 2, Payment of Annuity Amount, of the sample trust with thefollowing sentence:

The first day of the annuity period shall be the date the property is transferred to the trust and the last day of the annuityperiod shall be the date of the Recipient’s death or, if earlier, the date on which occurs the [qualified contingency].

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.04 Last Annuity Payment to the Recipient.

(1) Explanation. As an alternative to prorating the annuity amount in the taxable year of the recipient’s death, payment of theannuity amount may terminate with the last regular payment preceding the recipient’s death. However, the fact that therecipient may not receive the last payment shall not be taken into account for purposes of determining the present value ofthe remainder interest. Section 1.664–2(a)(5)(i).

(2) Instruction for use. Replace the second sentence of paragraph 3, Proration of Annuity Amount, of the sample trust with thefollowing sentence:

In the taxable year of the trust during which the annuity period ends, the obligation of the Trustee to pay the annuityamount shall terminate with the regular quarterly installment next preceding the death of the Recipient.

.05 Restricting the Charitable Remainderman to a Public Charity.

(1) Explanation. The amount of the donor’s income tax charitable deduction is more limited for gifts to certain private foun-dations than for other charitable organizations. Specifically, charitable organizations described in § 170(c) include privatefoundations that are not described in § 170(b)(1)(E). See § 170(b) and Rev. Rul. 79–368, 1979–2 C.B. 109. To avoidthese more restrictive limitations, a donor of an inter vivos CRAT may wish to restrict the charitable remainderman to anorganization that is described in § 170(b)(1)(A) as well as §§ 170(c), 2055(a), and 2522(a) (referred to herein as a “publiccharity”).

(2) Instruction for use. To restrict the charitable remainderman to a public charity, each and every time the phrase “an organi-zation described in §§ 170(c), 2055(a), and 2522(a) of the Code” appears in the sample trust, replace it with the phrase “anorganization described in §§ 170(b)(1)(A), 170(c), 2055(a), and 2522(a) of the Code.”

.06 Retaining the Right to Substitute the Charitable Remainderman.

(1) Explanation. The donor may retain the right to substitute another charitable remainderman for the charitable remaindermannamed in the trust instrument. See Rev. Rul. 76–8, 1976–1 C.B. 179. Note, however, that the retention of this right willcause the gift of the remainder interest to be incomplete for gift tax purposes. See § 25.2511–2(c) and Rev. Rul. 77–275,1977–2 C.B. 346.

(2) Instruction for use. Insert the following sentence between the first and last sentences of paragraph 4, Distribution to Charity,of the sample trust:

The Donor reserves the right to designate, at any time and from time to time, in lieu of the Charitable Organizationidentified above, one or more organizations described in §§ 170(c), 2055(a), and 2522(a) of the Code as the charitableremainderman and shall make any such designation by giving written notice to the Trustee.

.07 Power of Appointment to Designate the Charitable Remainderman.

(1) Explanation. The trust instrument may grant the recipient a power of appointment to designate the charitable remainderman.See Rev. Rul. 76–7, 1976–1 C.B. 179.

(2) Instruction for use. Replace paragraph 4, Distribution to Charity, of the sample trust with the following paragraph:Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principal andincome of the trust (other than any amount due the Recipient or the Recipient’s estate under the provisions above) to oneor more charitable organizations described in §§ 170(c), 2055(a), and 2522(a) of the Code as the Recipient shall appointand direct by specific reference to this power of appointment by inter vivos or testamentary instrument. To the extentthe Recipient fails to effectively exercise the power of appointment, the principal and income not effectively appointedshall be distributed to one or more organizations described in §§ 170(c), 2055(a), and 2522(a) of the Code as the Trusteeshall select, and in the proportions as the Trustee shall decide, in the Trustee’s sole discretion. If an organization failsto qualify as an organization described in §§ 170(c), 2055(a), and 2522(a) of the Code at the time when any principalor income of the trust is to be distributed to it, then the Trustee shall distribute the then principal and income to oneor more organizations described in §§ 170(c), 2055(a), and 2522(a) of the Code as the Trustee shall select, and in theproportions as the Trustee shall decide, in the Trustee’s sole discretion.

SECTION 7. EFFECT ON OTHER REVENUE PROCEDURES

Rev. Proc. 89–21, 1989–1 C.B. 842, is superseded.

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The principal authors of this revenue procedure are Karlene M. Lesho and Stephanie N. Bland of the Office of Associate ChiefCounsel (Passthroughs and Special Industries). For further information regarding this revenue procedure, contact Karlene M. Leshoor Stephanie N. Bland at (202) 622–7830 (not a toll-free call).


Rev. Proc. 2003–54

SECTION 1. PURPOSE

This revenue procedure contains an annotated sample declaration of trust and alternate provisions that meet the requirements of§ 664(d)(1) of the Internal Revenue Code for an inter vivos charitable remainder annuity trust (CRAT) providing for annuity paymentsfor a term of years followed by the distribution of trust assets to a charitable remainderman.


Previously, the Internal Revenue Service issued sample trust instruments for certain types of CRATs. The Service is updating thepreviously issued samples and issuing new samples for additional types of CRATs; annotations and alternate sample provisions areincluded as further guidance. In addition to the sample trust instrument included in this revenue procedure for an inter vivos CRATproviding for annuity payments for a term of years, samples are provided in separate revenue procedures for:

(a) an inter vivos CRAT providing for annuity payments for one measuring life (see Rev. Proc. 2003–53, superceding Rev.Proc. 89–21, 1989–1 C.B. 842);

(b) an inter vivos CRAT providing for annuity payments payable consecutively for two measuring lives (see Rev. Proc.2003–55, superceding section 4 of Rev. Proc. 90–32, 1990–1 C.B. 546);

(c) an inter vivos CRAT providing for annuity payments payable concurrently and consecutively for two measuring lives (seeRev. Proc. 2003–56, superceding section 5 of Rev. Proc. 90–32);

(d) a testamentary CRAT providing for annuity payments for one measuring life (see Rev. Proc. 2003–57, superceding section6 of Rev. Proc. 90–32);

(e) a testamentary CRAT providing for annuity payments for a term of years (see Rev. Proc. 2003–58);(f) a testamentary CRAT providing for annuity payments payable consecutively for two measuring lives (see Rev. Proc.




Section 4 of this revenue procedure provides a sample declaration of trust for an inter vivos CRAT that is created by an individualwho is a citizen or resident of the United States and that provides for a term of years annuity period. Section 5 of this revenue procedureprovides annotations to the provisions of the sample trust. Section 6 of this revenue procedure provides samples of alternate provisionsconcerning: (.01) the statement of the annuity amount as a specific dollar amount; (.02) the payment of part of the annuity to anorganization described in § 170(c); (.03) the apportionment of the annuity amount among members of a named class in the discretionof the trustee; (.04) a qualified contingency; (.05) the restriction of the charitable remainderman to a public charity; (.06) a retainedright to substitute the charitable remainderman; and (.07) a power of appointment to designate the charitable remainderman.

For transfers to a qualifying CRAT, as defined in § 664(d)(1), the remainder interest will be deductible by a citizen or resident ofthe United States under §§ 170(f)(2)(A), 2055(e)(2)(A), and 2522(c)(2)(A) for income, estate, and gift tax purposes, respectively, ifthe other requirements of §§ 170(f)(2)(A), 2055(e)(2)(A), and 2522(c)(2)(A) (that is, the requirements not relating to the provisionsof the governing instrument) are also met. The Service will recognize a trust as a qualified CRAT meeting all of the requirements of§ 664(d)(1) if the trust operates in a manner consistent with the terms of the trust instrument, if the trust is a valid trust under applicablelocal law, and if the trust instrument: (i) is substantially similar to the sample in section 4 of this revenue procedure; or (ii) properlyintegrates one or more alternate provisions from section 6 of this revenue procedure into a document substantially similar to the samplein section 4 of this revenue procedure. A trust instrument that contains substantive provisions in addition to those provided in section4 of this revenue procedure (other than properly integrated alternate provisions from section 6 of this revenue procedure, or provisionsnecessary to establish a valid trust under applicable local law that are not inconsistent with the applicable federal tax requirements),or that omits any of the provisions of section 4 of this revenue procedure (unless an alternate provision from section 6 of this revenueprocedure is properly integrated), will not necessarily be disqualified, but neither will that trust be assured of qualification under the

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provisions of this revenue procedure. The Service generally will not issue a letter ruling on whether an inter vivos trust created by anindividual and having a term of years annuity period qualifies as a CRAT. The Service, however, generally will issue letter rulings onthe effect of substantive trust provisions, other than those contained in sections 4 and 6 of this revenue procedure, on the qualificationof a trust as a CRAT.

SECTION 4. SAMPLE INTER VIVOS CHARITABLE REMAINDER ANNUITY TRUST — TERMOF YEARS

On this day of , 20 , I, (hereinafter “the Donor”), desiring to establish a char-itable remainder annuity trust, within the meaning of Rev. Proc. 2003–54 and § 664(d)(1) of the Internal Revenue Code (hereinafter“the Code”), hereby enter into this trust agreement with as the initial trustee (hereinafter “the Trustee”). This trustshall be known as the Charitable Remainder Annuity Trust.


2. Payment of Annuity Amount. In each taxable year of the trust during the annuity period, the Trustee shall pay to [permissiblerecipient] (hereinafter “the Recipient”) an annuity amount equal to [a number no less than 5 and no more than 50] percent of the initialnet fair market value of all property transferred to the trust, valued as of the above date (that is, the date of the transfer). The annuityperiod is a term of [a number not more than 20] years. The first day of the annuity period shall be the date the property is transferredto the trust and the last day of the annuity period shall be the day preceding the [ordinal number corresponding to the length of theannuity period] anniversary of that date. The annuity amount shall be paid in equal quarterly installments at the end of each calendarquarter from income, and to the extent income is not sufficient, from principal. Any income of the trust for a taxable year in excessof the annuity amount shall be added to principal. If the initial net fair market value of the trust assets is incorrectly determined, thenwithin a reasonable period after the value is finally determined for federal tax purposes, the Trustee shall pay to the Recipient (in thecase of an undervaluation) or receive from the Recipient (in the case of an overvaluation) an amount equal to the difference betweenthe annuity amount(s) properly payable and the annuity amount(s) actually paid.


4. Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principal and incomeof the trust (other than any amount due the Recipient under the provisions above) to [designated remainderman] (hereinafter “theCharitable Organization”). If the Charitable Organization is not an organization described in §§ 170(c), 2055(a), and 2522(a) of theCode at the time when any principal or income of the trust is to be distributed to it, then the Trustee shall distribute the then principaland income to one or more organizations described in §§ 170(c), 2055(a), and 2522(a) of the Code as the Trustee shall select, and inthe proportions as the Trustee shall decide, in the Trustee’s sole discretion.







SECTION 5. ANNOTATIONS REGARDING SAMPLE INTER VIVOS CHARITABLE REMAINDERANNUITY TRUST — TERM OF YEARS


(1) Factors concerning qualification of trust. A deduction must be allowable under § 170, § 2055, or § 2522 for propertycontributed to the trust. Section 1.664–1(a)(1)(iii)(a) of the Income Tax Regulations. The trust must meet the definitionof and function exclusively as a charitable remainder trust from the creation of the trust. Section 1.664–1(a)(4). Solely for

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purposes of § 664, a trust is deemed created at the earliest time that neither the grantor nor any other person is treated asthe owner of the entire trust under subpart E, part 1, subchapter J, chapter 1, subtitle A of the Code (subpart E), but in noevent prior to the time property is first transferred to the trust. Neither the donor nor the donor’s spouse shall be treatedas the owner of the trust under subpart E merely because he or she is named as a recipient of the annuity amount. Section1.664–1(a)(4). In addition, funding the trust with certain types of assets may disqualify it as a charitable remainder trust.See § 1.664–1(a)(7) and Rev. Rul. 73–610, 1973–2 C.B. 213.


(3) Income tax deductibility limitations. The amount of the charitable deduction for income tax purposes is affected by a numberof factors, including the type of property contributed to the trust, the type of charity receiving the property, whether theremainder interest is paid outright to charity or held in further trust, and the donor’s adjusted gross income (with certainadjustments). See § 170 (b) and (e); § 1.170A–8; Rev. Rul. 80–38, 1980–1 C.B. 56; and Rev. Rul. 79–368, 1979–2 C.B.109. See section 6.05 of this revenue procedure for an alternate provision that restricts the charitable remainderman to apublic charity (as defined therein).

(4) Trustee provisions. Alternate or successor trustees may be designated in the trust instrument. In addition, the trust instru-ment may contain other administrative provisions relating to the trustee’s duties and powers, as long as the provisions do notconflict with the rules governing charitable remainder trusts under § 664 and the regulations thereunder. Note that certainpowers given to certain persons serving as the trustee may cause the trustee to be treated as the owner of the trust undersubpart E and thus disqualify the trust as a charitable remainder trust. See § 1.664–1(a)(4). See section 6.03 of this revenueprocedure for an alternate provision providing for the apportionment of the annuity amount among members of a namedclass in the discretion of the trustee.



(1) Permissible term. The period for which the annuity amount is payable must not exceed 20 years. Section 1.664–2(a)(5)(i).Thus, for example, the annuity period of a CRAT for a term of 20 years will end on the day preceding the twentieth an-niversary of the date the trust was created.

(2) Permissible recipients. For a CRAT having a term of years annuity period, the annuity amount must generally be paid toa named person or persons (within the meaning of § 7701(a)(1)). If the annuity amount is to be paid to an individual orindividuals, all the individuals must be living at the time of the creation of the trust. The annuity amount may be payable tothe estate or heirs of a named recipient who dies prior to the expiration of the term of years. See Rev. Rul. 74–39, 1974–1C.B. 156. The annuity amount may be payable to members of a named class and, because the annuity period is for a termof years, all of the members of the class need not be living or ascertainable at the creation of the trust. An organizationdescribed in § 170(c) may receive part, but not all, of the annuity amount. Section 664(d)(1)(A) and § 1.664–2(a)(3)(i).See section 6.02 of this revenue procedure for an alternate provision that provides for payment of part of the annuity to anorganization described in § 170(c).

(3) Multiple noncharitable recipients. Generally, if the annuity amount is payable to more than one person, the trust instrumentshould describe the interest of each person. See section 6.03 of this revenue procedure for an alternate provision providingfor the apportionment of the annuity amount among members of a named class in the discretion of the trustee.

(4) Percentage requirements. The sum certain annuity amount must be at least 5 percent and not more than 50 percent of theinitial net fair market value of the assets placed in trust. Section 664(d)(1)(A). In addition, the value (determined under§ 7520) of the charitable remainder interest must be at least 10 percent of the initial net fair market value of all propertyplaced in the trust. Section 664(d)(1)(D). See §§ 1.7520–3(b) and 25.7520–3(b) for special rules that may be applicable invaluing interests transferred to CRATs.



2003-31 I.R.B. 238 August 4, 2003


.03 Annotation for Paragraph 3, Proration of Annuity Amount, of the Sample Trust.




(2) Designated remainderman. Any named charitable remainderman must be an organization described in § 170(c) at the timeof the transfer to the charitable remainder annuity trust. See § 664(d)(1)(C). Any named charitable remainderman also mustbe an organization described in § 2522(a) to qualify for the gift tax charitable deduction and an organization described in§ 2055(a) to qualify for the estate tax charitable deduction. See Rev. Rul. 77–385, 1977–2 C.B. 331. If it is determineda deduction under § 2055(a) will not be necessary in any event, all references to § 2055(a) in the trust instrument may bedeleted. The trust instrument may restrict the charitable remainderman to an organization described in §§ 170(c), 2055(a),and 2522(a), but grant to a trustee or other person the power to designate the actual charitable remainderman. The gift ofthe remainder interest will be incomplete for gift tax purposes if, for example: (i) the donor retains the power to substitutethe charitable remainderman; or (ii) the trust instrument provides the trustee with the power to designate the charitableremainderman and the donor is not prohibited from serving as trustee. See § 25.2511–2(c). Note, however, that an incometax charitable deduction is available even if the donor has the authority to substitute the charitable remainderman or thetrustee has the authority to designate the charitable remainderman. Rev. Rul. 68–417, 1968–2 C.B. 103; Rev. Rul. 79–368,1979–2 C.B. 109. See section 6.06 of this revenue procedure for an alternate provision in which the donor retains the rightto substitute the charitable remainderman. See section 6.07 of this revenue procedure for an alternate provision in whichthe recipient is granted a power of appointment to designate the charitable remainderman.

(3) Multiple remaindermen. The remainder interest may pass to more than one charitable organization as long as each organi-zation is described in §§ 170(c), 2522(a), and, if needed, 2055(a). Section 1.664–2(a)(6)(i).






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SECTION 6. ALTERNATE PROVISIONS FOR SAMPLE INTER VIVOS CHARITABLEREMAINDER ANNUITY TRUST — TERM OF YEARS



(2) Instructions for use.(a) Replace the first sentence of paragraph 2, Payment of Annuity Amount, of the sample trust with the following sentence:

In each taxable year of the trust during the annuity period, the Trustee shall pay to [permissible recipient] (hereinafter“the Recipient”) an annuity amount equal to [the stated dollar amount].



(1) Explanation. An organization described in § 170(c) may receive part, but not all, of any annuity amount. Section664(d)(1)(A). If a gift tax charitable deduction and, if needed, an estate tax charitable deduction are sought for the presentvalue of the annuity interest passing to a charitable organization, the trust instrument must contain additional provisions.First, the trust instrument must specify the portion of each annuity payment that is payable to the noncharitable recipientand to the charitable organization described in §§ 170(c), 2522(a), and, if needed, § 2055(a). Second, the trust instrumentmust contain a means for selecting an alternative qualified charitable organization if the designated organization isnot a qualified organization at the time when any annuity amount is to be paid to it. Third, the trust instrument mustcontain prohibitions against investments that jeopardize the exempt purpose of the trust for purposes of § 4944, asmodified by § 4947(a)(2)(A), and against retaining any excess business holdings for purposes of § 4943, as modified by§ 4947(a)(2)(A).


Payment of Annuity Amount. The annuity amount is equal to [a number no less than 5 and no more than 50] percentof the initial net fair market value of all property transferred to the trust, valued as of the above date (that is, the dateof the transfer). In each taxable year of the trust during the annuity period, the Trustee shall pay [the percentage ofthe annuity amount payable to the noncharitable recipient] percent of the annuity amount to [permissible recipient](hereinafter “the Recipient”) and [the percentage of the annuity amount payable to the charitable recipient] percentof the annuity amount to [an organization described in §§ 170(c), 2055(a), and 2522(a) of the Code] (hereinafter“the Charitable Recipient”). The annuity period is a term of [not more than 20] years. The first day of the annuityperiod shall be the date the property is transferred to the trust and the last day of the annuity period shall be theday preceding the [ordinal number corresponding to the length of the annuity period] anniversary of that date. Ifthe Charitable Recipient is not an organization described in §§ 170(c), 2055(a), and 2522(a) of the Code at the timewhen any annuity payment is to be distributed to it, then the Trustee shall distribute that annuity payment to one ormore organizations described in §§ 170(c), 2055(a), and 2522(a) of the Code as the Trustee shall select, and in theproportions as the Trustee shall decide, in the Trustee’s sole discretion. The annuity amount shall be paid in equalquarterly installments at the end of each calendar quarter from income, and to the extent income is not sufficient,from principal. Any income of the trust for a taxable year in excess of the annuity amount shall be added to principal.If the initial net fair market value of the trust assets is incorrectly determined, then within a reasonable period afterthe value is finally determined for federal tax purposes, the Trustee shall pay to the Recipient and the CharitableRecipient (in the case of an undervaluation) or receive from the Recipient and the Charitable Recipient (in the caseof an overvaluation) an amount equal to the difference between the annuity amount(s) properly payable and theannuity amount(s) actually paid.

(b) Replace the first parenthetical in paragraph 4, Distribution to Charity, of the sample trust with the following parenthetical:(other than any amount due the Recipient and the Charitable Recipient under the provisions above).


2003-31 I.R.B. 240 August 4, 2003

.03 Apportionment of the Annuity Amount among Members of a Named Class in the Discretion of theTrustee.

(1) Explanation. A trust is not a CRAT if any person has the power to alter the amount to be paid to any named person otherthan an organization described in § 170(c) if the power would cause any person to be treated as the owner of the trust, orany portion thereof, if subpart E were applicable to the trust. Section 1.664–2(a)(3)(ii). See Rev. Rul. 77–73, 1977–1 C.B.175. For example, the donor would not be treated as the owner of any portion of a trust if the power is exercisable solelyby an independent trustee or trustees, provided no person has the power to add beneficiaries to the class except to providefor after-born or after-adopted children. Section 674(c). Trustees are independent for purposes of § 674(c) if none of themis the donor or the donor’s spouse and if no more than half of them are related or subordinate parties who are subservientto the wishes of the donor. However, an independent trustee’s discretionary power, exercisable solely by that trustee, toallocate the annuity amount among the members of a class would cause the trustee to be treated as the owner of all or aportion of the trust under § 678(a) if the trustee is a member of the class, if the trustee may apply trust income or corpus tosatisfy the trustee’s own legal obligation, or if the trustee actually exercises the power to satisfy a support obligation owedby the trustee. Therefore, if any trustee is given the discretionary power exercisable solely by that trustee to allocate theannuity amount among members of a class, the trust instrument must provide that such trustee must be: (i) independent;(ii) not a member of the recipient class; and (iii) prohibited from applying any part of the annuity payment in satisfactionof the trustee’s own legal obligation.

(2) Instructions for use.(a) Add the following sentence to the sample trust:

Any trustee who is authorized in the trustee’s sole discretion to allocate the annuity amount among members of aRecipient class must be independent within the meaning of section 674(c) of the Code and must not be a member ofthe Recipient class.

(b) Replace the first sentence of paragraph 2, Payment of Annuity Amount, of the sample trust with the following threesentences:

In each taxable year of the trust during the annuity period, the Trustee shall pay to a member or members of a classof persons comprised of [designated members of class] (hereinafter “the Recipient”) an annuity amount equal to [anumber no less than 5 and no more than 50] percent of the initial net fair market value of all property transferred tothe trust, valued as of the above date (that is, the date of the transfer). The Trustee may pay the annuity amount toone or more members of the class, in equal or unequal shares, as the Trustee, in the Trustee’s sole discretion, mayfrom time to time deem advisable. The Trustee may not, however, apply the payment for the Trustee’s own benefit,or in satisfaction of any support or other legal obligation of the Trustee.


(1) Explanation. Under § 664(f), payment of the annuity amount may terminate upon the earlier of the occurrence of a qualifiedcontingency (as defined in § 664(f)(3)) or the expiration of the term of years. The amount of the charitable deduction,however, will be determined without regard to a qualified contingency. See § 664(f)(2).

(2) Instruction for use. Replace the second and third sentences of paragraph 2, Payment of Annuity Amount, of the sampletrust with the following two sentences, respectively:

The annuity period is a term of [not more than 20] years, unless earlier terminated by the occurrence of [qualifiedcontingency]. The first day of the annuity period shall be the date the property is transferred to the trust and the last dayof the annuity period shall be the day preceding the [ordinal number corresponding to the length of the annuity period]anniversary of that date or, if earlier, the date on which occurs the [qualified contingency].




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The Donor reserves the right to designate, at any time and from time to time, in lieu of the Charitable Organizationidentified above, one or more organizations described in §§ 170(c), 2055(a), and 2522(a) of the Code as the charitableremainderman, and shall make any such designation by giving written notice to the Trustee.


(1) Explanation. The trust instrument may grant a recipient a power of appointment to designate the charitable remainderman.See Rev. Rul. 76–7, 1976–1 C.B. 179.

(2) Instruction for use. Replace paragraph 4, Distribution to Charity, of the sample trust with the following paragraph:Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principaland income of the trust (other than any amount due the Recipient under the provisions above) to one or more charitableorganizations described in §§ 170(c), 2055(a), and 2522(a) of the Code as the Recipient shall appoint and direct by spe-cific reference to this power of appointment by inter vivos or testamentary instrument. To the extent the Recipient failsto effectively exercise the power of appointment, the principal and income not effectively appointed shall be distributedto one or more organizations described in §§ 170(c), 2055(a), and 2522(a) of the Code as the Trustee shall select, andin the proportions as the Trustee shall decide, in the Trustee’s sole discretion. If an organization fails to qualify as anorganization described in §§ 170(c), 2055(a), and 2522(a) of the Code at the time when any principal or income of thetrust is to be distributed to it, then the Trustee shall distribute the then principal and income to one or more organizationsdescribed in §§ 170(c), 2055(a), and 2522(a) of the Code as the Trustee shall select, and in the proportions as the Trusteeshall decide, in the Trustee’s sole discretion.




Rev. Proc. 2003–55

SECTION 1. PURPOSE

This revenue procedure contains an annotated sample declaration of trust and alternate provisions that meet the requirements of§ 664(d)(1) of the Internal Revenue Code for an inter vivos charitable remainder annuity trust (CRAT) providing for annuity paymentspayable consecutively for two measuring lives followed by the distribution of trust assets to a charitable remainderman.


Previously, the Internal Revenue Service issued sample trust instruments for certain types of CRATs. The Service is updating thepreviously issued samples and issuing new samples for additional types of CRATs; annotations and alternate sample provisions areincluded as further guidance. In addition to the sample trust instrument included in this revenue procedure for an inter vivos CRATproviding for annuity payments payable consecutively for two measuring lives, samples are provided in separate revenue proceduresfor:


(b) an inter vivos CRAT providing for annuity payments for a term of years (see Rev. Proc. 2003–54);(c) an inter vivos CRAT providing for annuity payments payable concurrently and consecutively for two measuring lives (see

Rev. Proc. 2003–56, superceding section 5 of Rev. Proc. 90–32, 1990–1 C.B. 546);

2003-31 I.R.B. 242 August 4, 2003

(d) a testamentary CRAT providing for annuity payments for one measuring life (see Rev. Proc. 2003–57, superceding section6 of Rev. Proc. 90–32);

(e) a testamentary CRAT providing for annuity payments for a term of years (see Rev. Proc. 2003–58);(f) a testamentary CRAT providing for annuity payments payable consecutively for two measuring lives (see Rev. Proc.




Section 4 of this revenue procedure provides a sample declaration of trust for an inter vivos CRAT with consecutive interests for twomeasuring lives that is created by an individual who is a citizen or resident of the United States. Section 5 of this revenue procedureprovides annotations to the provisions of the sample trust. Section 6 of this revenue procedure provides samples of alternate provisionsconcerning: (.01) the statement of the annuity amount as a specific dollar amount; (.02) the payment of part of the annuity to anorganization described in § 170(c); (.03) a qualified contingency; (.04) the retained right to revoke the interest of the survivor recipient;(.05) the last annuity payments to the recipients; (.06) the restriction of the charitable remainderman to a public charity; (.07) theretained right to substitute the charitable remainderman; and (.08) a power of appointment to designate the charitable remainderman.

For transfers to a qualifying CRAT, as defined in § 664(d)(1), the remainder interest will be deductible by a citizen or resident ofthe United States under §§ 170(f)(2)(A), 2055(e)(2)(A), and 2522(c)(2)(A) for income, estate, and gift tax purposes, respectively, ifthe other requirements of §§ 170(f)(2)(A), 2055(e)(2)(A), and 2522(c)(2)(A) (that is, the requirements not relating to the provisionsof the governing instrument) are also met. The Service will recognize a trust as a qualified CRAT meeting all of the requirements of§ 664(d)(1) if the trust operates in a manner consistent with the terms of the trust instrument, if the trust is a valid trust under applicablelocal law, and if the trust instrument: (i) is substantially similar to the sample in section 4 of this revenue procedure; or (ii) properlyintegrates one or more alternate provisions from section 6 of this revenue procedure into a document substantially similar to the samplein section 4 of this revenue procedure. A trust instrument that contains substantive provisions in addition to those provided in section4 of this revenue procedure (other than properly integrated alternate provisions from section 6 of this revenue procedure, or provisionsnecessary to establish a valid trust under applicable local law that are not inconsistent with the applicable federal tax requirements),or that omits any of the provisions of section 4 of this revenue procedure (unless an alternate provision from section 6 of this revenueprocedure is properly integrated), will not necessarily be disqualified, but neither will that trust be assured of qualification under theprovisions of this revenue procedure. The Service generally will not issue a letter ruling on whether an inter vivos trust created byan individual and with consecutive interests for two measuring lives qualifies as a CRAT. The Service, however, generally will issueletter rulings on the effect of substantive trust provisions, other than those contained in sections 4 and 6 of this revenue procedure, onthe qualification of a trust as a CRAT.

SECTION 4. SAMPLE INTER VIVOS CHARITABLE REMAINDER ANNUITY TRUST — TWOLIVES, CONSECUTIVE INTERESTS



2. Payment of Annuity Amount. In each taxable year of the trust during the annuity period, the Trustee shall pay to [permissiblerecipient] (hereinafter “the Initial Recipient”) until the Initial Recipient’s death, and thereafter to [permissible recipient] (hereinafter“the Successor Recipient”) (subject to any proration in paragraph 4), an annuity amount equal to [a number no less than 5 and nomore than 50] percent of the initial net fair market value of all property transferred to the trust, valued as of the above date (that is, thedate of the transfer). The first day of the annuity period shall be the date the property is transferred to the trust and the last day of theannuity period shall be the date of the death of the survivor of the Initial Recipient and the Successor Recipient. The annuity amountshall be paid in equal quarterly installments at the end of each calendar quarter from income, and to the extent income is not sufficient,from principal. Any income of the trust for a taxable year in excess of the annuity amount shall be added to principal. If the initialnet fair market value of the trust assets is incorrectly determined, then within a reasonable period after the value is finally determinedfor federal tax purposes, the Trustee shall pay to the Initial Recipient and/or Successor Recipient (in the case of an undervaluation)or receive from the Initial Recipient and/or Successor Recipient (in the case of an overvaluation) an amount equal to the differencebetween the annuity amount(s) properly payable and the annuity amount(s) actually paid.

3. Payment of Federal Estate Taxes and State Death Taxes. The lifetime annuity interest of the Successor Recipient will take effectupon the death of the Initial Recipient only if the Successor Recipient furnishes the funds for payment of any federal estate taxes and

August 4, 2003 243 2003-31 I.R.B.

state death taxes for which the Trustee may be liable upon the death of the Initial Recipient. If the funds are not furnished by theSuccessor Recipient, the annuity period shall terminate on the death of the Initial Recipient, notwithstanding any other provision inthis instrument to the contrary.

4. Proration of Annuity Amount. The Trustee shall prorate the annuity amount on a daily basis for any short taxable year. If theSuccessor Recipient survives the Initial Recipient, the Trustee shall prorate on a daily basis the next regular annuity payment due afterthe death of the Initial Recipient between the estate of the Initial Recipient and the Successor Recipient. In the taxable year of thetrust during which the annuity period ends, the Trustee shall prorate the annuity amount on a daily basis for the number of days of theannuity period in that taxable year.

5. Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principal and incomeof the trust (other than any amount due the Recipients or their estates under the provisions above) to [designated remainderman](hereinafter “the Charitable Organization”). If the Charitable Organization is not an organization described in §§ 170(c), 2055(a), and2522(a) of the Code at the time when any principal or income of the trust is to be distributed to it, then the Trustee shall distribute thethen principal and income to one or more organizations described in §§ 170(c), 2055(a), and 2522(a) of the Code as the Trustee shallselect, and in the proportions as the Trustee shall decide, in the Trustee’s sole discretion.







SECTION 5. ANNOTATIONS REGARDING SAMPLE INTER VIVOS CHARITABLE REMAINDERANNUITY TRUST — TWO LIVES, CONSECUTIVE INTERESTS






2003-31 I.R.B. 244 August 4, 2003



(1) Permissible recipients. For a CRAT with an annuity period based on the lives of two individuals, the annuity amount mustgenerally be paid to those individuals and both must be living at the time of the creation of the trust. See Rev. Rul. 2002–20,2002–1 C.B. 794, for situations in which the annuity amount may be paid to a trust for the benefit of an individual who isfinancially disabled. An organization described in § 170(c) may receive part, but not all, of the annuity amount. Section664(d)(1)(A) and § 1.664–2(a)(3)(i). See section 6.02 of this revenue procedure for an alternate provision that provides forpayment of part of the annuity to an organization described in § 170(c).

(2) Percentage requirements. The sum certain annuity amount must be at least 5 percent and not more than 50 percent of theinitial net fair market value of the assets placed in trust. Section 664(d)(1)(A). Even if the sum certain annuity amount is atleast 5 percent and not more than 50 percent of the initial net fair market value of the assets placed in trust, no deductionwill be allowable under § 2055 or § 2522 if the probability that the trust corpus will be exhausted before the death of thesurvivor of the recipients exceeds 5 percent. Rev. Rul. 77–374, 1977–2 C.B. 329, and Rev. Rul. 70–452, 1970–2 C.B. 199.See §§ 1.7520–3(b) and 25.7520–3(b) for special rules that may be applicable in valuing interests transferred to CRATs. Inaddition, the value (determined under § 7520) of the charitable remainder interest must be at least 10 percent of the initialnet fair market value of all property placed in the trust. Section 664(d)(1)(D).




.03 Annotation for Paragraph 3, Payment of Federal Estate Taxes and State Death Taxes, of the SampleTrust.

(1) Tax payment clause. If it is possible that all or part of the fair market value of the trust assets will be includible for federalestate tax purposes in the gross estate of the donor, the trust must contain a tax payment clause. If federal estate taxes andstate death taxes are paid from other sources, the tax payment clause will never become operative. Nevertheless, the taxpayment clause is necessary because it ensures that the trustee will never be required to pay federal estate taxes or statedeath taxes from the trust assets. See § 664(d)(1)(B); § 1.664–1(a)(6), Example 3; and Rev. Rul. 82–128, 1982–2 C.B. 71.



(2) Determining annuity amount payable in year of a recipient’s death. Paragraph 4, Proration of Annuity Amount, of thesample trust specifies that the annuity amount shall be prorated on a daily basis. See section 6.05 of this revenue procedurefor alternate provisions that provide for termination of the annuity amount with the last regular payment preceding the deathof each recipient.



(2) Designated remainderman. Any named charitable remainderman must be an organization described in § 170(c) at the timeof the transfer to the charitable remainder annuity trust. See § 664(d)(1)(C). Any named charitable remainderman also must

August 4, 2003 245 2003-31 I.R.B.

be an organization described in § 2522(a) to qualify for the gift tax charitable deduction and an organization described in§ 2055(a) to qualify for the estate tax charitable deduction. See Rev. Rul. 77–385, 1977–2 C.B. 331. If it is determined thata deduction under § 2055(a) will not be necessary in any event, all references to § 2055(a) in the trust instrument may bedeleted. The trust instrument may restrict the charitable remainderman to an organization described in §§ 170(c), 2055(a),and 2522(a), but grant to a trustee or other person the power to designate the actual charitable remainderman. The gift ofthe remainder interest will be incomplete for gift tax purposes if, for example: (i) the donor retains the power to substitutethe charitable remainderman; or (ii) the trust instrument provides the trustee with the power to designate the charitableremainderman and the donor is not prohibited from serving as trustee. See § 25.2511–2(c). Note, however, that an incometax charitable deduction is available even if the donor has the authority to substitute the charitable remainderman or thetrustee has the authority to designate the charitable remainderman. Rev. Rul. 68–417, 1968–2 C.B. 103; Rev. Rul. 79–368,1979–2 C.B. 109. See section 6.07 of this revenue procedure for an alternate provision in which the donor retains the rightto substitute the charitable remainderman. See section 6.08 of this revenue procedure for an alternate provision in which arecipient is granted a power of appointment to designate the charitable remainderman.




(1) Payment of the annuity amount. Payment of the annuity amount to the recipients is not considered an act of self-dealingwithin the meaning of § 4941(d), as modified by § 4947(a)(2)(A), or a taxable expenditure within the meaning of § 4945(d),as modified by § 4947(a)(2)(A). Section 53.4947–1(c)(2) of the Foundation and Similar Excise Taxes Regulations.



SECTION 6. ALTERNATE PROVISIONS FOR SAMPLE INTER VIVOS CHARITABLEREMAINDER ANNUITY TRUST— TWO LIVES, CONSECUTIVE INTERESTS




In each taxable year of the trust during the annuity period, the Trustee shall pay to [permissible recipient] (here-inafter “the Initial Recipient”) until the Initial Recipient’s death and thereafter to [permissible recipient] (hereinafter“the Successor Recipient”) (subject to any proration in paragraph 4), an annuity amount equal to [the stated dollaramount].


2003-31 I.R.B. 246 August 4, 2003


(1) Explanation. An organization described in § 170(c) may receive part, but not all, of any annuity amount. Section664(d)(1)(A). If a gift tax charitable deduction, and, if needed, an estate tax charitable deduction are sought for the presentvalue of the annuity interest passing to a charitable organization, the trust instrument must contain additional provisions.First, the trust instrument must specify the portion of each annuity payment that is payable to the noncharitable recipientand to the charitable organization described in §§ 170(c), 2522(a), and, if needed, § 2055(a). Second, the trust instrumentmust contain a means for selecting an alternative qualified charitable organization if the designated organization isnot a qualified organization at the time when any annuity amount is to be paid to it. Third, the trust instrument mustcontain prohibitions against investments that jeopardize the exempt purpose of the trust for purposes of § 4944, asmodified by § 4947(a)(2)(A), and against retaining any excess business holdings for purposes of § 4943, as modified by§ 4947(a)(2)(A).


Payment of Annuity Amount. The annuity amount is equal to [a number no less than 5 and no more than 50] percentof the initial net fair market value of all property transferred to the trust, valued as of the above date (that is, thedate of transfer). In each taxable year of the trust during the annuity period, the Trustee shall pay [the percentage ofthe annuity amount payable to the noncharitable recipients] percent of the annuity amount to [permissible recipient](hereinafter “the Initial Recipient”) until the Initial Recipient’s death, and thereafter to [permissible recipient] (here-inafter “the Successor Recipient”) (subject to any proration in paragraph 4). In each taxable year of the trust duringthe annuity period, the Trustee shall pay [the percentage of the annuity amount payable to the charitable recipient]percent of the annuity amount to [an organization described in §§ 170(c), 2055(a), and 2522(a) of the Code] (here-inafter “the Charitable Recipient”). The first day of the annuity period shall be the date the property is transferred tothe trust and the last day of the annuity period shall be the date of the death of the survivor of the Initial Recipientand the Successor Recipient. If the Charitable Recipient is not an organization described in §§ 170(c), 2055(a), and2522(a) of the Code at the time when any annuity payment is to be distributed to it, then the Trustee shall distributethat annuity payment to one or more organizations described in §§ 170(c), 2055(a), and 2522(a) of the Code as theTrustee shall select, and in the proportions as the Trustee shall decide, in the Trustee’s sole discretion. The annuityamount shall be paid in equal quarterly installments at the end of each calendar quarter from income, and to theextent income is not sufficient, from principal. Any income of the trust for a taxable year in excess of the annuityamount shall be added to principal. If the initial net fair market value of the trust assets is incorrectly determined,then within a reasonable period after the value is finally determined for federal tax purposes, the Trustee shall pay tothe Initial Recipient and/or the Successor Recipient and the Charitable Recipient (in the case of an undervaluation)or receive from the Initial Recipient and/or the Successor Recipient and the Charitable Recipient (in the case of anovervaluation) an amount equal to the difference between the annuity amount(s) properly payable and the annuityamount(s) actually paid.

(b) Replace the first parenthetical in paragraph 5, Distribution to Charity, of the sample trust with the following parenthetical:(other than any amount due the Initial Recipient, the Successor Recipient, or their estates and the Charitable Recipientunder the provisions above).



(1) Explanation. Under § 664(f), payment of the annuity amount may terminate upon the earlier of the occurrence of a qualifiedcontingency (as defined in § 664(f)(3)) or the death of the survivor of the initial recipient and the successor recipient. Theamount of the charitable deduction, however, will be determined without regard to a qualified contingency. See § 664(f)(2).


The first day of the annuity period shall be the date the property is transferred to the trust and the last day of the annuityperiod shall be the date of the death of the survivor of the Initial Recipient and the Successor Recipient or, if earlier, thedate on which occurs the [qualified contingency].

.04 Retaining the Right to Revoke the Interest of the Successor Recipient.

(1) Explanation. The donor may retain the right to revoke or terminate the interest of the successor recipient. This right isexercisable only by the donor’s last will and testament. Section 1.664–2(a)(4). The retention of this right may have gift and

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estate tax consequences. It will affect the value of the annuity interests transferred. It may also cause a portion of the trustto be included in the donor’s gross estate for federal estate tax purposes, even if it would otherwise not be includible. Thefollowing alternate provision provides for the donor’s retention of the right to revoke when the donor is also a recipient.

(2) Instructions for use. To retain the right to revoke the successor recipient’s interest by the donor’s last will and testament:(a) Designate the donor as the initial recipient in paragraph 2, Payment of Annuity Amount, of the sample trust.(b) Replace the second sentence of paragraph 2, Payment of Annuity Amount, of the sample trust with the following two

sentences:The Donor hereby expressly reserves the power, exercisable only by the Donor’s last will and testament, to revokeand terminate the interest of the Successor Recipient under this trust. The first day of the annuity period shall be thedate the property is transferred to the trust and the last day of the annuity period shall be the date of the death of thesurvivor of the Initial Recipient and the Successor Recipient or, if the Donor revokes the interest of the SuccessorRecipient, the date of the Initial Recipient’s death.

.05 Last Annuity Payments to the Recipients.

(1) Explanation. As an alternative to prorating the annuity amount in the taxable year of the initial recipient’s death, paymentof the initial recipient’s share of the annuity amount may terminate with the last regular payment preceding the initialrecipient’s death. Similarly, as an alternative to prorating the annuity amount in the taxable year of the termination of theannuity period, payment of the annuity amount may terminate with the last regular payment preceding the termination ofthe annuity period. However, the fact that a recipient may not receive the last payment shall not be taken into account forpurposes of determining the present value of the remainder interest. Section 1.664–2(a)(5)(i).

(2) Instructions for use.(a) To add an alternate provision to terminate the payment of the initial recipient’s share of the annuity amount with the last

regular payment preceding his or her death, replace paragraph 4, Proration of Annuity Amount, of the sample trust withthe following paragraph:

Proration of Annuity Amount. Except as provided below, the Trustee shall prorate the annuity amount on a dailybasis for any short taxable year. The obligation of the Trustee to pay the annuity amount to the Initial Recipient shallterminate with the regular quarterly installment next preceding the Initial Recipient’s death. In the taxable year ofthe trust during which the annuity period ends, the Trustee shall prorate the annuity amount on a daily basis for thenumber of days of the annuity period in that taxable year.

(b) To add an alternate provision to terminate the payment of the annuity amount with the last regular payment precedingthe termination of the annuity period, replace paragraph 4, Proration of Annuity Amount, of the sample trust with thefollowing paragraph:

Proration of Annuity Amount. Except as provided below, the Trustee shall prorate the annuity amount on a dailybasis for any short taxable year. If the Successor Recipient survives the Initial Recipient, the Trustee shall prorate ona daily basis the next regular annuity payment due after the death of the Initial Recipient between the estate of theInitial Recipient and the Successor Recipient. In the taxable year of the trust during which the annuity period ends,the obligation of the Trustee to pay the annuity amount shall terminate with the regular quarterly installment nextpreceding the termination of the annuity period.

(c) To add an alternate provision terminating the payment of the initial recipient’s share of the annuity amount with the lastregular payment preceding his or her death, and terminating the payment of the annuity amount with the last regularpayment preceding the termination of the annuity period, replace paragraph 4, Proration of Annuity Amount, of thesample trust with the following paragraph:

Proration of Annuity Amount. Except as provided below, the Trustee shall prorate the annuity amount on a dailybasis for any short taxable year. The obligation of the Trustee to pay the annuity amount to the Initial Recipient shallterminate with the regular quarterly installment next preceding the Initial Recipient’s death. In the taxable year of thetrust during which the annuity period ends, the obligation of the Trustee to pay the annuity amount shall terminatewith the regular quarterly installment next preceding the termination of the annuity period.



2003-31 I.R.B. 248 August 4, 2003








(2) Instruction for use. Replace paragraph 5, Distribution to Charity, of the sample trust with the following paragraph:Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principaland income of the trust (other than any amount due the Recipients or their estates under the provisions above) to one ormore charitable organizations described in §§ 170(c), 2055(a), and 2522(a) of the Code as [one of the named permissiblerecipients] shall appoint and direct by specific reference to this power of appointment by inter vivos or testamentaryinstrument. To the extent this power of appointment is not effectively exercised, the principal and income not effectivelyappointed shall be distributed to one or more organizations described in §§ 170(c), 2055(a), and 2522(a) of the Codeas the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee’s sole discretion. If anorganization fails to qualify as an organization described in §§ 170(c), 2055(a), and 2522(a) of the Code at the timewhen any principal or income of the trust is to be distributed to it, then the Trustee shall distribute the then principaland income to one or more organizations described in §§ 170(c), 2055(a), and 2522(a) of the Code as the Trustee shallselect, and in the proportions as the Trustee shall decide, in the Trustee’s sole discretion.


Section 4 of Rev. Proc. 90–32 is superseded.




Rev. Proc. 2003–56

SECTION 1. PURPOSE

This revenue procedure contains an annotated sample declaration of trust and alternate provisions that meet the requirements of§ 664(d)(1) of the Internal Revenue Code for an inter vivos charitable remainder annuity trust (CRAT) providing for annuity paymentspayable concurrently and consecutively for two measuring lives followed by the distribution of trust assets to a charitable remainder-man.

August 4, 2003 249 2003-31 I.R.B.


Previously, the Internal Revenue Service issued sample trust instruments for certain types of CRATs. The Service is updating thepreviously issued samples and issuing new samples for additional types of CRATs; annotations and alternate sample provisions areincluded as further guidance. In addition to the sample trust instrument included in this revenue procedure for an inter vivos CRATproviding for annuity payments payable concurrently and consecutively for two measuring lives, samples are provided in separaterevenue procedures for:


(b) an inter vivos CRAT providing for annuity payments for a term of years (see Rev. Proc. 2003–54);(c) an inter vivos CRAT providing for annuity payments payable consecutively for two measuring lives (see Rev. Proc.

2003–55, superceding section 4 of Rev. Proc. 90–32, 1990–1 C.B. 546);(d) a testamentary CRAT providing for annuity payments for one measuring life (see Rev. Proc. 2003–57, superceding section

6 of Rev. Proc. 90–32);(e) a testamentary CRAT providing for annuity payments for a term of years (see Rev. Proc. 2003–58);(f) a testamentary CRAT providing for annuity payments payable consecutively for two measuring lives (see Rev. Proc.




Section 4 of this revenue procedure provides a sample declaration of trust for an inter vivos CRAT with concurrent and consecutiveinterests for two measuring lives that is created by an individual who is a citizen or resident of the United States. Section 5 of thisrevenue procedure provides annotations to the provisions of the sample trust. Section 6 of this revenue procedure provides samplesof alternate provisions concerning: (.01) the statement of the annuity amount as a specific dollar amount; (.02) the payment of partof the annuity to an organization described in § 170(c); (.03) a qualified contingency; (.04) the retained right to revoke the interest ofthe survivor recipient; (.05) the last annuity payments to the recipients; (.06) the restriction of the charitable remainderman to a publiccharity; (.07) the retained right to substitute the charitable remainderman; and (.08) a power of appointment to designate the charitableremainderman.

For transfers to a qualifying CRAT, as defined in § 664(d)(1), the remainder interest will be deductible by a citizen or resident ofthe United States under §§ 170(f)(2)(A), 2055(e)(2)(A), and 2522(c)(2)(A) for income, estate, and gift tax purposes, respectively, ifthe other requirements of §§ 170(f)(2)(A), 2055(e)(2)(A), and 2522(c)(2)(A) (that is, the requirements not relating to the provisionsof the governing instrument) are also met. The Service will recognize a trust as a qualified CRAT meeting all of the requirements of§ 664(d)(1) if the trust operates in a manner consistent with the terms of the trust instrument, if the trust is a valid trust under applicablelocal law, and if the trust instrument: (i) is substantially similar to the sample in section 4 of this revenue procedure; or (ii) properlyintegrates one or more alternate provisions from section 6 of this revenue procedure into a document substantially similar to the samplein section 4 of this revenue procedure. A trust instrument that contains substantive provisions in addition to those provided in section4 of this revenue procedure (other than properly integrated alternate provisions from section 6 of this revenue procedure, or provisionsnecessary to establish a valid trust under applicable local law that are not inconsistent with the applicable federal tax requirements),or that omits any of the provisions of section 4 of this revenue procedure (unless an alternate provision from section 6 of this revenueprocedure is properly integrated), will not necessarily be disqualified, but neither will that trust be assured of qualification under theprovisions of this revenue procedure. The Service generally will not issue a letter ruling on whether an inter vivos trust created by anindividual and with concurrent and consecutive interests for two measuring lives qualifies as a CRAT. The Service, however, generallywill issue letter rulings on the effect of substantive trust provisions, other than those contained in sections 4 and 6 of this revenueprocedure, on the qualification of a trust as a CRAT.

SECTION 4. SAMPLE INTER VIVOS CHARITABLE REMAINDER ANNUITY TRUST — TWOLIVES, CONCURRENT AND CONSECUTIVE INTERESTS



2003-31 I.R.B. 250 August 4, 2003

2. Payment of Annuity Amount. In each taxable year of the trust during the annuity period, the Trustee shall pay to [permissiblerecipient] and to [permissible recipient] (hereinafter “the Recipients”) in equal shares during their lifetimes, an annuity amount equalto [a number no less than 5 and no more than 50] percent of the initial net fair market value of all property transferred to the trust,valued as of the above date (that is, the date of the transfer), and upon the death of one (hereinafter “the Predeceasing Recipient”),the Trustee shall pay the entire annuity amount (subject to any proration in paragraph 4) to the survivor (hereinafter “the SurvivorRecipient”). The first day of the annuity period shall be the date the property is transferred to the trust and the last day of the annuityperiod shall be the date of the Survivor Recipient’s death. The annuity amount shall be paid in equal quarterly installments at the endof each calendar quarter from income, and to the extent income is not sufficient, from principal. Any income of the trust for a taxableyear in excess of the annuity amount shall be added to principal. If the initial net fair market value of the trust assets is incorrectlydetermined, then within a reasonable period after the value is finally determined for federal tax purposes, the Trustee shall pay to theRecipients (in the case of an undervaluation) or receive from the Recipients (in the case of an overvaluation) an amount equal to thedifference between the annuity amount(s) properly payable and the annuity amount(s) actually paid.

3. Payment of Federal Estate Taxes and State Death Taxes. The lifetime annuity interest of the Survivor Recipient will continuein effect upon the death of the Predeceasing Recipient only if the Survivor Recipient furnishes the funds for payment of any federalestate taxes and state death taxes for which the Trustee may be liable upon the death of the Predeceasing Recipient. If the funds are notfurnished by the Survivor Recipient, the annuity period shall terminate on the death of the Predeceasing Recipient, notwithstandingany other provision in this instrument to the contrary.

4. Proration of Annuity Amount. The Trustee shall prorate the annuity amount on a daily basis for any short taxable year. Upon thedeath of the Predeceasing Recipient, the Trustee shall prorate on a daily basis the Predeceasing Recipient’s share of the next regularannuity payment between the estate of the Predeceasing Recipient and the Survivor Recipient. In the taxable year of the trust duringwhich the annuity period ends, the Trustee shall prorate the annuity amount on a daily basis for the number of days of the annuityperiod in that taxable year.

5. Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principal and incomeof the trust (other than any amount due the Recipients or their estates under the provisions above) to [designated remainderman](hereinafter “the Charitable Organization”). If the Charitable Organization is not an organization described in §§ 170(c), 2055(a), and2522(a) of the Code at the time when any principal or income of the trust is to be distributed to it, then the Trustee shall distribute thethen principal and income to one or more organizations described in §§ 170(c), 2055(a), and 2522(a) of the Code as the Trustee shallselect, and in the proportions as the Trustee shall decide, in the Trustee’s sole discretion.







SECTION 5. ANNOTATIONS REGARDING SAMPLE INTER VIVOS CHARITABLE REMAINDERANNUITY TRUST — TWO LIVES, CONCURRENT AND CONSECUTIVE INTERESTS



August 4, 2003 251 2003-31 I.R.B.






(1) Permissible recipients. For a CRAT having an annuity period based on the lives of two individuals, the annuity amount mustgenerally be paid to those individuals, and both must be living at the time of the creation of the trust. See Rev. Rul. 2002–20,2002–1 C.B. 794, for situations in which the annuity amount may be paid to a trust for the benefit of an individual who isfinancially disabled. An organization described in § 170(c) may receive part, but not all, of the annuity amount. Section664(d)(1)(A) and § 1.664–2(a)(3)(i). See section 6.02 of this revenue procedure for an alternate provision that provides forpayment of part of the annuity to an organization described in § 170(c).

(2) Division of annuity amount between recipients. The sample trust provides that while both recipients are alive they will sharethe annuity amount equally and upon the death of the predeceasing recipient the survivor recipient will receive all of theannuity amount, subject to any proration in paragraph 4. The annuity amount may be divided other than equally during thejoint lives of the recipients. In addition, the share of the predeceasing recipient may be made payable to an organizationdescribed in § 170(c) for the rest of the survivor recipient’s life.

(3) Percentage requirements. The sum certain annuity amount must be at least 5 percent and not more than 50 percent of theinitial net fair market value of the assets placed in trust. Section 664(d)(1)(A). Even if the sum certain annuity amount is atleast 5 percent and not more than 50 percent of the initial net fair market value of the assets placed in trust, no deductionwill be allowable under § 2055 or § 2522 if the probability that the trust corpus will be exhausted before the death of thesurvivor of the recipients exceeds 5 percent. Rev. Rul. 77–374, 1977–2 C.B. 329 and Rev. Rul. 70–452, 1970–2 C.B. 199.See §§ 1.7520–3(b) and 25.7520–3(b) for special rules that may be applicable in valuing interests transferred to CRATs. Inaddition, the value (determined under § 7520) of the charitable remainder interest must be at least 10 percent of the initialnet fair market value of all property placed in the trust. Section 664(d)(1)(D).

(4) Payment of annuity amount in installments. Paragraph 2, Payment of Annuity Amount, of the sample trust specifies thatthe annuity amount is to be paid in equal quarterly installments at the end of each quarter. However, the trust instrumentmay specify that the annuity amount is to be paid to the recipients annually or in equal or unequal installments throughoutthe year. See § 1.664–2(a)(1)(i). The amount of the charitable deduction will be affected by the frequency of payment, bywhether the installments are equal or unequal, and by whether each installment is payable at the beginning or end of theperiod. See § 1.664–2(c) and § 20.2031–7(d)(2)(iv).



.03 Annotation for Paragraph 3, Payment of Federal Estate Taxes and State Death Taxes, of the SampleTrust.

(1) Tax payment clause. If it is possible that all or part of the fair market value of the trust assets will be includible for federalestate tax purposes in the gross estate of the donor, the trust must contain a tax payment clause. If federal estate taxes andstate death taxes are paid from other sources, the tax payment clause will never become operative. Nevertheless, the tax

2003-31 I.R.B. 252 August 4, 2003

payment clause is necessary because it ensures that the trustee will never be required to pay federal estate taxes or statedeath taxes from the trust assets. See § 664(d)(1)(B); § 1.664–1(a)(6), Example 3; and Rev. Rul. 82–128, 1982–2 C.B. 71.






(2) Designated remainderman. Any named charitable remainderman must be an organization described in § 170(c) at the timeof the transfer to the charitable remainder annuity trust. See § 664(d)(1)(C). Any named charitable remainderman also mustbe an organization described in § 2522(a) to qualify for the gift tax charitable deduction and an organization described in§ 2055(a) to qualify for the estate tax charitable deduction. See Rev. Rul. 77–385, 1977–2 C.B. 331. If it is determined thata deduction under § 2055(a) will not be necessary in any event, all references to § 2055(a) in the trust instrument may bedeleted. The trust instrument may restrict the charitable remainderman to an organization described in §§ 170(c), 2055(a),and 2522(a), but grant to a trustee or other person the power to designate the actual charitable remainderman. The gift ofthe remainder interest will be incomplete for gift tax purposes if, for example: (i) the donor retains the power to substitutethe charitable remainderman; or (ii) the trust instrument provides the trustee with the power to designate the charitableremainderman and the donor is not prohibited from serving as trustee. See § 25.2511–2(c). Note, however, that an incometax charitable deduction is available even if the donor has the authority to substitute the charitable remainderman or thetrustee has the authority to designate the charitable remainderman. Rev. Rul. 68–417, 1968–2 C.B. 103; Rev. Rul. 79–368,1979–2 C.B. 109. See section 6.07 of this revenue procedure for an alternate provision in which the donor retains the rightto substitute the charitable remainderman. See section 6.08 of this revenue procedure for an alternate provision in which arecipient is granted a power of appointment to designate the charitable remainderman.







August 4, 2003 253 2003-31 I.R.B.

SECTION 6. ALTERNATE PROVISIONS FOR SAMPLE INTER VIVOS CHARITABLE REMAINDERANNUITY TRUST — TWO LIVES, CONCURRENT AND CONSECUTIVE INTERESTS




In each taxable year of the trust during the annuity period, the Trustee shall pay to [permissible recipient] and to[permissible recipient] (hereinafter “the Recipients”) in equal shares during their lifetimes an annuity amount equalto [the stated dollar amount], and upon the death of one (hereinafter “the Predeceasing Recipient”), the Trustee shallpay the entire annuity amount (subject to any proration in paragraph 4) to the survivor (hereinafter “the SurvivorRecipient”).



(1) Explanation. An organization described in § 170(c) may receive part, but not all, of any annuity amount. Section664(d)(1)(A). If a gift tax charitable deduction and, if needed, an estate tax charitable deduction are sought for the presentvalue of the annuity interest passing to a charitable organization, the trust instrument must contain additional provisions.First, the trust instrument must specify the portion of each annuity payment that is payable to the noncharitable recipientsand to the charitable organization described in §§ 170(c), 2522(a), and, if needed, § 2055(a). Second, the trust instrumentmust contain a means for selecting an alternative qualified charitable organization if the designated organization isnot a qualified organization at the time when any annuity amount is to be paid to it. Third, the trust instrument mustcontain prohibitions against investments that jeopardize the exempt purpose of the trust for purposes of § 4944, asmodified by § 4947(a)(2)(A), and against retaining any excess business holdings for purposes of § 4943, as modified by§ 4947(a)(2)(A).


Payment of Annuity Amount. The annuity amount is equal to [a number no less than 5 and no more than 50] percentof the initial net fair market value of all property transferred to the trust, valued as of the above date (that is, the dateof the transfer). In each taxable year of the trust during the annuity period, the Trustee shall pay [the percentage ofthe annuity amount payable to the noncharitable recipients] percent of the annuity amount to [permissible recipient]and [permissible recipient] (hereinafter “the Recipients”) in equal shares during their joint lives, and upon the deathof one (hereinafter “the Predeceasing Recipient”), the Trustee shall pay that entire percentage of the annuity amount(subject to any proration in paragraph 4) to the survivor (hereinafter “the Survivor Recipient”). In each taxable yearof the trust during the annuity period, the Trustee shall pay [the percentage of the annuity amount payable to thecharitable recipient] percent of the annuity amount to [an organization described in §§ 170(c), 2055(a), and 2522(a)of the Code] (hereinafter “the Charitable Recipient”). The first day of the annuity period shall be the date the propertyis transferred to the trust and the last day of the annuity period shall be the date of the Survivor Recipient’s death. Ifthe Charitable Recipient is not an organization described in §§ 170(c), 2055(a), and 2522(a) of the Code at the timewhen any annuity payment is to be distributed to it, then the Trustee shall distribute that annuity payment to one ormore organizations described in §§ 170(c), 2055(a), and 2522(a) of the Code as the Trustee shall select, and in theproportions as the Trustee shall decide, in the Trustee’s sole discretion. The annuity amount shall be paid in equalquarterly installments at the end of each calendar quarter from income, and to the extent income is not sufficient,from principal. Any income of the trust for a taxable year in excess of the annuity amount shall be added to principal.If the initial net fair market value of the trust assets is incorrectly determined, then within a reasonable period afterthe value is finally determined for federal tax purposes, the Trustee shall pay to the Recipients and the CharitableRecipient (in the case of an undervaluation) or receive from the Recipients and the Charitable Recipient (in the case ofan overvaluation) an amount equal to the difference between the annuity amount(s) properly payable and the annuityamount(s) actually paid.

(b) Replace the first parenthetical in paragraph 5, Distribution to Charity, of the sample trust with the following parenthetical:(other than any amount due the Recipients or their estates and the Charitable Recipient under the provisions above).

(c) Add the following sentence after the first and only sentence in paragraph 7, Prohibited Transactions, of the sample trust:

2003-31 I.R.B. 254 August 4, 2003

The Trustee shall not make any investments that jeopardize the exempt purpose of the trust for purposes of § 4944 ofthe Code, as modified by § 4947(a)(2)(A) of the Code, or retain any excess business holdings for purposes of § 4943of the Code, as modified by § 4947(a)(2)(A) of the Code.


(1) Explanation. Under § 664(f), payment of the annuity amount may terminate upon the earlier of the occurrence of a qualifiedcontingency (as defined in § 664(f)(3)) or the death of the survivor recipient. The amount of the charitable deduction,however, will be determined without regard to a qualified contingency. See § 664(f)(2).


The first day of the annuity period shall be the date the property is transferred to the trust and the last day of the annuityperiod shall be the date of the Survivor Recipient’s death or, if earlier, the date on which occurs the [qualified contin-gency].

.04 Retaining the Right to Revoke the Interest of the Survivor Recipient.

(1) Explanation. The donor may retain the right to revoke or terminate the interest of the other noncharitable recipient. Thisright is exercisable only by the donor’s last will and testament. Section 1.664–2(a)(4). The retention of this right may havegift and estate tax consequences. It will affect the value of the annuity interests transferred. It may also cause a portion of thetrust to be included in the donor’s gross estate for federal estate tax purposes, even if it would otherwise not be includible.The following alternate provision provides for the donor’s retention of the right to revoke when the donor is also a recipient.

(2) Instructions for use. To retain the right to revoke the other noncharitable recipient’s interest by the donor’s last will andtestament:

(a) Designate the donor as a recipient in paragraph 2, Payment of Annuity Amount, of the sample trust.(b) Replace the second sentence of paragraph 2, Payment of Annuity Amount, of the sample trust with the following two

sentences:The Donor hereby expressly reserves the power, exercisable only by the Donor’s last will and testament, to revokeand terminate the interest of [the name of permissible recipient who is not the Donor] under this trust. The first dayof the annuity period shall be the date the property is transferred to the trust and the last day of the annuity periodshall be the date of death of the Survivor Recipient, or on the earlier death of the Donor if the power to revoke [thename of permissible recipient who is not the Donor]’s interest is exercised.


(1) Explanation. As an alternative to prorating the annuity amount in the taxable year of the predeceasing recipient’s death,payment of the predeceasing recipient’s share of the annuity amount may terminate with the last regular payment precedingthe predeceasing recipient’s death. Similarly, as an alternative to prorating the annuity amount in the taxable year of thetermination of the annuity period, payment of the annuity amount may terminate with the last regular payment precedingthe termination of the annuity period. However, the fact that a recipient may not receive the last payment shall not be takeninto account for purposes of determining the present value of the remainder interest. Section 1.664–2(a)(5)(i).

(2) Instructions for use.(a) To add an alternate provision to terminate the payment of the predeceasing recipient’s share of the annuity amount with

the last regular payment preceding his or her death, replace paragraph 4, Proration of Annuity Amount, of the sampletrust with the following paragraph:

Proration of Annuity Amount. Except as provided below, the Trustee shall prorate the annuity amount on a daily basisfor any short taxable year. The obligation of the Trustee to pay a share of the annuity amount to the PredeceasingRecipient shall terminate with the regular quarterly installment next preceding the Predeceasing Recipient’s death.In the taxable year of the trust during which the annuity period ends, the Trustee shall prorate the annuity amount ona daily basis for the number of days of the annuity period in that taxable year.


Proration of Annuity Amount. Except as provided below, the Trustee shall prorate the annuity amount on a daily basisfor any short taxable year. Upon the death of the Predeceasing Recipient, the Trustee shall prorate on a daily basis thePredeceasing Recipient’s share of the next regular annuity payment between the estate of the Predeceasing Recipientand the Survivor Recipient. In the taxable year of the trust during which the annuity period ends, the obligationof the Trustee to pay the annuity amount shall terminate with the regular quarterly installment next preceding thetermination of the annuity period.

August 4, 2003 255 2003-31 I.R.B.

(c) To add an alternate provision terminating the payment of the predeceasing recipient’s share of the annuity amount withthe last regular payment preceding his or her death, and terminating the payment of the annuity amount with the lastregular payment preceding the termination of the annuity period, replace paragraph 4, Proration of Annuity Amount, ofthe sample trust with the following paragraph:

Proration of Annuity Amount. Except as provided below, the Trustee shall prorate the annuity amount on a daily basisfor any short taxable year. The obligation of the Trustee to pay a share of the annuity amount to the PredeceasingRecipient shall terminate with the regular quarterly installment next preceding the Predeceasing Recipient’s death.In the taxable year of the trust during which the annuity period ends, the obligation of the Trustee to pay the annuityamount shall terminate with the regular quarterly installment next preceding the termination of the annuity period.



(2) Instructions for use. To restrict the charitable remainderman to a public charity, each and every time the phrase “an organi-zation described in §§ 170(c), 2055(a), and 2522(a) of the Code” appears in the sample trust, replace it with the phrase “anorganization described in §§ 170(b)(1)(A), 170(c), 2055(a), and 2522(a) of the Code.”







(2) Instruction for use. Replace paragraph 5, Distribution to Charity, of the sample trust with the following paragraph:Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principaland income of the trust (other than any amount due the Recipients or their estates under the provisions above) to one ormore charitable organizations described in §§ 170(c), 2055(a), and 2522(a) of the Code as [one of the named permissiblerecipients] shall appoint and direct by specific reference to this power of appointment by inter vivos or testamentaryinstrument. To the extent this power of appointment is not effectively exercised, the principal and income not effectivelyappointed shall be distributed to one or more organizations described in §§ 170(c), 2055(a), and 2522(a) of the Codeas the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee’s sole discretion. If anorganization fails to qualify as an organization described in §§ 170(c), 2055(a), and 2522(a) of the Code at the timewhen any principal or income of the trust is to be distributed to it, then the Trustee shall distribute the then principaland income to one or more organizations described in §§ 170(c), 2055(a), and 2522(a) of the Code as the Trustee shallselect, and in the proportions as the Trustee shall decide, in the Trustee’s sole discretion.



2003-31 I.R.B. 256 August 4, 2003



26 CFR 601.201: Rulings and determination letters.(Also Part I, §§ 170, 664, 2055, 1.664–2, 20.2055–2.)

Rev. Proc. 2003–57

SECTION 1. PURPOSE

This revenue procedure contains an annotated sample declaration of trust and alternate provisions that meet the requirements of§ 664(d)(1) of the Internal Revenue Code for a testamentary charitable remainder annuity trust (CRAT) providing for annuity paymentsfor one measuring life followed by the distribution of trust assets to a charitable remainderman.


Previously, the Internal Revenue Service issued sample trust instruments for certain types of CRATs. The Service is updating thepreviously issued samples and issuing new samples for additional types of CRATs; annotations and alternate sample provisions areincluded as further guidance. In addition to the sample trust instrument included in this revenue procedure for a testamentary CRATproviding for annuity payments for one measuring life, samples are provided in separate revenue procedures for:



2003–55, superceding section 4 of Rev. Proc. 90–32, 1990–1 C.B. 546);(d) an inter vivos CRAT providing for annuity payments payable concurrently and consecutively for two measuring lives (see

Rev. Proc. 2003–56, superceding section 5 of Rev. Proc. 90–32);(e) a testamentary CRAT providing for annuity payments for a term of years (see Rev. Proc. 2003–58);(f) a testamentary CRAT providing for annuity payments payable consecutively for two measuring lives (see Rev. Proc.




Section 4 of this revenue procedure provides a sample declaration of trust for a testamentary CRAT with one measuring life that iscreated by an individual who is a citizen or resident of the United States. Section 5 of this revenue procedure provides annotations tothe provisions of the sample trust. Section 6 of this revenue procedure provides samples of alternate provisions concerning: (.01) thestatement of the annuity amount as a specific dollar amount; (.02) the payment of part of the annuity to an organization described in§ 170(c); (.03) a qualified contingency; (.04) the last annuity payment to the recipient; and (.05) a power of appointment to designatethe charitable remainderman.

For transfers to a qualifying CRAT, as defined in § 664(d)(1), the remainder interest will be deductible by the estate of a citizen orresident of the United States under § 2055(e)(2)(A) if the other requirements of § 2055(e)(2)(A) (that is, the requirements not relatingto the provisions of the governing instrument) are also met. The Service will recognize a trust as a qualified CRAT meeting all of therequirements of § 664(d)(1) if the trust operates in a manner consistent with the terms of the trust instrument, if the trust is a valid trustunder applicable local law, and if the trust instrument: (i) is substantially similar to the sample in section 4 of this revenue procedure;or (ii) properly integrates one or more alternate provisions from section 6 of this revenue procedure into a document substantiallysimilar to the sample in section 4 of this revenue procedure. A trust instrument that contains substantive provisions in addition to thoseprovided in section 4 of this revenue procedure (other than properly integrated alternate provisions from section 6 of this revenueprocedure, or provisions necessary to establish a valid trust under applicable local law that are not inconsistent with the applicablefederal tax requirements), or that omits any of the provisions of section 4 of this revenue procedure (unless an alternate provisionfrom section 6 of this revenue procedure is properly integrated), will not necessarily be disqualified, but neither will that trust beassured of qualification under the provisions of this revenue procedure. The Service generally will not issue a letter ruling on whethera testamentary trust created by an individual and with one measuring life qualifies as a CRAT. The Service, however, generally will

August 4, 2003 257 2003-31 I.R.B.

issue letter rulings on the effect of substantive trust provisions, other than those contained in sections 4 and 6 of this revenue procedure,on the qualification of a trust as a CRAT.

SECTION 4. SAMPLE TESTAMENTARY CHARITABLE REMAINDER ANNUITY TRUST — ONELIFE

I give, devise, and bequeath [property bequeathed] to my Trustee in trust to be administered under this provision. I intend thisbequest to establish a charitable remainder annuity trust, within the meaning of Rev. Proc. 2003–57 and § 664(d)(1) of the InternalRevenue Code (hereinafter “the Code”). The trust shall be known as the Charitable Remainder AnnuityTrust and I hereby designate as the initial trustee (hereinafter “the Trustee”).

1. Payment of Annuity Amount. In each taxable year of the trust during the annuity period, the Trustee shall pay to [permissiblerecipient] (hereinafter “the Recipient”) an annuity amount equal to [a number no less than 5 and no more than 50] percent of theinitial net fair market value of all property passing to this trust as finally determined for federal estate tax purposes. The first day ofthe annuity period shall be the date of my death and the last day of the annuity period shall be the date of the Recipient’s death. Theannuity amount shall be paid in equal quarterly installments at the end of each calendar quarter from income, and to the extent incomeis not sufficient, from principal. Any income of the trust for a taxable year in excess of the annuity amount shall be added to principal.If the initial net fair market value of the trust assets is incorrectly determined, then within a reasonable period after the value is finallydetermined for federal estate tax purposes, the Trustee shall pay to the Recipient (in the case of an undervaluation) or receive from theRecipient (in the case of an overvaluation) an amount equal to the difference between the annuity amount(s) properly payable and theannuity amount(s) actually paid.

2. Deferral Provision. The obligation to pay the annuity amount shall commence with the date of my death, but payment of theannuity amount may be deferred from this date until the end of the taxable year in which the trust is completely funded. Within areasonable time after the end of the taxable year in which the trust is completely funded, the Trustee must pay to the Recipient (in thecase of an underpayment) or receive from the Recipient (in the case of an overpayment) the difference between any annuity amountsactually paid, plus interest, and the annuity amounts payable, plus interest. The interest shall be computed for any period at the rateof interest, compounded annually, that the federal income tax regulations under § 664 of the Code prescribe for this computation.


4. Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principal and incomeof the trust (other than any amount due the Recipient or the Recipient’s estate under the provisions above) to [designated remainder-man] (hereinafter “the Charitable Organization”). If the Charitable Organization is not an organization described in §§ 170(c) and2055(a) of the Code at the time when any principal or income of the trust is to be distributed to it, then the Trustee shall distribute thethen principal and income to one or more organizations described in §§ 170(c) and 2055(a) of the Code as the Trustee shall select, andin the proportions as the Trustee shall decide, in the Trustee’s sole discretion.

5. Additional Contributions. No additional contributions shall be made to the trust after the initial contribution. The initial contri-bution, however, shall be deemed to consist of all property passing to the trust by reason of my death.

6. Prohibited Transactions. The Trustee shall not engage in any act of self-dealing within the meaning of § 4941(d) of the Code, asmodified by § 4947(a)(2)(A) of the Code, and shall not make any taxable expenditures within the meaning of § 4945(d) of the Code,as modified by § 4947(a)(2)(A) of the Code.





SECTION 5. ANNOTATIONS REGARDING SAMPLE TESTAMENTARY CHARITABLEREMAINDER ANNUITY TRUST — ONE LIFE

.01 Annotations for Introductory Paragraph of the Sample Trust.

(1) Factors concerning qualification of trust. A deduction must be allowable under § 2055 for property contributed to the trust.Section 1.664–1(a)(1)(iii)(a) of the Income Tax Regulations. The trust must meet the definition of and function exclusively

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as a charitable remainder trust from the creation of the trust. Section 1.664–1(a)(4). Solely for purposes of § 664, a trust isdeemed created at the earliest time that no person is treated as the owner of the entire trust under subpart E, part 1, subchapterJ, chapter 1, subtitle A of the Code (subpart E). Section 1.664–1(a)(4). For purposes of § 2055, a charitable remainder trustshall be deemed created at the date of death of the decedent (even though the trust is not funded until the end of a reasonableperiod of administration or settlement) if the obligation to pay the annuity amount with respect to the property passing intrust at the death of the decedent begins as of the date of death of the decedent, even though the requirement to pay thisamount is deferred in accordance with § 1.664–1(a)(5)(i). Section 1.664–1(a)(5)(i). In addition, funding the trust withcertain types of assets may disqualify it as a charitable remainder trust. See § 1.664–1(a)(7) and Rev. Rul. 73–610, 1973–2C.B. 213.




(1) Permissible recipients. For a CRAT with an annuity period based on the life of one individual, the annuity amount mustgenerally be paid to that individual and the individual must be living at the time of the creation of the trust. See Rev. Rul.2002–20, 2002–1 C.B. 794, for situations in which the annuity amount may be paid to a trust for the benefit of an individualwho is financially disabled. An organization described in § 170(c) may receive part, but not all, of the annuity amount.Section 664(d)(1)(A) and § 1.664–2(a)(3)(i). See section 6.02 of this revenue procedure for an alternate provision thatprovides for payment of part of the annuity to an organization described in § 170(c).

(2) Percentage requirements. The sum certain annuity amount must be at least 5 percent and not more than 50 percent of theinitial net fair market value of the assets placed in trust. Section 664(d)(1)(A). Even if the sum certain annuity amount is atleast 5 percent and not more than 50 percent of the initial net fair market value of the assets placed in trust, no deduction willbe allowable under § 2055 if the probability that the trust corpus will be exhausted before the death of the recipient exceeds5 percent. Rev. Rul. 77–374, 1977–2 C.B. 329. See § 20.7520–3(b) for special rules that may be applicable in valuinginterests transferred to CRATs. In addition, the value (determined under § 7520) of the charitable remainder interest mustbe at least 10 percent of the initial net fair market value of all property placed in the trust. Section 664(d)(1)(D).


(4) Payment of annuity amount by close of taxable year. Generally, the annuity amount for any taxable year must be paid beforethe close of the taxable year for which it is due. For circumstances under which the annuity amount may be paid withina reasonable time after the close of the taxable year, see § 1.664–2(a)(1)(i)(a). In addition, § 1.664–1(a)(5)(i) provides aspecial rule applicable to charitable remainder trusts created by testamentary transfer that may defer the requirement to paythe annuity amount until the end of the taxable year in which the trust is completely funded. See section 5.03(1) of thisrevenue procedure for additional information regarding the deferral of the payment of the annuity amount until the end ofthe taxable year in which the trust is completely funded.


.03 Annotations for Paragraph 2, Deferral Provision, of the Sample Trust.

(1) Deferral of requirement to pay annuity amount. The deferral provision in paragraph 2 of the sample trust authorizes defer-ring the payment of the annuity amount until the end of the taxable year of the trust in which the trust is completely funded.Section 1.664–1(a)(5)(i) provides the operational rule for deferring payment of the annuity amount in this circumstance.

(2) Treatment of distributions. For the proper treatment of distributions to a charitable remainder trust or to the recipientduring the period of administration of an estate or settlement of a trust that is not a charitable remainder trust, see§ 1.664–1(a)(5)(iii).

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(2) Determining annuity amount payable in year of recipient’s death. Paragraph 3, Proration of Annuity Amount, of the sampletrust specifies that the annuity amount shall be prorated on a daily basis. See section 6.04 of this revenue procedure foran alternate provision that provides for the termination of the annuity amount with the last regular payment preceding therecipient’s death.



(2) Designated remainderman. Any named charitable remainderman must be an organization described in §§ 170(c) and2055(a) at the time of the transfer to the charitable remainder annuity trust. See § 664(d)(1)(C) and Rev. Rul. 77–385,1977–2 C.B. 331. The trust instrument may restrict the charitable remainderman to an organization described in §§ 170(c)and 2055(a), but grant to a trustee or other person the power to designate the actual charitable remainderman. See section6.05 of this revenue procedure for an alternate provision in which the recipient is granted a power of appointment to des-ignate the charitable remainderman.

(3) Multiple remaindermen. The remainder interest may pass to more than one charitable organization as long as each organi-zation is described in §§ 170(c) and 2055(a). Section 1.664–2(a)(6)(i).




(2) Prohibitions against certain investments and excess business holdings. Prohibitions against investments that jeopardizethe exempt purpose of the trust for purposes of § 4944, as modified by § 4947(a)(2)(A), and against retaining any excessbusiness holdings for purposes of § 4943, as modified by § 4947(a)(2)(A), are required if the trust provides for payment ofpart of an annuity amount to an organization described in § 170(c) and an estate tax charitable deduction is sought for thisinterest. See § 4947(b)(3). See section 6.02 of this revenue procedure for an alternate provision that provides for paymentof part of the annuity to an organization described in § 170(c).

(3) Trust to continue in existence for benefit of charity. The governing instrument requirements of § 508(e) must be includedin the trust instrument if, after the termination of the annuity period: (i) the trust instrument provides that the trust shallcontinue in existence for the benefit of the charitable remainderman and, as a result, the trust will become subject to theprovisions of § 4947(a)(1); and (ii) the trust will be treated as a private foundation within the meaning of § 509(a), as mod-ified by § 4947(a)(1). Except as provided in paragraph 6 of the sample trust, the trust instrument may limit the applicationof the provisions of § 508(e) to the period after the termination of the annuity period when the trust continues in existencefor the benefit of the charitable remainderman.

SECTION 6. ALTERNATE PROVISIONS FOR SAMPLE TESTAMENTARY CHARITABLEREMAINDER ANNUITY TRUST — ONE LIFE





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(1) Explanation. An organization described in § 170(c) may receive part, but not all, of any annuity amount. Section664(d)(1)(A). If an estate tax charitable deduction is sought for the present value of the annuity interest passing to acharitable organization, the trust instrument must contain additional provisions. First, the trust instrument must specify theportion of each annuity payment that is payable to the noncharitable recipient and to the charitable organization describedin §§ 170(c) and 2055(a). Second, the trust instrument must contain a means for selecting an alternative qualifiedcharitable organization if the designated organization is not a qualified organization at the time when any annuity amountis to be paid to it. Third, the trust instrument must contain prohibitions against investments that jeopardize the exemptpurpose of the trust for purposes of § 4944, as modified by § 4947(a)(2)(A), and against retaining any excess businessholdings for purposes of § 4943, as modified by § 4947(a)(2)(A).


Payment of Annuity Amount. The annuity amount is equal to [a number no less than 5 and no more than 50] percentof the initial net fair market value of all property passing to this trust as finally determined for federal estate taxpurposes. In each taxable year of the trust during the annuity period, the Trustee shall pay [the percentage of theannuity amount payable to the noncharitable recipient] percent of the annuity amount to [permissible recipient](hereinafter “the Recipient”) and [the percentage of the annuity amount payable to the charitable recipient] percent ofthe annuity amount to [an organization described in §§ 170(c) and 2055(a) of the Code] (hereinafter “the CharitableRecipient”). The first day of the annuity period shall be the date of my death and the last day of the annuity periodshall be the date of the Recipient’s death. If the Charitable Recipient is not an organization described in §§ 170(c) and2055(a) of the Code at the time when any annuity payment is to be distributed to it, then the Trustee shall distributethat annuity payment to one or more organizations described in §§ 170(c) and 2055(a) of the Code as the Trustee shallselect, and in the proportions as the Trustee shall decide, in the Trustee’s sole discretion. The annuity amount shall bepaid in equal quarterly installments at the end of each calendar quarter from income, and to the extent income is notsufficient, from principal. Any income of the trust for a taxable year in excess of the annuity amount shall be addedto principal. If the initial net fair market value of the trust assets is incorrectly determined, then within a reasonableperiod after the value is finally determined for federal estate tax purposes, the Trustee shall pay to the Recipient andthe Charitable Recipient (in the case of an undervaluation) or receive from the Recipient and the Charitable Recipient(in the case of an overvaluation) an amount equal to the difference between the annuity amount(s) properly payableand the annuity amount(s) actually paid.

(b) In paragraph 2, Deferral Provision, of the sample trust, replace each reference to “the Recipient” with a reference to “theRecipient and the Charitable Recipient.”

(c) Replace the first parenthetical in paragraph 4, Distribution to Charity, of the sample trust with the following parenthetical:(other than any amount due the Recipient or the Recipient’s estate and the Charitable Recipient under the provisionsabove).

(d) Add the following sentence after the first and only sentence in paragraph 6, Prohibited Transactions, of the sample trust:The Trustee shall not make any investments that jeopardize the exempt purpose of the trust for purposes of § 4944 ofthe Code, as modified by § 4947(a)(2)(A) of the Code, or retain any excess business holdings for purposes of § 4943of the Code, as modified by § 4947(a)(2)(A) of the Code.


(1) Explanation. Under § 664(f), payment of the annuity amount may terminate upon the earlier of the occurrence of a qualifiedcontingency (as defined in § 664(f)(3)) or the death of the recipient. The amount of the charitable deduction, however, willbe determined without regard to a qualified contingency. See § 664(f)(2).


The first day of the annuity period shall be the date of my death and the last day of the annuity period shall be the dateof the Recipient’s death or, if earlier, the date on which occurs the [qualified contingency].


(1) Explanation. As an alternative to prorating the annuity amount in the taxable year of the recipient’s death, payment of theannuity amount may terminate with the last regular payment preceding the recipient’s death. However, the fact that the

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recipient may not receive the last payment shall not be taken into account for purposes of determining the present value ofthe remainder interest. Section 1.664–2(a)(5)(i).

(2) Instruction for use. Replace the second sentence of paragraph 3, Proration of Annuity Amount, of the sample trust with thefollowing sentence:

In the taxable year of the trust during which the annuity period ends, the obligation of the Trustee to pay the annuityamount shall terminate with the regular quarterly installment next preceding the death of the Recipient.


(1) Explanation. The trust instrument may grant the recipient a power of appointment to designate the charitable remainderman.See Rev. Rul. 76–7, 1976–1 C.B. 179.

(2) Instruction for use. Replace paragraph 4, Distribution to Charity, of the sample trust with the following paragraph:Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principal andincome of the trust (other than any amount due the Recipient or the Recipient’s estate under the provisions above) toone or more charitable organizations described in §§ 170(c) and 2055(a) of the Code as the Recipient shall appoint anddirect by specific reference to this power of appointment by inter vivos or testamentary instrument. To the extent theRecipient fails to effectively exercise the power of appointment, the principal and income not effectively appointed shallbe distributed to one or more organizations described in §§ 170(c) and 2055(a) of the Code as the Trustee shall select,and in the proportions as the Trustee shall decide, in the Trustee’s sole discretion. If an organization fails to qualify asan organization described in §§ 170(c) and 2055(a) of the Code at the time when any principal or income of the trustis to be distributed to it, then the Trustee shall distribute the then principal and income to one or more organizationsdescribed in §§ 170(c) and 2055(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shalldecide, in the Trustee’s sole discretion.





26 CFR 601.201: Rulings and determination letters.(Also Part I, §§ 170, 664, 2055; 1.644–2, 20.2055–2.)

Rev. Proc. 2003–58

SECTION 1. PURPOSE

This revenue procedure contains an annotated sample declaration of trust and alternate provisions that meet the requirements of§ 664(d)(1) of the Internal Revenue Code for a testamentary charitable remainder annuity trust (CRAT) providing for annuity paymentsfor a term of years followed by the distribution of trust assets to a charitable remainderman.


Previously, the Internal Revenue Service issued sample trust instruments for certain types of CRATs. The Service is updating thepreviously issued samples and issuing new samples for additional types of CRATs; annotations and alternate sample provisions areincluded as further guidance. In addition to the sample trust instrument included in this revenue procedure for a testamentary CRATproviding for annuity payments for a term of years, samples are provided in separate revenue procedures for:




Rev. Proc. 2003–56, superceding section 5 of Rev. Proc. 90–32);

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(e) a testamentary CRAT providing for annuity payments for one measuring life (see Rev. Proc. 2003–57, superceding section6 of Rev. Proc. 90–32);

(f) a testamentary CRAT providing for annuity payments payable consecutively for two measuring lives (see Rev. Proc.2003–59, superceding section 7 of Rev. Proc. 90–32); and

(g) a testamentary CRAT providing for annuity payments payable concurrently and consecutively for two measuring lives (seeRev. Proc. 2003–60, superceding section 8 of Rev. Proc. 90–32).


Section 4 of this revenue procedure provides a sample declaration of trust for a testamentary CRAT that is created by an individualwho is a citizen or resident of the United States and that provides for a term of years annuity period. Section 5 of this revenue procedureprovides annotations to the provisions of the sample trust. Section 6 of this revenue procedure provides samples of alternate provisionsconcerning: (.01) the statement of the annuity amount as a specific dollar amount; (.02) the payment of part of the annuity to anorganization described in § 170(c); (.03) the apportionment of the annuity amount among members of a named class in the discretionof the trustee; (.04) a qualified contingency; and (.05) a power of appointment to designate the charitable remainderman.

For transfers to a qualifying CRAT, as defined in § 664(d)(1), the remainder interest will be deductible by the estate of a citizen orresident of the United States under § 2055(e)(2)(A) if the other requirements of § 2055(e)(2)(A) (that is, the requirements not relatingto the provisions of the governing instrument) are also met. The Service will recognize a trust as a qualified CRAT meeting all of therequirements of § 664(d)(1) if the trust operates in a manner consistent with the terms of the trust instrument, if the trust is a valid trustunder applicable local law, and if the trust instrument: (i) is substantially similar to the sample in section 4 of this revenue procedure;or (ii) properly integrates one or more alternate provisions from section 6 of this revenue procedure into a document substantiallysimilar to the sample in section 4 of this revenue procedure. A trust instrument that contains substantive provisions in addition to thoseprovided in section 4 of this revenue procedure (other than properly integrated alternate provisions from section 6 of this revenueprocedure, or provisions necessary to establish a valid trust under applicable local law that are not inconsistent with the applicablefederal tax requirements), or that omits any of the provisions of section 4 of this revenue procedure (unless an alternate provisionfrom section 6 of this revenue procedure is properly integrated), will not necessarily be disqualified, but neither will that trust beassured of qualification under the provisions of this revenue procedure. The Service generally will not issue a letter ruling on whethera testamentary trust created by an individual and having a term of years annuity period qualifies as a CRAT. The Service, however,generally will issue letter rulings on the effect of substantive trust provisions, other than those contained in sections 4 and 6 of thisrevenue procedure, on the qualification of a trust as a CRAT.

SECTION 4. SAMPLE TESTAMENTARY CHARITABLE REMAINDER ANNUITY TRUST — TERMOF YEARS


1. Payment of Annuity Amount. In each taxable year of the trust during the annuity period, the Trustee shall pay to [permissiblerecipient] (hereinafter “the Recipient”) an annuity amount equal to [a number no less than 5 and no more than 50] percent of the initialnet fair market value of all property passing to this trust as finally determined for federal estate tax purposes. The annuity period is aterm of [a number not more than 20] years. The first day of the annuity period shall be the date of my death and the last day of theannuity period shall be the day preceding the [ordinal number corresponding to the length of the annuity period] anniversary of thatdate. The annuity amount shall be paid in equal quarterly installments at the end of each calendar quarter from income, and to theextent income is not sufficient, from principal. Any income of the trust for a taxable year in excess of the annuity amount shall be addedto principal. If the initial net fair market value of the trust assets is incorrectly determined, then within a reasonable period after thevalue is finally determined for federal estate tax purposes, the Trustee shall pay to the Recipient (in the case of an undervaluation) orreceive from the Recipient (in the case of an overvaluation) an amount equal to the difference between the annuity amount(s) properlypayable and the annuity amount(s) actually paid.

2. Deferral Provision. The obligation to pay the annuity amount shall commence with the date of my death, but payment of theannuity amount may be deferred from this date until the end of the taxable year in which the trust is completely funded. Within areasonable time after the end of the taxable year in which the trust is completely funded, the Trustee must pay to the Recipient (in thecase of an underpayment) or receive from the Recipient (in the case of an overpayment) the difference between any annuity amountsactually paid, plus interest, and the annuity amounts payable, plus interest. The interest shall be computed for any period at the rateof interest, compounded annually, that the federal income tax regulations under § 664 of the Code prescribe for this computation.


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4. Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principal and incomeof the trust (other than any amount due the Recipient under the provisions above) to [designated remainderman] (hereinafter “theCharitable Organization”). If the Charitable Organization is not an organization described in §§ 170(c) and 2055(a) of the Code at thetime when any principal or income of the trust is to be distributed to it, then the Trustee shall distribute the then principal and incometo one or more organizations described in §§ 170(c) and 2055(a) of the Code as the Trustee shall select, and in the proportions as theTrustee shall decide, in the Trustee’s sole discretion.



7. Taxable Year. The taxable year of the trust shall be the calendar year.8. Governing Law. The operation of the trust shall be governed by the laws of the State of . However, the

Trustee is prohibited from exercising any power or discretion granted under said laws that would be inconsistent with the qualificationof the trust as a charitable remainder annuity trust under § 664(d)(1) of the Code and the corresponding regulations.



SECTION 5. ANNOTATIONS REGARDING SAMPLE TESTAMENTARY CHARITABLEREMAINDER ANNUITY TRUST — TERM OF YEARS


(1) Factors concerning qualification of trust. A deduction must be allowable under § 2055 for property contributed to the trust.Section 1.664–1(a)(1)(iii)(a) of the Income Tax Regulations. The trust must meet the definition of and function exclusivelyas a charitable remainder trust from the creation of the trust. Section 1.664–1(a)(4). Solely for purposes of § 664, a trust isdeemed created at the earliest time that no person is treated as the owner of the entire trust under subpart E, part 1, subchapterJ, chapter 1, subtitle A of the Code (subpart E). Section 1.664–1(a)(4). For purposes of § 2055, a charitable remainder trustshall be deemed created at the date of death of the decedent (even though the trust is not funded until the end of a reasonableperiod of administration or settlement) if the obligation to pay the annuity amount with respect to the property passing intrust at the death of the decedent begins as of the date of death of the decedent, even though the requirement to pay thisamount is deferred in accordance with § 1.664–1(a)(5)(i). Section 1.664–1(a)(5)(i). In addition, funding the trust withcertain types of assets may disqualify it as a charitable remainder trust. See § 1.664–1(a)(7) and Rev. Rul. 73–610, 1973–2C.B. 213.


(3) Trustee provisions. Alternate or successor trustees may be designated in the trust instrument. In addition, the trust in-strument may contain other administrative provisions relating to the trustee’s duties and powers, as long as the provisionsdo not conflict with the rules governing charitable remainder trusts under § 664 and the regulations thereunder. Note thatcertain powers given to certain persons serving as the trustee may cause the trustee to be treated as the owner of the trustunder subpart E and thus disqualify the trust as a charitable remainder trust. See § 1.664–1(a)(4). See section 6.03 of thisrevenue procedure for an alternate provision providing for the apportionment of the annuity amount among members of anamed class in the discretion of the trustee.


(1) Permissible term. The period for which the annuity amount is payable must not exceed 20 years. Section 1.664–2(a)(5)(i).Thus, for example, the annuity period of a CRAT for a term of 20 years will end on the day preceding the twentieth an-niversary of the date the trust was created.

(2) Permissible recipients. For a CRAT having a term of years annuity period, the annuity amount must generally be paid toa named person or persons (within the meaning of § 7701(a)(1)). If the annuity amount is to be paid to an individual orindividuals, all the individuals must be living at the time of the creation of the trust. The annuity amount may be payable to

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the estate or heirs of a named recipient who dies prior to the expiration of the term of years. See Rev. Rul. 74–39, 1974–1C.B. 156. The annuity amount may be payable to members of a named class and, because the annuity period is for a termof years, all of the members of the class need not be living or ascertainable at the creation of the trust. An organizationdescribed in § 170(c) may receive part, but not all, of the annuity amount. Section 664(d)(1)(A) and § 1.664–2(a)(3)(i).See section 6.02 of this revenue procedure for an alternate provision that provides for payment of part of the annuity to anorganization described in § 170(c).

(3) Multiple noncharitable recipients. Generally, if the annuity amount is payable to more than one person, the trust instrumentshould describe the interest of each person. See section 6.03 of this revenue procedure for an alternate provision providingfor the apportionment of the annuity amount among members of a named class in the discretion of the trustee.

(4) Percentage requirements. The sum certain annuity amount must be at least 5 percent and not more than 50 percent of theinitial net fair market value of the assets placed in trust. Section 664(d)(1)(A). In addition, the value (determined under§ 7520) of the charitable remainder interest must be at least 10 percent of the initial net fair market value of all propertyplaced in the trust. Section 664(d)(1)(D). See § 20.7520–3(b) for special rules that may be applicable in valuing intereststransferred to CRATs.











(2) Designated remainderman. Any named charitable remainderman must be an organization described in §§ 170(c) and2055(a) at the time of the transfer to the charitable remainder annuity trust. See § 664(d)(1)(C) and Rev. Rul. 77–385,1977–2 C.B. 331. The trust instrument may restrict the charitable remainderman to an organization described in §§ 170(c)and 2055(a), but grant to a trustee or other person the power to designate the actual charitable remainderman. See section6.05 of this revenue procedure for an alternate provision in which a recipient is granted a power of appointment to designatethe charitable remainderman.


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SECTION 6. ALTERNATE PROVISIONS FOR SAMPLE TESTAMENTARY CHARITABLEREMAINDER ANNUITY TRUST — TERM OF YEARS









Payment of Annuity Amount. The annuity amount is equal to [a number no less than 5 and no more than 50] percent ofthe initial net fair market value of all property passing to this trust as finally determined for federal estate tax purposes.In each taxable year of the trust during the annuity period, the Trustee shall pay [the percentage of the annuity amountpayable to the noncharitable recipient] percent of the annuity amount to [permissible recipient] (hereinafter “theRecipient”) and [the percentage of the annuity amount payable to the charitable recipient] percent of the annuityamount to [an organization described in §§ 170(c) and 2055(a) of the Code] (hereinafter “the Charitable Recipient”).

2003-31 I.R.B. 266 August 4, 2003

The annuity period is a term of [not more than 20] years. The first day of the annuity period shall be the date ofmy death and the last day of the annuity period shall be the day preceding the [ordinal number corresponding to thelength of the annuity period] anniversary of that date. If the Charitable Recipient is not an organization described in§§ 170(c) and 2055(a) of the Code at the time when any annuity payment is to be distributed to it, then the Trusteeshall distribute that annuity payment to one or more organizations described in §§ 170(c) and 2055(a) of the Codeas the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee’s sole discretion. Theannuity amount shall be paid in equal quarterly installments at the end of each calendar quarter from income, and tothe extent income is not sufficient, from principal. Any income of the trust for a taxable year in excess of the annuityamount shall be added to principal. If the initial net fair market value of the trust assets is incorrectly determined,then within a reasonable period after the value is finally determined for federal estate tax purposes, the Trustee shallpay to the Recipient and the Charitable Recipient (in the case of an undervaluation) or receive from the Recipientand the Charitable Recipient (in the case of an overvaluation) an amount equal to the difference between the annuityamount(s) properly payable and the annuity amount(s) actually paid.

(b) In paragraph 2, Deferral Provision, and paragraph 4, Distribution to Charity, of the sample trust, replace each referenceto “the Recipient” with a reference to “the Recipient and the Charitable Recipient.”


.03 Apportionment of the Annuity Amount among Members of a Named Class in the Discretion of theTrustee.

(1) Explanation. A trust is not a CRAT if any person has the power to alter the amount to be paid to any named person otherthan an organization described in § 170(c) if the power would cause any person to be treated as the owner of the trust, orany portion thereof, if subpart E were applicable to the trust. Section 1.664–2(a)(3)(ii). See Rev. Rul. 77–73, 1977–1 C.B.175. A trustee’s discretionary power, exercisable solely by that trustee, to allocate the annuity amount among the membersof a class would cause the trustee to be treated as the owner of all or a portion of the trust under § 678(a) if the trustee is amember of the class, if the trustee may apply trust income or corpus to satisfy the trustee’s own legal obligation, or if thetrustee actually exercises the power to satisfy a support obligation owed by the trustee. Therefore, if any trustee is given thediscretionary power exercisable solely by that trustee to allocate the annuity amount among members of a class, the trustinstrument must provide that such trustee must be: (i) not a member of the recipient class; and (ii) prohibited from applyingany part of the annuity payment in satisfaction of the trustee’s own legal obligation.

(2) Instructions for use.(a) Add the following sentence to the sample trust:

Any trustee who is authorized in the trustee’s sole discretion to allocate the annuity amount among members of aRecipient class must not be a member of the Recipient class.

(b) Replace the first sentence of paragraph 1, Payment of Annuity Amount, of the sample trust with the following threesentences:

In each taxable year of the trust during the annuity period, the Trustee shall pay to a member or members of a classof persons comprised of [designated members of class] (hereinafter “the Recipient”) an annuity amount equal to [anumber no less than 5 and no more than 50] percent of the initial net fair market value of all property passing tothis trust as finally determined for federal estate tax purposes. The Trustee may pay the annuity amount to one ormore members of the class, in equal or unequal shares, as the Trustee, in the Trustee’s sole discretion, may fromtime to time deem advisable. The Trustee may not, however, apply the payment for the Trustee’s own benefit, or insatisfaction of any support or other legal obligation of the Trustee.


(1) Explanation. Under § 664(f), payment of the annuity amount may terminate upon the earlier of the occurrence of a qualifiedcontingency (as defined in § 664(f)(3)) or the expiration of the term of years. The amount of the charitable deduction,however, will be determined without regard to a qualified contingency. See § 664(f)(2).

(2) Instruction for use. Replace the second and third sentences of paragraph 1, Payment of Annuity Amount, of the sampletrust with the following two sentences, respectively:

The annuity period is a term of [not more than 20] years, unless earlier terminated by the occurrence of [qualifiedcontingency]. The first day of the annuity period shall be the date of my death and the last day of the annuity periodshall be the day preceding the [ordinal number corresponding to the length of the annuity period] anniversary of thatdate or, if earlier, the date on which occurs the [qualified contingency].

August 4, 2003 267 2003-31 I.R.B.



(2) Instruction for use. Replace paragraph 4, Distribution to Charity, of the sample trust with the following paragraph:Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principaland income of the trust (other than any amount due the Recipient under the provisions above) to one or more charita-ble organizations described in §§ 170(c) and 2055(a) of the Code as the Recipient shall appoint and direct by specificreference to this power of appointment by inter vivos or testamentary instrument. To the extent the Recipient fails toeffectively exercise the power of appointment, the principal and income not effectively appointed shall be distributed toone or more organizations described in §§ 170(c) and 2055(a) of the Code as the Trustee shall select, and in the propor-tions as the Trustee shall decide, in the Trustee’s sole discretion. If an organization fails to qualify as an organizationdescribed in §§ 170(c) and 2055(a) of the Code at the time when any principal or income of the trust is to be distributedto it, then the Trustee shall distribute the then principal and income to one or more organizations described in §§ 170(c)and 2055(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee’ssole discretion.




Rev. Proc. 2003–59

SECTION 1. PURPOSE

This revenue procedure contains an annotated sample declaration of trust and alternate provisions that meet the requirements of§ 664(d)(1) of the Internal Revenue Code for a testamentary charitable remainder annuity trust (CRAT) providing for annuity paymentspayable consecutively for two measuring lives followed by the distribution of trust assets to a charitable remainderman.


Previously, the Internal Revenue Service issued sample trust instruments for certain types of CRATs. The Service is updating thepreviously issued samples and issuing new samples for additional types of CRATs; annotations and alternate sample provisions areincluded as further guidance. In addition to the sample trust instrument included in this revenue procedure for a testamentary CRATproviding for annuity payments payable consecutively for two measuring lives, samples are provided in separate revenue proceduresfor:




Rev. Proc. 2003–56, superceding section 5 of Rev. Proc. 90–32);(e) a testamentary CRAT providing for annuity payments for one measuring life (see Rev. Proc. 2003–57, superceding section

6 of Rev. Proc. 90–32);(f) a testamentary CRAT providing for annuity payments for a term of years (see Rev. Proc. 2003–58); and(g) a testamentary CRAT providing for annuity payments payable concurrently and consecutively for two measuring lives (see



Section 4 of this revenue procedure provides a sample declaration of trust for a testamentary CRAT with consecutive interestsfor two measuring lives that is created by an individual who is a citizen or resident of the United States. Section 5 of this revenue

2003-31 I.R.B. 268 August 4, 2003

procedure provides annotations to the provisions of the sample trust. Section 6 of this revenue procedure provides samples of alternateprovisions concerning: (.01) the statement of the annuity amount as a specific dollar amount; (.02) the payment of part of the annuityto an organization described in § 170(c); (.03) a qualified contingency; (.04) the last annuity payments to the recipients; and (.05) apower of appointment to designate the charitable remainderman.

For transfers to a qualifying CRAT, as defined in § 664(d)(1), the remainder interest will be deductible by the estate of a citizen orresident of the United States under § 2055(e)(2)(A) if the other requirements of § 2055(e)(2)(A) (that is, the requirements not relatingto the provisions of the governing instrument) are also met. The Service will recognize a trust as a qualified CRAT meeting all of therequirements of § 664(d)(1) if the trust operates in a manner consistent with the terms of the trust instrument, if the trust is a valid trustunder applicable local law, and if the trust instrument: (i) is substantially similar to the sample in section 4 of this revenue procedure;or (ii) properly integrates one or more alternate provisions from section 6 of this revenue procedure into a document substantiallysimilar to the sample in section 4 of this revenue procedure. A trust instrument that contains substantive provisions in addition to thoseprovided in section 4 of this revenue procedure (other than properly integrated alternate provisions from section 6 of this revenueprocedure, or provisions necessary to establish a valid trust under applicable local law that are not inconsistent with the applicablefederal tax requirements), or that omits any of the provisions of section 4 of this revenue procedure (unless an alternate provisionfrom section 6 of this revenue procedure is properly integrated), will not necessarily be disqualified, but neither will that trust beassured of qualification under the provisions of this revenue procedure. The Service generally will not issue a letter ruling on whethera testamentary trust created by an individual and with consecutive interests for two measuring lives qualifies as a CRAT. The Service,however, generally will issue letter rulings on the effect of substantive trust provisions, other than those contained in sections 4 and 6of this revenue procedure, on the qualification of a trust as a CRAT.

SECTION 4. SAMPLE TESTAMENTARY CHARITABLE REMAINDER ANNUITY TRUST — TWOLIVES, CONSECUTIVE INTERESTS


1. Payment of Annuity Amount. In each taxable year of the trust during the annuity period, the Trustee shall pay to [permissiblerecipient] (hereinafter “the Initial Recipient”) until the Initial Recipient’s death, and thereafter to [permissible recipient] (hereinafter“the Successor Recipient”) (subject to any proration in paragraph 3), an annuity amount equal to [a number no less than 5 and nomore than 50] percent of the initial net fair market value of all property passing to this trust as finally determined for federal estatetax purposes. The first day of the annuity period shall be the date of my death and the last day of the annuity period shall be the dateof the death of the survivor of the Initial Recipient and the Successor Recipient. The annuity amount shall be paid in equal quarterlyinstallments at the end of each calendar quarter from income, and to the extent income is not sufficient, from principal. Any incomeof the trust for a taxable year in excess of the annuity amount shall be added to principal. If the initial net fair market value of the trustassets is incorrectly determined, then within a reasonable period after the value is finally determined for federal estate tax purposes,the Trustee shall pay to the Initial Recipient and/or Successor Recipient (in the case of an undervaluation) or receive from the InitialRecipient and/or Successor Recipient (in the case of an overvaluation) an amount equal to the difference between the annuity amount(s)properly payable and the annuity amount(s) actually paid.

2. Deferral Provision. The obligation to pay the annuity amount shall commence with the date of my death, but payment of theannuity amount may be deferred from this date until the end of the taxable year in which the trust is completely funded. Within areasonable time after the end of the taxable year in which the trust is completely funded, the Trustee must pay to the Initial Recipientand/or the Successor Recipient (in the case of an underpayment) or receive from the Initial Recipient and/or the Successor Recipient(in the case of an overpayment) the difference between any annuity amounts actually paid, plus interest, and the annuity amountspayable, plus interest. The interest shall be computed for any period at the rate of interest, compounded annually, that the federalincome tax regulations under § 664 of the Code prescribe for this computation.

3. Proration of Annuity Amount. The Trustee shall prorate the annuity amount on a daily basis for any short taxable year. If theSuccessor Recipient survives the Initial Recipient, the Trustee shall prorate on a daily basis the next regular annuity payment due afterthe death of the Initial Recipient between the estate of the Initial Recipient and the Successor Recipient. In the taxable year of thetrust during which the annuity period ends, the Trustee shall prorate the annuity amount on a daily basis for the number of days of theannuity period in that taxable year.

4. Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principal and incomeof the trust (other than any amount due the Recipients or their estates under the provisions above) to [designated remainderman](hereinafter “the Charitable Organization”). If the Charitable Organization is not an organization described in §§ 170(c) and 2055(a)of the Code at the time when any principal or income of the trust is to be distributed to it, then the Trustee shall distribute the thenprincipal and income to one or more organizations described in §§ 170(c) and 2055(a) of the Code as the Trustee shall select, and inthe proportions as the Trustee shall decide, in the Trustee’s sole discretion.

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SECTION 5. ANNOTATIONS REGARDING SAMPLE TESTAMENTARY CHARITABLEREMAINDER ANNUITY TRUST — TWO LIVES, CONSECUTIVE INTERESTS






(1) Permissible recipients. For a CRAT with an annuity period based on the lives of two individuals, the annuity amount mustgenerally be paid to those individuals and both must be living at the time of the creation of the trust. See Rev. Rul. 2002–20,2002–1 C.B. 794, for situations in which the annuity amount may be paid to a trust for the benefit of an individual who isfinancially disabled. An organization described in § 170(c) may receive part, but not all, of the annuity amount. Section664(d)(1)(A) and § 1.664–2(a)(3)(i). See section 6.02 of this revenue procedure for an alternate provision that provides forpayment of part of the annuity to an organization described in § 170(c).

(2) Percentage requirements. The sum certain annuity amount must be at least 5 percent and not more than 50 percent of theinitial net fair market value of the assets placed in trust. Section 664(d)(1)(A). Even if the sum certain annuity amount is atleast 5 percent and not more than 50 percent of the initial net fair market value of the assets placed in trust, no deductionwill be allowable under § 2055 if the probability that the trust corpus will be exhausted before the death of the survivorof the recipients exceeds 5 percent. Rev. Rul. 77–374, 1977–2 C.B. 329. See § 20.7520–3(b) for special rules that maybe applicable in valuing interests transferred to CRATs. In addition, the value (determined under § 7520) of the charitableremainder interest must be at least 10 percent of the initial net fair market value of all property placed in the trust. Section664(d)(1)(D).

(3) Payment of annuity amount in installments. Paragraph 1, Payment of Annuity Amount, of the sample trust specifies thatthe annuity amount is to be paid in equal quarterly installments at the end of each quarter. However, the trust instrument

2003-31 I.R.B. 270 August 4, 2003

may specify that the annuity amount is to be paid to the recipient annually or in equal or unequal installments throughoutthe year. See § 1.664–2(a)(1)(i). The amount of the charitable deduction will be affected by the frequency of payment, bywhether the installments are equal or unequal, and by whether each installment is payable at the beginning or end of theperiod. See § 1.664–2(c) and § 20.2031–7(d)(2)(iv).











(2) Designated remainderman. Any named charitable remainderman must be an organization described in §§ 170(c) and2055(a) at the time of the transfer to the charitable remainder annuity trust. See § 664(d)(1)(C) and Rev. Rul. 77–385,1977–2 C.B. 331. The trust instrument may restrict the charitable remainderman to an organization described in §§ 170(c)and 2055(a), but grant to a trustee or other person the power to designate the actual charitable remainderman. See section6.05 of this revenue procedure for an alternate provision in which a recipient is granted a power of appointment to designatethe charitable remainderman.





(2) Prohibitions against certain investments and excess business holdings. Prohibitions against investments that jeopardizethe exempt purpose of the trust for purposes of § 4944, as modified by § 4947(a)(2)(A), and against retaining any excessbusiness holdings for purposes of § 4943, as modified by § 4947(a)(2)(A), are required if the trust provides for payment of

August 4, 2003 271 2003-31 I.R.B.

part of an annuity amount to an organization described in § 170(c) and an estate tax charitable deduction is sought for thisinterest. See § 4947(b)(3). See section 6.02 of this revenue procedure for an alternate provision that provides for paymentof part of the annuity to an organization described in § 170(c).


SECTION 6. ALTERNATE PROVISIONS FOR SAMPLE TESTAMENTARY CHARITABLEREMAINDER ANNUITY TRUST — TWO LIVES, CONSECUTIVE INTERESTS




In each taxable year of the trust during the annuity period, the Trustee shall pay to [permissible recipient] (here-inafter “the Initial Recipient”) until the Initial Recipient’s death and thereafter to [permissible recipient] (hereinafter“the Successor Recipient”) (subject to any proration in paragraph 3), an annuity amount equal to [the stated dollaramount].





Payment of Annuity Amount. The annuity amount is equal to [a number no less than 5 and no more than 50] percentof the initial net fair market value of all property passing to this trust as finally determined for federal estate tax pur-poses. In each taxable year of the trust during the annuity period, the Trustee shall pay [the percentage of the annuityamount payable to the noncharitable recipients] percent of the annuity amount to [permissible recipient] (hereinafter“the Initial Recipient”) until the Initial Recipient’s death, and thereafter to [permissible recipient] (hereinafter “theSuccessor Recipient”) (subject to any proration in paragraph 3). In each taxable year of the trust during the annuityperiod, the Trustee shall pay [the percentage of the annuity amount payable to the charitable recipient] percent ofthe annuity amount to [an organization described in §§ 170(c) and 2055(a) of the Code] (hereinafter “the CharitableRecipient”). The first day of the annuity period shall be the date of my death and the last day of the annuity periodshall be the date of the death of the survivor of the Initial Recipient and the Successor Recipient. If the CharitableRecipient is not an organization described in §§ 170(c) and 2055(a) of the Code at the time when any annuity paymentis to be distributed to it, then the Trustee shall distribute that annuity payment to one or more organizations describedin §§ 170(c) and 2055(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide,in the Trustee’s sole discretion. The annuity amount shall be paid in equal quarterly installments at the end of eachcalendar quarter from income, and to the extent income is not sufficient, from principal. Any income of the trust fora taxable year in excess of the annuity amount shall be added to principal. If the initial net fair market value of the

2003-31 I.R.B. 272 August 4, 2003

trust assets is incorrectly determined, then within a reasonable period after the value is finally determined for federalestate tax purposes, the Trustee shall pay to the Initial Recipient and/or the Successor Recipient and the CharitableRecipient (in the case of an undervaluation) or receive from the Initial Recipient and/or the Successor Recipient andthe Charitable Recipient (in the case of an overvaluation) an amount equal to the difference between the annuityamount(s) properly payable and the annuity amount(s) actually paid.

(b) In paragraph 2, Deferral Provision, of the sample trust, replace each reference to “the Initial Recipient and/or the Succes-sor Recipient” with a reference to “the Initial Recipient and/or the Successor Recipient and the Charitable Recipient.”

(c) Replace the first parenthetical in paragraph 4, Distribution to Charity, of the sample trust with the following parenthetical:(other than any amount due the Initial Recipient, the Successor Recipient, or their estates and the Charitable Recipientunder the provisions above).



(1) Explanation. Under § 664(f), payment of the annuity amount may terminate upon the earlier of the occurrence of a qualifiedcontingency (as defined in § 664(f)(3)) or the death of the survivor of the initial recipient and the successor recipient. Theamount of the charitable deduction, however, will be determined without regard to a qualified contingency. See § 664(f)(2).

(2) Instructions for use. Replace the second sentence of paragraph 1, Payment of Annuity Amount, of the sample trust withthe following sentence:

The first day of the annuity period shall be the date of my death and the last day of the annuity period shall be the dateof the death of the survivor of the Initial Recipient and the Successor Recipient or, if earlier, the date on which occursthe [qualified contingency].


(1) Explanation. As an alternative to prorating the annuity amount in the taxable year of the initial recipient’s death, paymentof the initial recipient’s share of the annuity amount may terminate with the last regular payment preceding the initialrecipient’s death. Similarly, as an alternative to prorating the annuity amount in the taxable year of the termination of theannuity period, payment of the annuity amount may terminate with the last regular payment preceding the termination ofthe annuity period. However, the fact that a recipient may not receive the last payment shall not be taken into account forpurposes of determining the present value of the remainder interest. Section 1.664–2(a)(5)(i).

(2) Instruction for use.(a) To add an alternate provision to terminate the payment of the initial recipient’s share of the annuity amount with the last

regular payment preceding his or her death, replace paragraph 3, Proration of Annuity Amount, of the sample trust withthe following paragraph:

Proration of Annuity Amount. Except as provided below, the Trustee shall prorate the annuity amount on a dailybasis for any short taxable year. The obligation of the Trustee to pay the annuity amount to the Initial Recipient shallterminate with the regular quarterly installment next preceding the Initial Recipient’s death. In the taxable year ofthe trust during which the annuity period ends, the Trustee shall prorate the annuity amount on a daily basis for thenumber of days of the annuity period in that taxable year.


Proration of Annuity Amount. Except as provided below, the Trustee shall prorate the annuity amount on a dailybasis for any short taxable year. If the Successor Recipient survives the Initial Recipient, the Trustee shall prorate ona daily basis the next regular annuity payment due after the death of the Initial Recipient between the estate of theInitial Recipient and the Successor Recipient. In the taxable year of the trust during which the annuity period ends,the obligation of the Trustee to pay the annuity amount shall terminate with the regular quarterly installment nextpreceding the termination of the annuity period.

(c) To add an alternate provision terminating the payment of the initial recipient’s share of the annuity amount with the lastregular payment preceding his or her death, and terminating the payment of the annuity amount with the last regularpayment preceding the termination of the annuity period, replace paragraph 3, Proration of Annuity Amount, of thesample trust with the following paragraph:

Proration of Annuity Amount. Except as provided below, the Trustee shall prorate the annuity amount on a dailybasis for any short taxable year. The obligation of the Trustee to pay the annuity amount to the Initial Recipient shall

August 4, 2003 273 2003-31 I.R.B.

terminate with the regular quarterly installment next preceding the Initial Recipient’s death. In the taxable year of thetrust during which the annuity period ends, the obligation of the Trustee to pay the annuity amount shall terminatewith the regular quarterly installment next preceding the termination of the annuity period.



(2) Instruction for use. Replace paragraph 4, Distribution to Charity, of the sample trust with the following paragraph:Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principal andincome of the trust (other than any amount due the Recipients or their estates under the provisions above) to one or morecharitable organizations described in §§ 170(c) and 2055(a) of the Code as [one of the named permissible recipients]shall appoint and direct by specific reference to this power of appointment by inter vivos or testamentary instrument. Tothe extent this power of appointment is not effectively exercised, the principal and income not effectively appointed shallbe distributed to one or more organizations described in §§ 170(c) and 2055(a) of the Code as the Trustee shall select,and in the proportions as the Trustee shall decide, in the Trustee’s sole discretion. If an organization fails to qualify asan organization described in §§ 170(c) and 2055(a) of the Code at the time when any principal or income of the trustis to be distributed to it, then the Trustee shall distribute the then principal and income to one or more organizationsdescribed in §§ 170(c) and 2055(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shalldecide, in the Trustee’s sole discretion.






Rev. Proc. 2003–60

SECTION 1. PURPOSE

This revenue procedure contains an annotated sample declaration of trust and alternate provisions that meet the requirements of§ 664(d)(1) of the Internal Revenue Code for a testamentary charitable remainder annuity trust (CRAT) providing for annuity paymentspayable concurrently and consecutively for two measuring lives followed by the distribution of trust assets to a charitable remainder-man.


Previously, the Internal Revenue Service issued sample trust instruments for certain types of CRATs. The Service is updating thepreviously issued samples and issuing new samples for additional types of CRATs; annotations and alternate sample provisions areincluded as further guidance. In addition to the sample trust instrument included in this revenue procedure for a testamentary CRATproviding for annuity payments payable concurrently and consecutively for two measuring lives, samples are provided in separaterevenue procedures for:




Rev. Proc. 2003–56, superceding section 5 of Rev. Proc. 90–32);

2003-31 I.R.B. 274 August 4, 2003

(e) a testamentary CRAT providing for annuity payments for one measuring life (see Rev. Proc. 2003–57, superceding section6 of Rev. Proc. 90–32);

(f) a testamentary CRAT providing for annuity payments for a term of years (see Rev. Proc. 2003–58); and(g) a testamentary CRAT providing for annuity payments payable consecutively for two measuring lives (see Rev. Proc.

2003–59, superceding section 7 of Rev. Proc. 90–32).


Section 4 of this revenue procedure provides a sample declaration of trust for a testamentary CRAT with concurrent and consecutiveinterests for two measuring lives that is created by an individual who is a citizen or resident of the United States. Section 5 of thisrevenue procedure provides annotations to the provisions of the sample trust. Section 6 of this revenue procedure provides samplesof alternate provisions concerning: (.01) the statement of the annuity amount as a specific dollar amount; (.02) the payment of part ofthe annuity to an organization described in § 170(c); (.03) a qualified contingency; (.04) the last annuity payments to the recipients;and (.05) a power of appointment to designate the charitable remainderman.

For transfers to a qualifying CRAT, as defined in § 664(d)(1), the remainder interest will be deductible by the estate of a citizen orresident of the United States under § 2055(e)(2)(A) if the other requirements of § 2055(e)(2)(A) (that is, the requirements not relatingto the provisions of the governing instrument) are also met. The Service will recognize a trust as a qualified CRAT meeting all of therequirements of § 664(d)(1) if the trust operates in a manner consistent with the terms of the trust instrument, if the trust is a valid trustunder applicable local law, and if the trust instrument: (i) is substantially similar to the sample in section 4 of this revenue procedure;or (ii) properly integrates one or more alternate provisions from section 6 of this revenue procedure into a document substantiallysimilar to the sample in section 4 of this revenue procedure. A trust instrument that contains substantive provisions in addition to thoseprovided in section 4 of this revenue procedure (other than properly integrated alternate provisions from section 6 of this revenueprocedure, or provisions necessary to establish a valid trust under applicable local law that are not inconsistent with the applicablefederal tax requirements), or that omits any of the provisions of section 4 of this revenue procedure (unless an alternate provision fromsection 6 of this revenue procedure is properly integrated), will not necessarily be disqualified, but neither will that trust be assuredof qualification under the provisions of this revenue procedure. The Service generally will not issue a letter ruling on whether atestamentary trust created by an individual and with concurrent and consecutive interests for two measuring lives qualifies as a CRAT.The Service, however, generally will issue letter rulings on the effect of substantive trust provisions, other than those contained insections 4 and 6 of this revenue procedure, on the qualification of a trust as a CRAT.

SECTION 4. SAMPLE TESTAMENTARY CHARITABLE REMAINDER ANNUITY TRUST — TWOLIVES, CONCURRENT AND CONSECUTIVE INTERESTS


1. Payment of Annuity Amount. In each taxable year of the trust during the annuity period, the Trustee shall pay to [permissiblerecipient] and to [permissible recipient] (hereinafter “the Recipients”) in equal shares during their lifetimes, an annuity amount equalto [a number no less than 5 and no more than 50] percent of the initial net fair market value of all property passing to this trust asfinally determined for federal estate tax purposes, and upon the death of one (hereinafter “the Predeceasing Recipient”), the Trusteeshall pay the entire annuity amount (subject to any proration in paragraph 3) to the survivor (hereinafter “the Survivor Recipient”).The first day of the annuity period shall be the date of my death and the last day of the annuity period shall be the date of the SurvivorRecipient’s death. The annuity amount shall be paid in equal quarterly installments at the end of each calendar quarter from income,and to the extent income is not sufficient, from principal. Any income of the trust for a taxable year in excess of the annuity amountshall be added to principal. If the initial net fair market value of the trust assets is incorrectly determined, then within a reasonableperiod after the value is finally determined for federal estate tax purposes, the Trustee shall pay to the Recipients (in the case of anundervaluation) or receive from the Recipients (in the case of an overvaluation) an amount equal to the difference between the annuityamount(s) properly payable and the annuity amount(s) actually paid.

2. Deferral Provision. The obligation to pay the annuity amount shall commence with the date of my death, but payment of theannuity amount may be deferred from this date until the end of the taxable year in which the trust is completely funded. Within areasonable time after the end of the taxable year in which the trust is completely funded, the Trustee must pay to the Recipients (in thecase of an underpayment) or receive from the Recipients (in the case of an overpayment) the difference between any annuity amountsactually paid, plus interest, and the annuity amounts payable, plus interest. The interest shall be computed for any period at the rateof interest, compounded annually, that the federal income tax regulations under § 664 of the Code prescribe for this computation.

3. Proration of Annuity Amount. The Trustee shall prorate the annuity amount on a daily basis for any short taxable year. Upon thedeath of the Predeceasing Recipient, the Trustee shall prorate on a daily basis the Predeceasing Recipient’s share of the next regularannuity payment between the estate of the Predeceasing Recipient and the Survivor Recipient. In the taxable year of the trust during

August 4, 2003 275 2003-31 I.R.B.

which the annuity period ends, the Trustee shall prorate the annuity amount on a daily basis for the number of days of the annuityperiod in that taxable year.

4. Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principal and incomeof the trust (other than any amount due the Recipients or their estates under the provisions above) to [designated remainderman](hereinafter “the Charitable Organization”). If the Charitable Organization is not an organization described in §§ 170(c) and 2055(a)of the Code at the time when any principal or income of the trust is to be distributed to it, then the Trustee shall distribute the thenprincipal and income to one or more organizations described in §§ 170(c) and 2055(a) of the Code as the Trustee shall select, and inthe proportions as the Trustee shall decide, in the Trustee’s sole discretion.







SECTION 5. ANNOTATIONS REGARDING SAMPLE TESTAMENTARY CHARITABLEREMAINDER ANNUITY TRUST — TWO LIVES, CONCURRENT AND CONSECUTIVEINTERESTS






(1) Permissible recipients. For a CRAT having an annuity period based on the lives of two individuals, the annuity amount mustgenerally be paid to those individuals, and both must be living at the time of the creation of the trust. See Rev. Rul. 2002–20,2002–1 C.B. 794, for situations in which the annuity amount may be paid to a trust for the benefit of an individual who isfinancially disabled. An organization described in § 170(c) may receive part, but not all, of the annuity amount. Section664(d)(1)(A) and § 1.664–2(a)(3)(i). See section 6.02 of this revenue procedure for an alternate provision that provides forpayment of part of the annuity to an organization described in § 170(c).

2003-31 I.R.B. 276 August 4, 2003

(2) Division of annuity amount between recipients. The sample trust provides that while both recipients are alive they will sharethe annuity amount equally and upon the death of the predeceasing recipient the survivor recipient will receive all of theannuity amount, subject to any proration in paragraph 3. The annuity amount may be divided other than equally during thejoint lives of the recipients. In addition, the share of the predeceasing recipient may be made payable to an organizationdescribed in § 170(c) for the rest of the survivor recipient's life.

(3) Percentage requirements. The sum certain annuity amount must be at least 5 percent and not more than 50 percent of theinitial net fair market value of the assets placed in trust. Section 664(d)(1)(A). Even if the sum certain annuity amount is atleast 5 percent and not more than 50 percent of the initial net fair market value of the assets placed in trust, no deductionwill be allowable under § 2055 if the probability that the trust corpus will be exhausted before the death of the survivorof the recipients exceeds 5 percent. Rev. Rul. 77–374, 1977–2 C.B. 329. See § 20.7520–3(b) for special rules that maybe applicable in valuing interests transferred to CRATs. In addition, the value (determined under § 7520) of the charitableremainder interest must be at least 10 percent of the initial net fair market value of all property placed in the trust. Section664(d)(1)(D).

(4) Payment of annuity amount in installments. Paragraph 1, Payment of Annuity Amount, of the sample trust specifies thatthe annuity amount is to be paid in equal quarterly installments at the end of each quarter. However, the trust instrumentmay specify that the annuity amount is to be paid to the recipients annually or in equal or unequal installments throughoutthe year. See § 1.664–2(a)(1)(i). The amount of the charitable deduction will be affected by the frequency of payment, bywhether the installments are equal or unequal, and by whether each installment is payable at the beginning or end of theperiod. See § 1.664–2(c) and § 20.2031–7(d)(2)(iv)





(2) Treatment of distributions. For the proper treatment of distributions to a charitable remainder trust or to the recipientsduring the period of administration of an estate or settlement of a trust that is not a charitable remainder trust, see§ 1.664–1(a)(5)(iii).






(2) Designated remainderman. Any named charitable remainderman must be an organization described in §§ 170(c) and2055(a) at the time of the transfer to the charitable remainder annuity trust. See § 664(d)(1)(C) and Rev. Rul. 77–385,1977–2 C.B. 331. The trust instrument may restrict the charitable remainderman to an organization described in §§ 170(c)and 2055(a), but grant to a trustee or other person the power to designate the actual charitable remainderman. See section

August 4, 2003 277 2003-31 I.R.B.

6.05 of this revenue procedure for an alternate provision in which a recipient is granted a power of appointment to designatethe charitable remainderman.







SECTION 6. ALTERNATE PROVISIONS FOR SAMPLE TESTAMENTARY CHARITABLEREMAINDER ANNUITY TRUST — TWO LIVES, CONCURRENT AND CONSECUTIVEINTERESTS




In each taxable year of the trust during the annuity period, the Trustee shall pay to [permissible recipient] and to[permissible recipient] (hereinafter “the Recipients”) in equal shares during their lifetimes an annuity amount equalto [the stated dollar amount], and upon the death of one (hereinafter “the Predeceasing Recipient”), the Trustee shallpay the entire annuity amount (subject to any proration in paragraph 3) to the survivor (hereinafter “the SurvivorRecipient”).



(1) Explanation. An organization described in § 170(c) may receive part, but not all, of any annuity amount. Section664(d)(1)(A). If an estate tax charitable deduction is sought for the present value of the annuity interest passing to acharitable organization, the trust instrument must contain additional provisions. First, the trust instrument must specifythe portion of each annuity payment that is payable to the noncharitable recipients and to the charitable organizationdescribed in §§ 170(c) and 2055(a). Second, the trust instrument must contain a means for selecting an alternative qualifiedcharitable organization if the designated organization is not a qualified organization at the time when any annuity amountis to be paid to it. Third, the trust instrument must contain prohibitions against investments that jeopardize the exemptpurpose of the trust for purposes of § 4944, as modified by § 4947(a)(2)(A), and against retaining any excess businessholdings for purposes of § 4943, as modified by § 4947(a)(2)(A).

2003-31 I.R.B. 278 August 4, 2003


Payment of Annuity Amount. The annuity amount is equal to [a number no less than 5 and no more than 50] percentof the initial net fair market value of all property passing to this trust as finally determined for federal estate taxpurposes. In each taxable year of the trust during the annuity period, the Trustee shall pay [the percentage of theannuity amount payable to the noncharitable recipients] percent of the annuity amount to [permissible recipient] and[permissible recipient] (hereinafter “the Recipients”) in equal shares during their joint lives, and upon the death ofone (hereinafter “the Predeceasing Recipient”), the Trustee shall pay that entire percentage of the annuity amount(subject to any proration in paragraph 3) to the survivor (hereinafter “the Survivor Recipient”). In each taxable yearof the trust during the annuity period, the Trustee shall pay [the percentage of the annuity amount payable to thecharitable recipient] percent of the annuity amount to [an organization described in §§ 170(c) and 2055(a) of theCode] (hereinafter “the Charitable Recipient”). The first day of the annuity period shall be the date of my death andthe last day of the annuity period shall be the date of the Survivor Recipient’s death. If the Charitable Recipientis not an organization described in §§ 170(c) and 2055(a) of the Code at the time when any annuity payment is tobe distributed to it, then the Trustee shall distribute that annuity payment to one or more organizations described in§§ 170(c) and 2055(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in theTrustee’s sole discretion. The annuity amount shall be paid in equal quarterly installments at the end of each calendarquarter from income, and to the extent income is not sufficient, from principal. Any income of the trust for a taxableyear in excess of the annuity amount shall be added to principal. If the initial net fair market value of the trust assetsis incorrectly determined, then within a reasonable period after the value is finally determined for federal estate taxpurposes, the Trustee shall pay to the Recipients and the Charitable Recipient (in the case of an undervaluation) orreceive from the Recipients and the Charitable Recipient (in the case of an overvaluation) an amount equal to thedifference between the annuity amount(s) properly payable and the annuity amount(s) actually paid.

(b) In paragraph 2, Deferral Provision, of the sample trust, replace each reference to “the Recipients” with a reference to“the Recipients and the Charitable Recipient.”

(c) Replace the first parenthetical in paragraph 4, Distribution to Charity, of the sample trust with the following parenthetical:(other than any amount due the Recipients or their estates and the Charitable Recipient under the provisions above).



(1) Explanation. Under § 664(f), payment of the annuity amount may terminate upon the earlier of the occurrence of a qualifiedcontingency (as defined in § 664(f)(3)) or the death of the survivor recipient. The amount of the charitable deduction,however, will be determined without regard to a qualified contingency. See § 664(f)(2).


The first day of the annuity period shall be the date of my death and the last day of the annuity period shall be the dateof the Survivor Recipient’s death or, if earlier, the date on which occurs the [qualified contingency].


(1) Explanation. As an alternative to prorating the annuity amount in the taxable year of the predeceasing recipient’s death,payment of the predeceasing recipient’s share of the annuity amount may terminate with the last regular payment precedingthe predeceasing recipient’s death. Similarly, as an alternative to prorating the annuity amount in the taxable year of thetermination of the annuity period, payment of the annuity amount may terminate with the last regular payment precedingthe termination of the annuity period. However, the fact that a recipient may not receive the last payment shall not be takeninto account for purposes of determining the present value of the remainder interest. Section 1.664–2(a)(5)(i).

(2) Instructions for use.(a) To add an alternate provision to terminate the payment of the predeceasing recipient’s share of the annuity amount with

the last regular payment preceding his or her death, replace paragraph 3, Proration of Annuity Amount, of the sampletrust with the following paragraph:

Proration of Annuity Amount. Except as provided below, the Trustee shall prorate the annuity amount on a daily basisfor any short taxable year. The obligation of the Trustee to pay a share of the annuity amount to the PredeceasingRecipient shall terminate with the regular quarterly installment next preceding the Predeceasing Recipient’s death.

August 4, 2003 279 2003-31 I.R.B.

In the taxable year of the trust during which the annuity period ends, the Trustee shall prorate the annuity amount ona daily basis for the number of days of the annuity period in that taxable year.


Proration of Annuity Amount. Except as provided below, the Trustee shall prorate the annuity amount on a daily basisfor any short taxable year. Upon the death of the Predeceasing Recipient, the Trustee shall prorate on a daily basis thePredeceasing Recipient’s share of the next regular annuity payment between the estate of the Predeceasing Recipientand the Survivor Recipient. In the taxable year of the trust during which the annuity period ends, the obligationof the Trustee to pay the annuity amount shall terminate with the regular quarterly installment next preceding thetermination of the annuity period.

(c) To add an alternate provision terminating the payment of the predeceasing recipient’s share of the annuity amount withthe last regular payment preceding his or her death, and terminating the payment of the annuity amount with the lastregular payment preceding the termination of the annuity period, replace paragraph 3, Proration of Annuity Amount, ofthe sample trust with the following paragraph:

Proration of Annuity Amount. Except as provided below, the Trustee shall prorate the annuity amount on a daily basisfor any short taxable year. The obligation of the Trustee to pay a share of the annuity amount to the PredeceasingRecipient shall terminate with the regular quarterly installment next preceding the Predeceasing Recipient’s death.In the taxable year of the trust during which the annuity period ends, the obligation of the Trustee to pay the annuityamount shall terminate with the regular quarterly installment next preceding the termination of the annuity period.



(2) Instruction for use. Replace paragraph 4, Distribution to Charity, of the sample trust with the following paragraph:Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principal andincome of the trust (other than any amount due the Recipients or their estates under the provisions above) to one or morecharitable organizations described in §§ 170(c) and 2055(a) of the Code as [one of the named permissible recipients]shall appoint and direct by specific reference to this power of appointment by inter vivos or testamentary instrument. Tothe extent this power of appointment is not effectively exercised, the principal and income not effectively appointed shallbe distributed to one or more organizations described in §§ 170(c) and 2055(a) of the Code as the Trustee shall select,and in the proportions as the Trustee shall decide, in the Trustee’s sole discretion. If an organization fails to qualify asan organization described in §§ 170(c) and 2055(a) of the Code at the time when any principal or income of the trustis to be distributed to it, then the Trustee shall distribute the then principal and income to one or more organizationsdescribed in §§ 170(c) and 2055(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shalldecide, in the Trustee’s sole discretion.





2003-31 I.R.B. 280 August 4, 2003



Rev. Proc. 2003-53; 2003-31 IRB 230 SECTION 1. PURPOSE

This revenue procedure contains an annotated sample declaration of trust and alternate provisions that meet the requirements of section 664(d)(1) of the Internal Revenue Code for an inter vivos charitable remainder annuity trust (CRAT) providing for annuity payments for one measuring life followed by the distribution of trust assets to a charitable remainderman.


Previously, the Internal Revenue Service issued sample trust instruments for certain types of CRATs. The Service is updating the previously issued samples and issuing new samples for additional types of CRATs; annotations and alternate sample provisions are included as further guidance. In addition to the sample trust instrument included in this revenue procedure for an inter vivos CRAT providing for annuity payments for one measuring life, samples are provided in separate revenue procedures for:

(a) an inter vivos CRAT providing for annuity payments for a term of years (see Rev. Proc. 2003-54);

(b) an inter vivos CRAT providing for annuity payments payable consecutively for two measuring lives (see Rev. Proc. 2003-55, superceding section 4 of Rev. Proc. 90-32, 1990-1 C.B. 546);

(c) an inter vivos CRAT providing for annuity payments payable concurrently and consecutively for two measuring lives (see Rev. Proc. 2003-56, superceding section 5 of Rev. Proc. 90-32);

(d) a testamentary CRAT providing for annuity payments for one measuring life (see Rev. Proc. 2003-57, superceding section 6 of Rev. Proc. 90-32);

(e) a testamentary CRAT providing for annuity payments for a term of years (see Rev. Proc. 2003-58);

(f) a testamentary CRAT providing for annuity payments payable consecutively for two measuring lives (see Rev. Proc. 2003-59, superceding section 7 of Rev. Proc. 90-32); and

(g) a testamentary CRAT providing for annuity payments payable concurrently and consecutively for two measuring lives (see Rev. Proc. 2003-60, superceding section 8 of Rev. Proc. 90-32).


Section 4 of this revenue procedure provides a sample declaration of trust for an inter vivos CRAT with one measuring life that is created by an individual who is a citizen or resident of the United States. Section 5 of this revenue procedure provides annotations to the provisions of the sample trust. Section 6 of this revenue procedure provides samples of alternate provisions concerning: (.01) the statement of the annuity amount as a specific dollar amount; (.02) the payment of part of the annuity to an organization described in section 170(c); (.03) a qualified contingency; (.04) the last annuity payment to the recipient; (.05) the restriction of the charitable remainderman to a public charity; (.06) a retained right to substitute the charitable remainderman; and (.07) a power of appointment to designate the charitable remainderman.

For transfers to a qualifying CRAT, as defined in section 664(d)(1), the remainder interest will be deductible by a citizen or resident of the United States under sections 170(f)(2)(A), 2055(e)(2)(A), and 2522(c)(2)(A) for income, estate, and gift tax purposes, respectively, if the other requirements of sections



170(f)(2)(A), 2055(e)(2)(A), and 2522(c)(2)(A) (that is, the requirements not relating to the provisions of the governing instrument) are also met. The Service will recognize a trust as a qualified CRAT meeting all of the requirements of section 664(d)(1) if the trust operates in a manner consistent with the terms of the trust instrument, if the trust is a valid trust under applicable local law, and if the trust instrument: (i) is substantially similar to the sample in section 4 of this revenue procedure; or (ii) properly integrates one or more alternate provisions from section 6 of this revenue procedure into a document substantially similar to the sample in section 4 of this revenue procedure. A trust instrument that contains substantive provisions in addition to those provided in section 4 of this revenue procedure (other than properly integrated alternate provisions from section 6 of this revenue procedure, or provisions necessary to establish a valid trust under applicable local law that are not inconsistent with the applicable federal tax requirements), or that omits any of the provisions of section 4 of this revenue procedure (unless an alternate provision from section 6 of this revenue procedure is properly integrated), will not necessarily be disqualified, but neither will that trust be assured of qualification under the provisions of this revenue procedure. The Service generally will not issue a letter ruling on whether an inter vivos trust created by an individual and with one measuring life qualifies as a CRAT. The Service, however, generally will issue letter rulings on the effect of substantive trust provisions, other than those contained in sections 4 and 6 of this revenue procedure, on the qualification of a trust as a CRAT.

SECTION 4. SAMPLE INTER VIVOS CHARITABLE REMAINDER ANNUITY TRUST -- ONE LIFE

On this ___ day of ___, 20___, I, ___ (hereinafter "the Donor"), desiring to establish a charitable remainder annuity trust, within the meaning of Rev. Proc. 2003-53 and section 664(d)(1) of the Internal Revenue Code (hereinafter "the Code"), hereby enter into this trust agreement with ___ as the initial trustee (hereinafter "the Trustee"). This trust shall be known as the ___ Charitable Remainder Annuity Trust.

1. Funding of Trust. The Donor hereby transfers and irrevocably assigns, on the above date, to the Trustee the property described in Schedule A, and the Trustee accepts the property and agrees to hold, manage, and distribute the property under the terms set forth in this trust instrument.

2. Payment of Annuity Amount. In each taxable year of the trust during the annuity period, the Trustee shall pay to [permissible recipient] (hereinafter "the Recipient") an annuity amount equal to [a number no less than 5 and no more than 50] percent of the initial net fair market value of all property transferred to the trust, valued as of the above date (that is, the date of the transfer). The first day of the annuity period shall be the date the property is transferred to the trust and the last day of the annuity period shall be the date of the Recipient's death. The annuity amount shall be paid in equal quarterly installments at the end of each calendar quarter from income, and to the extent income is not sufficient, from principal. Any income of the trust for a taxable year in excess of the annuity amount shall be added to principal. If the initial net fair market value of the trust assets is incorrectly determined, then within a reasonable period after the value is finally determined for federal tax purposes, the Trustee shall pay to the Recipient (in the case of an undervaluation) or receive from the Recipient (in the case of an overvaluation) an amount equal to the difference between the annuity amount(s) properly payable and the annuity amount(s) actually paid.

3. Proration of Annuity Amount. The Trustee shall prorate the annuity amount on a daily basis for any short taxable year. In the taxable year of the trust during which the annuity period ends, the Trustee shall



prorate the annuity amount on a daily basis for the number of days of the annuity period in that taxable year.

4. Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principal and income of the trust (other than any amount due the Recipient or the Recipient's estate under the provisions above) to [designated remainderman] (hereinafter "the Charitable Organization"). If the Charitable Organization is not an organization described in sections 170(c), 2055(a), and 2522(a) of the Code at the time when any principal or income of the trust is to be distributed to it, then the Trustee shall distribute the then principal and income to one or more organizations described in sections 170(c), 2055(a), and 2522(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion.

5. Additional Contributions. No additional contributions shall be made to the trust after the initial contribution.

6. Prohibited Transactions. The Trustee shall not engage in any act of self-dealing within the meaning of section 4941(d) of the Code, as modified by section 4947(a)(2)(A) of the Code, and shall not make any taxable expenditures within the meaning of section 4945(d) of the Code, as modified by section 4947(a)(2)(A) of the Code.

7. Taxable Year. The taxable year of the trust shall be the calendar year.

8. Governing Law. The operation of the trust shall be governed by the laws of the State of ___. However, the Trustee is prohibited from exercising any power or discretion granted under said laws that would be inconsistent with the qualification of the trust as a charitable remainder annuity trust under section 664(d)(l) of the Code and the corresponding regulations.

9. Limited Power of Amendment. This trust is irrevocable. However, the Trustee shall have the power, acting alone, to amend the trust from time to time in any manner required for the sole purpose of ensuring that the trust qualifies and continues to qualify as a charitable remainder annuity trust within the meaning of section 664(d)(1) of the Code.

10. Investment of Trust Assets. Nothing in this trust instrument shall be construed to restrict 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.

SECTION 5. ANNOTATIONS REGARDING SAMPLE INTER VIVOS CHARITABLE REMAINDER ANNUITY TRUST -- ONE LIFE


(1) Factors concerning qualification of trust. A deduction must be allowable under section 170, section 2055, or section 2522 for property contributed to the trust. Section 1.664-1(a)(1)(iii)(a) of the Income Tax Regulations. The trust must meet the definition of and function exclusively as a charitable remainder trust from the creation of the trust. Section 1.664-1(a)(4). Solely for purposes of section 664, a trust is deemed created at the earliest time that neither the grantor nor any other person is treated as the owner of the entire trust under subpart E, part 1, subchapter J, chapter 1, subtitle A of the Code (subpart E), but in no event prior to the time property is first transferred to the trust. Neither the donor nor the donor's spouse



shall be treated as the owner of the trust under subpart E merely because he or she is named as a recipient of the annuity amount. Section 1.664-1(a)(4). In addition, funding the trust with certain types of assets may disqualify it as a charitable remainder trust. See section 1.664-1(a)(7) and Rev. Rul. 73-610, 1973-2 C.B. 213.

(2) Valuation of unmarketable assets. If the trust is funded with unmarketable assets, the initial net fair market value of the assets must be determined exclusively by an independent trustee, as defined in section 1.664-1(a)(7)(iii), or must be determined by a current "qualified appraisal" from a "qualified appraiser," as defined in section 1.170A-13(c)(3) and (c)(5), respectively. Section 1.664-1(a)(7).

(3) Income tax deductibility limitations. The amount of the charitable deduction for income tax purposes is affected by a number of factors, including the type of property contributed to the trust, the type of charity receiving the property, whether the remainder interest is paid outright to charity or held in further trust, and the donor's adjusted gross income (with certain adjustments). See section 170(b) and (e); section 1.170A-8; Rev. Rul. 80-38, 1980-1 C.B. 56; and Rev. Rul. 79-368, 1979-2 C.B. 109. See section 6.05 of this revenue procedure for an alternate provision that restricts the charitable remainderman to a public charity (as defined therein).

(4) Trustee provisions. Alternate or successor trustees may be designated in the trust instrument. In addition, the trust instrument may contain other administrative provisions relating to the trustee's duties and powers, as long as the provisions do not conflict with the rules governing charitable remainder trusts under section 664 and the regulations thereunder.

(5) Identity of donor. For purposes of qualification under this revenue procedure, the donor may be an individual or a husband and wife. Appropriate adjustments should be made to the introductory paragraph if a husband and wife are the donors. Terms such as "grantor" or "settlor" may be substituted for "donor."


(1) Permissible recipients. For a CRAT with an annuity period based on the life of one individual, the annuity amount must generally be paid to that individual and the individual must be living at the time of the creation of the trust. See Rev. Rul. 2002-20, 2002-1 C.B. 794, for situations in which the annuity amount may be paid to a trust for the benefit of an individual who is financially disabled. An organization described in section 170(c) may receive part, but not all, of the annuity amount. Section 664(d)(1)(A) and section 1.664-2(a)(3)(i). See section 6.02 of this revenue procedure for an alternate provision that provides for payment of part of the annuity to an organization described in section 170(c).

(2) Percentage requirements. The sum certain annuity amount must be at least 5 percent and not more than 50 percent of the initial net fair market value of the assets placed in trust. Section 664(d)(1)(A). Even if the sum certain annuity amount is at least 5 percent and not more than 50 percent of the initial net fair market value of the assets placed in trust, no deduction will be allowable under section 2055 or section 2522 if the probability that the trust corpus will be exhausted before the death of the recipient exceeds 5 percent. Rev. Rul. 77-374, 1977-2 C.B. 329 and Rev. Rul. 70-452, 1970-2 C.B. 199. See sections 1.7520-3(b) and 25.7520-3(b) for special rules that may be applicable in valuing interests transferred to CRATs. In addition, the value (determined under section 7520) of the charitable remainder interest must be at least 10 percent of the initial net fair market value of all property placed in the trust. Section 664(d)(1)(D).



(3) Payment of annuity amount in installments. Paragraph 2, Payment of Annuity Amount, of the sample trust specifies that the annuity amount is to be paid in equal quarterly installments at the end of each quarter. However, the trust instrument may specify that the annuity amount is to be paid to the recipient annually or in equal or unequal installments throughout the year. See section 1.664-2(a)(1)(i). The amount of the charitable deduction will be affected by the frequency of payment, by whether the installments are equal or unequal, and by whether each installment is payable at the beginning or end of the period. See section 1.664-2(c) and section 20.2031-7(d)(2)(iv).

(4) Payment of annuity amount by close of taxable year. Generally the annuity amount for any taxable year must be paid before the close of the taxable year for which it is due. For circumstances under which the annuity amount may be paid within a reasonable time after the close of the taxable year, see section 1.664-2(a)(1)(i)(a).

(5) Early distributions to charity. The trust instrument may provide that an amount other than the annuity shall be paid (or may be paid in the discretion of the trustee) to an organization described in section 170(c). If such a distribution is made in kind, the adjusted basis of the property distributed must be fairly representative of the adjusted basis of the property available for distribution on the date of distribution. Section 1.664-2(a)(4).


(1) Prorating annuity amount. To compute the annuity amount in a short taxable year and in the taxable year in which the annuity period terminates, see section 1.664-2(a)(1)(iv)(a) and (b), respectively.

(2) Determining annuity amount payable in year of recipient's death. Paragraph 3, Proration of Annuity Amount, of the sample trust specifies that the annuity amount shall be prorated on a daily basis. See section 6.04 of this revenue procedure for an alternate provision that provides for the termination of the annuity amount with the last regular payment preceding the recipient's death.


(1) Minimum value of remainder. As noted in section 5.02(2) of this revenue procedure, the value (determined under section 7520) of the charitable remainder interest is required to be at least 10 percent of the initial net fair market value of all property placed in the trust. Section 664(d)(1)(D).

(2) Designated remainderman. Any named charitable remainderman must be an organization described in section 170(c) at the time of the transfer to the charitable remainder annuity trust. See section 664(d)(1)(C). Any named charitable remainderman also must be an organization described in section 2522(a) to qualify for the gift tax charitable deduction and an organization described in section 2055(a) to qualify for the estate tax charitable deduction. See Rev. Rul. 77-385, 1977-2 C.B. 331. If it is determined a deduction under section 2055(a) will not be necessary in any event, all references to section 2055(a) in the trust instrument may be deleted. The trust instrument may restrict the charitable remainderman to an organization described in sections 170(c), 2055(a), and 2522(a), but grant to a trustee or other person the power to designate the actual charitable remainderman. The gift of the remainder interest will be incomplete for gift tax purposes if, for example: (i) the donor retains the power to substitute the charitable remainderman; or (ii) the trust instrument provides the trustee with the power to designate the charitable remainderman and the donor is not prohibited from serving as trustee. See section 25.2511-2(c). Note,



however, that an income tax charitable deduction is available even if the donor has the authority to substitute the charitable remainderman or the trustee has the authority to designate the charitable remainderman. Rev. Rul. 68-417, 1968-2 C.B. 103; Rev. Rul. 79-368, 1979-2 C.B. 109. See section 6.06 of this revenue procedure for an alternate provision in which the donor retains the right to substitute the charitable remainderman. See section 6.07 of this revenue procedure for an alternate provision in which the recipient is granted a power of appointment to designate the charitable remainderman.

(3) Multiple remaindermen. The remainder interest may pass to more than one charitable organization as long as each organization is described in sections 170(c), 2522(a), and, if needed, section 2055(a). Section 1.664-2(a)(6)(i).

(4) Alternative remaindermen. The trust instrument of a CRAT must provide a means for selecting alternative charitable remaindermen in the event the designated organization is not qualified at the time any payments are to be made to it from the trust. Section 1.664-2(a)(6)(iv).


(1) Payment of the annuity amount. Payment of the annuity amount to the recipient is not considered an act of self-dealing within the meaning of section 4941(d), as modified by section 4947(a)(2)(A), or a taxable expenditure within the meaning of section 4945(d), as modified by section 4947(a)(2)(A). Section 53.4947-1(c)(2) of the Foundation and Similar Excise Taxes Regulations.

(2) Prohibitions against certain investments and excess business holdings. Prohibitions against investments that jeopardize the exempt purpose of the trust for purposes of section 4944, as modified by section 4947(a)(2)(A), and against retaining any excess business holdings for purposes of section 4943, as modified by section 4947(a)(2)(A), are required if the trust provides for payment of part of an annuity amount to an organization described in section 170(c) and gift and estate tax charitable deductions are sought for this interest. See section 4947(b)(3). See section 6.02 of this revenue procedure for an alternate provision that provides for payment of part of the annuity to an organization described in section 170(c).

(3) Trust to continue in existence for benefit of charity. The governing instrument requirements of section 508(e) must be included in the trust instrument if, after the termination of the annuity period: (i) the trust instrument provides that the trust shall continue in existence for the benefit of the charitable remainderman and, as a result, the trust will become subject to the provisions of section 4947(a)(1); and (ii) the trust will be treated as a private foundation within the meaning of section 509(a), as modified by section 4947(a)(1). Except as provided in paragraph 6 of the sample trust, the trust instrument may limit the application of the provisions of section 508(e) to the period after the termination of the annuity period when the trust continues in existence for the benefit of the charitable remainderman. Note that when the trust provides for the trust corpus to be retained, in whole or in part, in trust for the charitable remainderman, the higher deductibility limitations in section 170(b)(1)(A) for the income tax charitable deduction will not be available (even if the charitable remainderman is restricted to a public charity) because the contribution of the trust corpus is made "for the use of" rather than "to" the charitable remainderman. See section 1.170A-8(b).



SECTION 6. ALTERNATE PROVISIONS FOR SAMPLE INTER VIVOS CHARITABLE REMAINDER ANNUITY TRUST -- ONE LIFE


(1) Explanation. As an alternative to stating the annuity amount as a fraction or percentage of the initial net fair market value of the assets transferred to the trust, the annuity amount may be stated as a specific dollar amount. Section 1.664-2(a)(1)(ii) and (iii). In either case, the annuity amount must be not less than 5 percent nor more than 50 percent of the initial net fair market value of all property placed in trust. Section 664(d)(l)(A).


(a) Replace the first sentence of paragraph 2, Payment of Annuity Amount, of the sample trust with the following sentence:

In each taxable year of the trust during the annuity period, the Trustee shall pay to [permissible recipient] (hereinafter "the Recipient") an annuity amount equal to [the stated dollar amount.]

(b) Delete the last sentence of paragraph 2, Payment of Annuity Amount, of the sample trust concerning the incorrect valuation of trust assets.

.02 Payment of Part of the Annuity to an Organization Described in section 170(c).

(1) Explanation. An organization described in section 170(c) may receive part, but not all, of any annuity amount. Section 664(d)(1)(A). If a gift tax charitable deduction and, if needed, an estate tax charitable deduction are sought for the present value of the annuity interest passing to a charitable organization, the trust instrument must contain additional provisions. First, the trust instrument must specify the portion of each annuity payment that is payable to the noncharitable recipient and to the charitable organization described in sections 170(c), 2522(a), and, if needed, section 2055(a). Second, the trust instrument must contain a means for selecting an alternative qualified charitable organization if the designated organization is not a qualified organization at the time when any annuity amount is to be paid to it. Third, the trust instrument must contain prohibitions against investments that jeopardize the exempt purpose of the trust for purposes of section 4944, as modified by section 4947(a)(2)(A), and against retaining any excess business holdings for purposes of section 4943, as modified by section 4947(a)(2)(A).


(a) Replace paragraph 2, Payment of Annuity Amount, of the sample trust with the following paragraph:

Payment of Annuity Amount. The annuity amount is equal to [a number no less than 5 and no more than 50] percent of the initial net fair market value of all property transferred to the trust, valued as of the above date (that is, the date of the transfer). In each taxable year of the trust during the annuity period, the Trustee shall pay [the percentage of the annuity amount payable to the noncharitable recipient] percent of the annuity amount to [permissible recipient]



(hereinafter "the Recipient") and [the percentage of the annuity amount payable to the charitable recipient] percent of the annuity amount to [an organization described in sections 170(c), 2055(a), and 2522(a) of the Code] (hereinafter "the Charitable Recipient"). The first day of the annuity period shall be the date the property is transferred to the trust and the last day of the annuity period shall be the date of the Recipient's death. If the Charitable Recipient is not an organization described in sections 170(c), 2055(a), and 2522(a) of the Code at the time when any annuity payment is to be distributed to it, then the Trustee shall distribute that annuity payment to one or more organizations described in sections 170(c), 2055(a), and 2522(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion. The annuity amount shall be paid in equal quarterly installments at the end of each calendar quarter from income, and to the extent income is not sufficient, from principal. Any income of the trust for a taxable year in excess of the annuity amount shall be added to principal. If the initial net fair market value of the trust assets is incorrectly determined, then within a reasonable period after the value is finally determined for federal tax purposes, the Trustee shall pay to the Recipient and the Charitable Recipient (in the case of an undervaluation) or receive from the Recipient and the Charitable Recipient (in the case of an overvaluation) an amount equal to the difference between the annuity amount(s) properly payable and the annuity amount(s) actually paid.

(b) Replace the first parenthetical in paragraph 4, Distribution to Charity, of the sample trust with the following parenthetical:

(other than any amount due the Recipient or the Recipient's estate and the Charitable Recipient under the provisions above).


The Trustee shall not make any investments that jeopardize the exempt purpose of the trust for purposes of section 4944 of the Code, as modified by section 4947(a)(2)(A) of the Code, or retain any excess business holdings for purposes of section 4943 of the Code, as modified by section 4947(a)(2)(A) of the Code.




(1) Explanation. Under section 664(f), payment of the annuity amount may terminate upon the earlier of the occurrence of a qualified contingency (as defined in section 664(f)(3)) or the death of the recipient. The amount of the charitable deduction, however, will be determined without regard to a qualified contingency. See section 664(f)(2).

(2) Instruction for use. Replace the second sentence of paragraph 2, Payment of Annuity Amount, of the sample trust with the following sentence:

The first day of the annuity period shall be the date the property is transferred to the trust and the last day of the annuity period shall be the date of the Recipient's death or, if earlier, the date on which occurs the [qualified contingency.]


(1) Explanation. As an alternative to prorating the annuity amount in the taxable year of the recipient's death, payment of the annuity amount may terminate with the last regular payment preceding the recipient's death. However, the fact that the recipient may not receive the last payment shall not be taken into account for purposes of determining the present value of the remainder interest. Section 1.664-2(a)(5)(i).

(2) Instruction for use. Replace the second sentence of paragraph 3, Proration of Annuity Amount, of the sample trust with the following sentence:

In the taxable year of the trust during which the annuity period ends, the obligation of the Trustee to pay the annuity amount shall terminate with the regular quarterly installment next preceding the death of the Recipient.


(1) Explanation. The amount of the donor's income tax charitable deduction is more limited for gifts to certain private foundations than for other charitable organizations. Specifically, charitable organizations described in section 170(c) include private foundations that are not described in section 170(b)(1)(E). See section 170(b) and Rev. Rul. 79-368, 1979-2 C.B. 109. To avoid these more restrictive limitations, a donor of an inter vivos CRAT may wish to restrict the charitable remainderman to an organization that is described in section 170(b)(1)(A) as well as sections 170(c), 2055(a), and 2522(a) (referred to herein as a "public charity").

(2) Instruction for use. To restrict the charitable remainderman to a public charity, each and every time the phrase "an organization described in sections 170(c), 2055(a), and 2522(a) of the Code" appears in the sample trust, replace it with the phrase "an organization described in sections 170(b)(1)(A), 170(c), 2055(a), and 2522(a) of the Code."




(1) Explanation. The donor may retain the right to substitute another charitable remainderman for the charitable remainderman named in the trust instrument. See Rev. Rul. 76-8, 1976-1 C.B. 179. Note, however, that the retention of this right will cause the gift of the remainder interest to be incomplete for gift tax purposes. See section 25.2511-2(c) and Rev. Rul. 77-275, 1977-2 C.B. 346.

(2) Instruction for use. Insert the following sentence between the first and last sentences of paragraph 4, Distribution to Charity, of the sample trust:

The Donor reserves the right to designate, at any time and from time to time, in lieu of the Charitable Organization identified above, one or more organizations described in sections 170(c), 2055(a), and 2522(a) of the Code as the charitable remainderman and shall make any such designation by giving written notice to the Trustee.


(1) Explanation. The trust instrument may grant the recipient a power of appointment to designate the charitable remainderman. See Rev. Rul. 76-7, 1976-1 C.B. 179.

(2) Instruction for use. Replace paragraph 4, Distribution to Charity, of the sample trust with the following paragraph:

Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principal and income of the trust (other than any amount due the Recipient or the Recipient's estate under the provisions above) to one or more charitable organizations described in sections 170(c), 2055(a), and 2522(a) of the Code as the Recipient shall appoint and direct by specific reference to this power of appointment by inter vivos or testamentary instrument. To the extent the Recipient fails to effectively exercise the power of appointment, the principal and income not effectively appointed shall be distributed to one or more organizations described in sections 170(c), 2055(a), and 2522(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion. If an organization fails to qualify as an organization described in sections 170(c), 2055(a), and 2522(a) of the Code at the time when any principal or income of the trust is to be distributed to it, then the Trustee shall distribute the then principal and income to one or more organizations described in sections 170(c), 2055(a), and 2522(a) of the Code as the



Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion.


Rev. Proc. 89-21, 1989-1 C.B. 842, is superseded.


The principal authors of this revenue procedure are Karlene M. Lesho and Stephanie N. Bland of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue procedure, contact Karlene M. Lesho or Stephanie N. Bland at (202) 622-7830 (not a toll-free call).




This revenue procedure contains an annotated sample declaration of trust and alternate provisions that meet the requirements of section 664(d)(1) of the Internal Revenue Code for an inter vivos charitable remainder annuity trust (CRAT) providing for annuity payments for a term of years followed by the distribution of trust assets to a charitable remainderman.


Previously, the Internal Revenue Service issued sample trust instruments for certain types of CRATs. The Service is updating the previously issued samples and issuing new samples for additional types of CRATs; annotations and alternate sample provisions are included as further guidance. In addition to the sample trust instrument included in this revenue procedure for an inter vivos CRAT providing for annuity payments for a term of years, samples are provided in separate revenue procedures for:

(a) an inter vivos CRAT providing for annuity payments for one measuring life (see Rev. Proc. 2003-53, superceding Rev. Proc. 89-21, 1989-1 C.B. 842);

(b) an inter vivos CRAT providing for annuity payments payable consecutively for two measuring lives (see Rev. Proc. 2003-55, superceding section 4 of Rev. Proc. 90-32, 1990-1 C.B. 546);

(c) an inter vivos CRAT providing for annuity payments payable concurrently and consecutively for two measuring lives (see Rev. Proc. 2003-56, superceding section 5 of Rev. Proc. 90-32);






Section 4 of this revenue procedure provides a sample declaration of trust for an inter vivos CRAT that is created by an individual who is a citizen or resident of the United States and that provides for a term of years annuity period. Section 5 of this revenue procedure provides annotations to the provisions of the sample trust. Section 6 of this revenue procedure provides samples of alternate provisions concerning: (.01) the statement of the annuity amount as a specific dollar amount; (.02) the payment of part of the annuity to an organization described in section 170(c); (.03) the apportionment of the annuity amount among members of a named class in the discretion of the trustee; (.04) a qualified contingency; (.05) the restriction of the charitable remainderman to a public charity; (.06) a retained right to substitute the charitable remainderman; and (.07) a power of appointment to designate the charitable remainderman.



For transfers to a qualifying CRAT, as defined in section 664(d)(1), the remainder interest will be deductible by a citizen or resident of the United States under sections 170(f)(2)(A), 2055(e)(2)(A), and 2522(c)(2)(A) for income, estate, and gift tax purposes, respectively, if the other requirements of sections 170(f)(2)(A), 2055(e)(2)(A), and 2522(c)(2)(A) (that is, the requirements not relating to the provisions of the governing instrument) are also met. The Service will recognize a trust as a qualified CRAT meeting all of the requirements of section 664(d)(1) if the trust operates in a manner consistent with the terms of the trust instrument, if the trust is a valid trust under applicable local law, and if the trust instrument: (i) is substantially similar to the sample in section 4 of this revenue procedure; or (ii) properly integrates one or more alternate provisions from section 6 of this revenue procedure into a document substantially similar to the sample in section 4 of this revenue procedure. A trust instrument that contains substantive provisions in addition to those provided in section 4 of this revenue procedure (other than properly integrated alternate provisions from section 6 of this revenue procedure, or provisions necessary to establish a valid trust under applicable local law that are not inconsistent with the applicable federal tax requirements), or that omits any of the provisions of section 4 of this revenue procedure (unless an alternate provision from section 6 of this revenue procedure is properly integrated), will not necessarily be disqualified, but neither will that trust be assured of qualification under the provisions of this revenue procedure. The Service generally will not issue a letter ruling on whether an inter vivos trust created by an individual and having a term of years annuity period qualifies as a CRAT. The Service, however, generally will issue letter rulings on the effect of substantive trust provisions, other than those contained in sections 4 and 6 of this revenue procedure, on the qualification of a trust as a CRAT.

SECTION 4. SAMPLE INTER VIVOS CHARITABLE REMAINDER ANNUITY TRUST -- TERM OF YEARS

On this ___ day of ___ , 20___, I, ___ (hereinafter "the Donor"), desiring to establish a charitable remainder annuity trust, within the meaning of Rev. Proc. 2003-54 and section 664(d)(1) of the Internal Revenue Code (hereinafter "the Code"), hereby enter into this trust agreement with ___ as the initial trustee (hereinafter "the Trustee"). This trust shall be known as the ___ Charitable Remainder Annuity Trust.


2. Payment of Annuity Amount. In each taxable year of the trust during the annuity period, the Trustee shall pay to [permissible recipient] (hereinafter "the Recipient") an annuity amount equal to [a number no less than 5 and no more than 50] percent of the initial net fair market value of all property transferred to the trust, valued as of the above date (that is, the date of the transfer). The annuity period is a term of [a number not more than 20] years. The first day of the annuity period shall be the date the property is transferred to the trust and the last day of the annuity period shall be the day preceding the [ordinal number corresponding to the length of the annuity period] anniversary of that date. The annuity amount shall be paid in equal quarterly installments at the end of each calendar quarter from income, and to the extent income is not sufficient, from principal. Any income of the trust for a taxable year in excess of the annuity amount shall be added to principal. If the initial net fair market value of the trust assets is incorrectly determined, then within a reasonable period after the value is finally determined for federal



tax purposes, the Trustee shall pay to the Recipient (in the case of an undervaluation) or receive from the Recipient (in the case of an overvaluation) an amount equal to the difference between the annuity amount(s) properly payable and the annuity amount(s) actually paid.

3. Proration of Annuity Amount. The Trustee shall prorate the annuity amount on a daily basis for any short taxable year. In the taxable year of the trust during which the annuity period ends, the Trustee shall prorate the annuity amount on a daily basis for the number of days of the annuity period in that taxable year.

4. Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principal and income of the trust (other than any amount due the Recipient under the provisions above) to [designated remainderman] (hereinafter "the Charitable Organization"). If the Charitable Organization is not an organization described in sections 170(c), 2055(a), and 2522(a) of the Code at the time when any principal or income of the trust is to be distributed to it, then the Trustee shall distribute the then principal and income to one or more organizations described in sections 170(c), 2055(a), and 2522(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion.




8. Governing Law. The operation of the trust shall be governed by the laws of the State of ___. However, the Trustee is prohibited from exercising any power or discretion granted under said laws that would be inconsistent with the qualification of the trust as a charitable remainder annuity trust under section 664(d)(1) of the Code and the corresponding regulations.



SECTION 5. ANNOTATIONS REGARDING SAMPLE INTER VIVOS CHARITABLE REMAINDER ANNUITY TRUST -- TERM OF YEARS


(1) Factors concerning qualification of trust. A deduction must be allowable under section 170, section 2055, or section 2522 for property contributed to the trust. Section 1.664-1(a)(1)(iii)(a) of the Income Tax



Regulations. The trust must meet the definition of and function exclusively as a charitable remainder trust from the creation of the trust. Section 1.664-1(a)(4). Solely for purposes of section 664, a trust is deemed created at the earliest time that neither the grantor nor any other person is treated as the owner of the entire trust under subpart E, part 1, subchapter J, chapter 1, subtitle A of the Code (subpart E), but in no event prior to the time property is first transferred to the trust. Neither the donor nor the donor's spouse shall be treated as the owner of the trust under subpart E merely because he or she is named as a recipient of the annuity amount. Section 1.664-1(a)(4). In addition, funding the trust with certain types of assets may disqualify it as a charitable remainder trust. See section 1.664-1(a)(7) and Rev. Rul. 73-610, 1973-2 C.B. 213.


(3) Income tax deductibility limitations. The amount of the charitable deduction for income tax purposes is affected by a number of factors, including the type of property contributed to the trust, the type of charity receiving the property, whether the remainder interest is paid outright to charity or held in further trust, and the donor's adjusted gross income (with certain adjustments). See section 170 (b) and (e); section 1.170A-8; Rev. Rul. 80-38, 198G-1 C.B. 56; and Rev. Rul. 79-368, 1979-2 C.B. 109. See section 6.05 of this revenue procedure for an alternate provision that restricts the charitable remainderman to a public charity (as defined therein).

(4) Trustee provisions. Alternate or successor trustees may be designated in the trust instrument. In addition, the trust instrument may contain other administrative provisions relating to the trustee's duties and powers, as long as the provisions do not conflict with the rules governing charitable remainder trusts under section 664 and the regulations thereunder. Note that certain powers given to certain persons serving as the trustee may cause the trustee to be treated as the owner of the trust under subpart E and thus disqualify the trust as a charitable remainder trust. See section 1.664-1(a)(4). See section 6.03 of this revenue procedure for an alternate provision providing for the apportionment of the annuity amount among members of a named class in the discretion of the trustee.



(1) Permissible term. The period for which the annuity amount is payable must not exceed 20 years. Section 1.664-2(a)(5)(i). Thus, for example, the annuity period of a CRAT for a term of 20 years will end on the day preceding the twentieth anniversary of the date the trust was created.

(2) Permissible recipients. For a CRAT having a term of years annuity period, the annuity amount must generally be paid to a named person or persons (within the meaning of section 7701(a)(1)). If the annuity amount is to be paid to an individual or individuals, all the individuals must be living at the time of the creation of the trust. The annuity amount may be payable to the estate or heirs of a named recipient who dies prior to the expiration of the term of years. See Rev. Rul. 74-39, 1974-1 C.B. 156. The annuity



amount may be payable to members of a named class and, because the annuity period is for a term of years, all of the members of the class need not be living or ascertainable at the creation of the trust. An organization described in section 170(c) may receive part, but not all, of the annuity amount. Section 664(d)(1)(A) and section 1.664-2(a)(3)(i). See section 6.02 of this revenue procedure for an alternate provision that provides for payment of part of the annuity to an organization described in section 170(c).

(3) Multiple noncharitable recipients. Generally, if the annuity amount is payable to more than one person, the trust instrument should describe the interest of each person. See section 6.03 of this revenue procedure for an alternate provision providing for the apportionment of the annuity amount among members of a named class in the discretion of the trustee.

(4) Percentage requirements. The sum certain annuity amount must be at least 5 percent and not more than 50 percent of the initial net fair market value of the assets placed in trust. Section 664(d)(1)(A). In addition, the value (determined under section 7520) of the charitable remainder interest must be at least 10 percent of the initial net fair market value of all property placed in the trust. Section 664(d)(1)(D). See sections 1.7520-3(b) and 25.7520-3(b) for special rules that may be applicable in valuing interests transferred to CRATs.


(6) Payment of annuity amount by close of taxable year. Generally, the annuity amount for any taxable year must be paid before the close of the taxable year for which it is due. For circumstances under which the annuity amount may be paid within a reasonable time after the close of the taxable year, see section 1.664-2(a)(1)(i)(a).








(2) Designated remainderman. Any named charitable remainderman must be an organization described in section 170(c) at the time of the transfer to the charitable remainder annuity trust. See section 664(d)(1)(C). Any named charitable remainderman also must be an organization described in section 2522(a) to qualify for the gift tax charitable deduction and an organization described in section 2055(a) to qualify for the estate tax charitable deduction. See Rev. Rul. 77-385, 1977-2 C.B. 331. If it is determined a deduction under section 2055(a) will not be necessary in any event, all references to section 2055(a) in the trust instrument may be deleted. The trust instrument may restrict the charitable remainderman to an organization described in sections 170(c), 2055(a), and 2522(a), but grant to a trustee or other person the power to designate the actual charitable remainderman. The gift of the remainder interest will be incomplete for gift tax purposes if, for example: (i) the donor retains the power to substitute the charitable remainderman; or (ii) the trust instrument provides the trustee with the power to designate the charitable remainderman and the donor is not prohibited from serving as trustee. See section 25.2511-2(c). Note, however, that an income tax charitable deduction is available even if the donor has the authority to substitute the charitable remainderman or the trustee has the authority to designate the charitable remainderman. Rev. Rul. 68-417, 1968-2 C.B. 103; Rev. Rul. 79-368, 1979-2 C.B. 109. See section 6.06 of this revenue procedure for an alternate provision in which the donor retains the right to substitute the charitable remainderman. See section 6.07 of this revenue procedure for an alternate provision in which the recipient is granted a power of appointment to designate the charitable remainderman.

(3) Multiple remaindermen. The remainder interest may pass to more than one charitable organization as long as each organization is described in sections 170(c), 2522(a), and, if needed, 2055(a). Section 1.664-2(a)(6)(i).





(3) Trust to continue in existence for benefit of charity. The governing instrument requirements of section 508(e) must be included in the trust instrument if, after the termination of the annuity period: (i) the trust instrument provides that the trust shall continue in existence for the benefit of the charitable remainderman and, as a result, the trust will become subject to the provisions of section 4947(a)(1); and



(H) the trust will be treated as a private foundation within the meaning of section 509(a), as modified by section 4947(a)(1). Except as provided in paragraph 6 of the sample trust, the trust instrument may limit the application of the provisions of section 508(e) to the period after the termination of the annuity period when the trust continues in existence for the benefit of the charitable remainderman. Note that when the trust provides for the trust corpus to be retained, in whole or in part, in trust for the charitable remainderman, the higher deductibility limitations in section 170(b)(1)(A) for the income tax charitable deduction will not be available (even if the charitable remainderman is restricted to a public charity) because the contribution of the trust corpus is made "for the use of" rather than "to" the charitable remainderman. See section 1.170A-8(b).

SECTION 6. ALTERNATE PROVISIONS FOR SAMPLE INTER VIVOS CHARITABLE REMAINDER ANNUITY TRUST -- TERM OF YEARS


(1) Explanation. As an alternative to stating the annuity amount as a fraction or percentage of the initial net fair market value of the assets transferred to the trust, the annuity amount may be stated as a specific dollar amount. Section 1.664-2(a)(1)(ii) and (iii). In either case, the annuity amount must be not less than 5 percent nor more than 50 percent of the initial net fair market value of all property placed in trust. Section 664(d)(1)(A).



In each taxable year of the trust during the annuity period, the Trustee shall pay to [permissible recipient] (hereinafter "the Recipient") an annuity amount equal to [the stated dollar amount].



(1) Explanation. An organization described in section 170(c) may receive part, but not all, of any annuity amount. Section 664(d)(1)(A). If a gift tax charitable deduction and, if needed, an estate tax charitable deduction are sought for the present value of the annuity interest passing to a charitable organization, the trust instrument must contain additional provisions. First, the trust instrument must specify the portion of each annuity payment that is payable to the noncharitable recipient and to the charitable organization described in sections 170(c), 2522(a), and, if needed, section 2055(a). Second, the trust instrument must contain a means for selecting an alternative qualified charitable organization if the designated organization is not a qualified organization at the time when any annuity amount is to be paid to it. Third, the trust instrument must contain prohibitions against investments that jeopardize the exempt purpose of the trust for purposes of section 4944, as modified by section 4947(a)(2)(A), and against retaining any excess business holdings for purposes of section 4943, as modified by section 4947(a)(2)(A).





Payment of Annuity Amount. The annuity amount is equal to [a number no less than 5 and no more than 50] percent of the initial net fair market value of all property transferred to the trust, valued as of the above date (that is, the date of the transfer). In each taxable year of the trust during the annuity period, the Trustee shall pay [the percentage of the annuity amount payable to the noncharitable recipient] percent of the annuity amount to [permissible recipient] (hereinafter "the Recipient") and [the percentage of the annuity amount payable to the charitable recipient] percent of the annuity amount to [an organization described in sections 170(c), 2055(a), and 2522(a) of the Code] (hereinafter "the Charitable Recipient"). The annuity period is a term of [not more than 20] years. The first day of the annuity period shall be the date the property is transferred to the trust and the last day of the annuity period shall be the day preceding the [ordinal number corresponding to the length of the annuity period] anniversary of that date. If the Charitable Recipient is not an organization described in sections 170(c), 2055(a), and 2522(a) of the Code at the time when any annuity payment is to be distributed to it, then the Trustee shall distribute that annuity payment to one or more organizations described in sections 170(c), 2055(a), and 2522(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion. The annuity amount shall be paid in equal quarterly installments at the end of each calendar quarter from income, and to the extent income is not sufficient, from principal. Any income of the trust for a taxable year in excess of the annuity amount shall be added to principal. If the initial net fair market value of the trust assets is incorrectly determined, then within a reasonable period after the value is finally determined for federal tax purposes, the Trustee shall pay to the Recipient and the Charitable Recipient (in the case of an undervaluation) or receive from the Recipient and the Charitable Recipient (in the case of an overvaluation) an amount equal to the difference between the annuity amount(s) properly payable and the annuity amount(s) actually paid.




(other than any amount due the Recipient and the Charitable Recipient under the provisions above).

(c) Add the following sentence after the first and only sentence in paragraph 6, Prohibited Transactions, of the sample trust: The Trustee shall not make any investments that jeopardize the exempt purpose of the trust for purposes of section 4944 of the Code, as modified by section 4947(a)(2)(A) of the Code, or retain any excess business holdings for purposes of section 4943 of the Code, as modified by section 4947(a)(2)(A) of the Code.

.03 Apportionment of the Annuity Amount among Members of a Named Class in the Discretion of the Trustee.

(1) Explanation. A trust is not a CRAT if any person has the power to alter the amount to be paid to any named person other than an organization described in section 170(c) if the power would cause any person to be treated as the owner of the trust, or any portion thereof, if subpart E were applicable to the trust. Section 1.664-2(a)(3)(ii), See Rev. Rul. 77-73, 1977-1 C.B. 175. For example, the donor would not be treated as the owner of any portion of a trust if the power is exercisable solely by an independent trustee or trustees, provided no person has the power to add beneficiaries to the class except to provide for after-born or after-adopted children. Section 674(c). Trustees are independent for purposes of section 674(c) if none of them is the donor or the donor's spouse and if no more than half of them are related or subordinate parties who are subservient to the wishes of the donor. However, an independent trustee's discretionary power, exercisable solely by that trustee, to allocate the annuity amount among the members of a class would cause the trustee to be treated as the owner of all or a portion of the trust under section 678(a) if the trustee is a member of the class, if the trustee may apply trust income or corpus to satisfy the trustee's own legal obligation, or if the trustee actually exercises the power to satisfy a support obligation owed by the trustee. Therefore, if any trustee is given the discretionary power exercisable solely by that trustee to allocate the annuity amount among members of a class, the trust instrument must provide that such trustee must be: (i) independent; (ii) not a member of the recipient class; and (iii) prohibited from applying any part of the annuity payment in satisfaction of the trustee's own legal obligation.


(a) Add the following sentence to the sample trust:

Any trustee who is authorized in the trustee's sole discretion to allocate the annuity amount among members of a Recipient class must be independent within the meaning of section 674(c) of the Code and must not be a member of the Recipient class.

(b) Replace the first sentence of paragraph 2, Payment of Annuity Amount, of the sample trust with the following three sentences:



In each taxable year of the trust during the annuity period, the Trustee shall pay to a member or members of a class of persons comprised of [designated members of class] (hereinafter "the Recipient") an annuity amount equal to [a number no less than 5 and no more than 50] percent of the initial net fair market value of all property transferred to the trust, valued as of the above date (that is, the date of the transfer). The Trustee may pay the annuity amount to one or more members of the class, in equal or unequal shares, as the Trustee, in the Trustee's sole discretion, may from time to time deem advisable. The Trustee may not, however, apply the payment for the Trustee's own benefit, or in satisfaction of any support or other legal obligation of the Trustee.


(1) Explanation. Under section 664(f), payment of the annuity amount may terminate upon the earlier of the occurrence of a qualified contingency (as defined in section 664(f)(3)) or the expiration of the term of years. The amount of the charitable deduction, however, will be determined without regard to a qualified contingency. See section 664(f)(2).

(2) Instruction for use. Replace the second and third sentences of paragraph 2, Payment of Annuity Amount, of the sample trust with the following two sentences, respectively:

The annuity period is a term of [not more than 20] years, unless earlier terminated by the occurrence of [qualified contingency]. The first day of the annuity period shall be the date the property is transferred to the trust and the last day of the annuity period shall be the day preceding the [ordinal number corresponding to the length of the annuity period] anniversary of that date or, if earlier, the date on which occurs the [qualified contingency].



(2) Instruction for use. To restrict the charitable remainderman to a public charity, each and every time the phrase "an organization described in sections 170(c), 2055(a), and 2522(a) of the Code" appears in the



sample trust, replace it with the phrase "an organization described in sections 170(b)(1)(A), 170(c), 2055(a), and 2522(a) of the Code."




The Donor reserves the right to designate, at any time and from time to time, in lieu of the Charitable Organization identified above, one or more organizations described in sections 170(c), 2055(a), and 2522(a) of the Code as the charitable remainderman, and shall make any such designation by giving written notice to the Trustee.


(1) Explanation. The trust instrument may grant a recipient a power of appointment to designate the charitable remainderman. See Rev. Rul. 76-7, 1976-1 C.B. 179.


Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principal and income of the trust (other than any amount due the Recipient under the provisions above) to one or more charitable organizations described in sections 170(c), 2055(a), and 2522(a) of the Code as the Recipient shall appoint and direct by specific reference to this power of appointment by inter vivos or testamentary instrument. To the extent the Recipient fails to effectively exercise the power of appointment, the principal and income not effectively appointed shall be distributed to one or more organizations described in sections 170(c), 2055(a), and 2522(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion. If an organization fails to qualify as an organization described in sections 170(c), 2055(a), and 2522(a) of the Code at the time when any principal or income of the trust is to be distributed to it, then the Trustee shall



distribute the then principal and income to one or more organizations described in sections 170(c), 2055(a), and 2522(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion.






This revenue procedure contains an annotated sample declaration of trust and alternate provisions that meet the requirements of section 664(d)(1) of the Internal Revenue Code for an inter vivos charitable remainder annuity trust (CRAT) providing for annuity payments payable consecutively for two measuring lives followed by the distribution of trust assets to a charitable remainderman.


Previously, the Internal Revenue Service issued sample trust instruments for certain types of CRATs. The Service is updating the previously issued samples and issuing new samples for additional types of CRATs; annotations and alternate sample provisions are included as further guidance. In addition to the sample trust instrument included in this revenue procedure for an inter vivos CRAT providing for annuity payments payable consecutively for two measuring lives, samples are provided in separate revenue procedures for:


(b) an inter vivos CRAT providing for annuity payments for a term of years (see Rev. Proc. 2003-54);

(c) an inter vivos CRAT providing for annuity payments payable concurrently and consecutively for two measuring lives see Rev. Proc. 2003-56, superceding section 5 of Rev. Proc. 90-32, 1990-1 C.B. 546);






Section 4 of this revenue procedure provides a sample declaration of trust for an inter vivos CRAT with consecutive interests for two measuring lives that is created by an individual who is a citizen or resident of the United States. Section 5 of this revenue procedure provides annotations to the provisions of the sample trust. Section 6 of this revenue procedure provides samples of alternate provisions concerning: (.01) the statement of the annuity amount as a specific dollar amount; (.02) the payment of part of the annuity to an organization described in section 170(c); (.03) a qualified contingency; (.04) the retained right to revoke the interest of the survivor recipient; (.05) the last annuity payments to the recipients; (.06) the restriction of the charitable remainderman to a public charity; (.07) the retained right to substitute the charitable remainderman; and (.08) a power of appointment to designate the charitable remainderman.



For transfers to a qualifying CRAT, as defined in section 664(d)(1), the remainder interest will be deductible by a citizen or resident of the United States under sections 170(f)(2)(A), 2055(e)(2)(A), and 2522(c)(2)(A) for income, estate, and gift tax purposes, respectively, if the other requirements of sections 170(f)(2)(A), 2055(e)(2)(A), and 2522(c)(2)(A) (that is, the requirements not relating to the provisions of the governing instrument) are also met. The Service will recognize a trust as a qualified CRAT meeting all of the requirements of section 664(d)(1) if the trust operates in a manner consistent with the terms of the trust instrument, if the trust is a valid trust under applicable local law, and if the trust instrument: (i) is substantially similar to the sample in section 4 of this revenue procedure; or (ii) properly integrates one or more alternate provisions from section 6 of this revenue procedure into a document substantially similar to the sample in section 4 of this revenue procedure. A trust instrument that contains substantive provisions in addition to those provided in section 4 of this revenue procedure (other than properly integrated alternate provisions from section 6 of this revenue procedure, or provisions necessary to establish a valid trust under applicable local law that are not inconsistent with the applicable federal tax requirements), or that omits any of the provisions of section 4 of this revenue procedure (unless an alternate provision from section 6 of this revenue procedure is properly integrated), will not necessarily be disqualified, but neither will that trust be assured of qualification under the provisions of this revenue procedure. The Service generally will not issue a letter ruling on whether an inter vivos trust created by an individual and with consecutive interests for two measuring lives qualifies as a CRAT. The Service, however, generally will issue letter rulings on the effect of substantive trust provisions, other than those contained in sections 4 and 6 of this revenue procedure, on the qualification of a trust as a CRAT.

SECTION 4. SAMPLE INTER VIVOS CHARITABLE REMAINDER ANNUITY TRUST -- TWO LIVES, CONSECUTIVE INTERESTS



2. Payment of Annuity Amount. In each taxable year of the trust during the annuity period, the Trustee shall pay to [permissible recipient] (hereinafter "the Initial Recipient") until the Initial Recipient's death, and thereafter to [permissible recipient] (hereinafter "the Successor Recipient") (subject to any proration in paragraph 4), an annuity amount equal to [a number no less than 5 and no more than 50] percent of the initial net fair market value of all property transferred to the trust, valued as of the above date (that is, the date of the transfer). The first day of the annuity period shall be the date the property is transferred to the trust and the last day of the annuity period shall be the date of the death of the survivor of the Initial Recipient and the Successor Recipient. The annuity amount shall be paid in equal quarterly installments at the end of each calendar quarter from income, and to the extent income is not sufficient, from principal. Any income of the trust for a taxable year in excess of the annuity amount shall be added to principal. If the initial net fair market value of the trust assets is incorrectly determined, then within a reasonable



period after the value is finally determined for federal tax purposes, the Trustee shall pay to the Initial Recipient and/or Successor Recipient (in the case of an undervaluation) or receive from the Initial Recipient and/or Successor Recipient (in the case of an overvaluation) an amount equal to the difference between the annuity amount(s) properly payable and the annuity amount(s) actually paid.

3. Payment of Federal Estate Taxes and State Death Taxes. The lifetime annuity interest of the Successor Recipient will take effect upon the death of the Initial Recipient only if the Successor Recipient furnishes the funds for payment of any federal estate taxes and state death taxes for which the Trustee may be liable upon the death of the Initial Recipient. If the funds are not furnished by the Successor Recipient, the annuity period shall terminate on the death of the Initial Recipient, notwithstanding any other provision in this instrument to the contrary.

4. Proration of Annuity Amount. The Trustee shall prorate the annuity amount on a daily basis for any short taxable year. If the Successor Recipient survives the Initial Recipient, the Trustee shall prorate on a daily basis the next regular annuity payment due after the death of the Initial Recipient between the estate of the Initial Recipient and the Successor Recipient. In the taxable year of the trust during which the annuity period ends, the Trustee shall prorate the annuity amount on a daily basis for the number of days of the annuity period in that taxable year.

5. Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principal and income of the trust (other than any amount due the Recipients or their estates under the provisions above) to [designated remainderman] (hereinafter "the Charitable Organization"). If the Charitable Organization is not an organization described in sections 170(c), 2055(a), and 2522(a) of the Code at the time when any principal or income of the trust is to be distributed to it, then the Trustee shall distribute the then principal and income to one or more organizations described in sections 170(c), 2055(a), and 2522(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion.









SECTION 5. ANNOTATIONS REGARDING SAMPLE INTER VIVOS CHARITABLE REMAINDER ANNUITY TRUST -- TWO LIVES, CONSECUTIVE INTERESTS


(1) Factors concerning qualification of trust. A deduction must be allowable under section 170, section 2055, or section 2522 for property contributed to the trust. Section 1.664-1(a)(1)(iii)(a) of the Income Tax Regulations. The trust must meet the definition of and function exclusively as a charitable remainder trust from the creation of the trust. Section 1.664-1(a)(4). Solely for purposes of section 664, a trust is deemed created at the earliest time that neither the grantor nor any other person is treated as the owner of the entire trust under subpart E, part 1, subchapter J, chapter 1, subtitle A of the Code (subpart E), but in no event prior to the time property is first transferred to the trust. Neither the donor nor the donor's spouse shall be treated as the owner of the trust under subpart E merely because he or she is named as a recipient of the annuity amount. Section 1.664-1(a)(4). In addition, funding the trust with certain types of assets may disqualify it as a charitable remainder trust. See section 1.664-1(a)(7) and Rev. Rul. 73-610, 1973-2 C.B. 213.






(1) Permissible recipients. For a CRAT with an annuity period based on the lives of two individuals, the annuity amount must generally be paid to those individuals and both must be living at the time of the creation of the trust. See Rev. Rul. 2002-20, 2002-1 C.B. 794, for situations in which the annuity amount



may be paid to a trust for the benefit of an individual who is financially disabled. An organization described in section 170(c) may receive part, but not all, of the annuity amount. Section 664(d)(1)(A) and section 1.664-2(a)(3)(i). See section 6.02 of this revenue procedure for an alternate provision that provides for payment of part of the annuity to an organization described in section 170(c).

(2) Percentage requirements. The sum certain annuity amount must be at least 5 percent and not more than 50 percent of the initial net fair market value of the assets placed in trust. Section 664(d)(1)(A). Even if the sum certain annuity amount is at least 5 percent and not more than 50 percent of the initial net fair market value of the assets placed in trust, no deduction will be allowable under section 2055 or section 2522 if the probability that the trust corpus will be exhausted before the death of the survivor of the recipients exceeds 5 percent. Rev. Rul. 77-374, 1977-2 C.B. 329, and Rev. Rul. 70-452, 1970-2 C.B. 199. See sections 1.7520-3(b) and 25.7520-3(b) for special rules that may be applicable in valuing interests transferred to CRATs. In addition, the value (determined under section 7520) of the charitable remainder interest must be at least 10 percent of the initial net fair market value of all property placed in the trust. Section 664(d)(1)(D).




.03 Annotation for Paragraph 3, Payment of Federal Estate Taxes and State Death Taxes, of the Sample Trust.

(1) Tax payment clause. If it is possible that all or part of the fair market value of the trust assets will be includible for federal estate tax purposes in the gross estate of the donor, the trust must contain a tax payment clause. If federal estate taxes and state death taxes are paid from other sources, the tax payment clause will never become operative. Nevertheless, the tax payment clause is necessary because it ensures that the trustee will never be required to pay federal estate taxes or state death taxes from the trust assets. See section 664(d)(1)(B); section 1.664-1 (a)(6), Example 3; and Rev. Rul. 82-128, 1982-2 C.B. 71.





(2) Determining annuity amount payable in year of a recipient's death. Paragraph 4, Proration of Annuity Amount, of the sample trust specifies that the annuity amount shall be prorated on a daily basis. See section 6.05 of this revenue procedure for alternate provisions that provide for termination of the annuity amount with the last regular payment preceding the death of each recipient.



(2) Designated remainderman. Any named charitable remainderman must be an organization described in section 170(c) at the time of the transfer to the charitable remainder annuity trust. See section 664(d)(1)(C). Any named charitable remainderman also must be an organization described in section 2522(a) to qualify for the gift tax charitable deduction and an organization described in section 2055(a) to qualify for the estate tax charitable deduction. See Rev. Rul. 77-385, 1977-2 C.B. 331. If it is determined that a deduction under section 2055(a) will not be necessary in any event, all references to section 2055(a) in the trust instrument may be deleted. The trust instrument may restrict the charitable remainderman to an organization described in sections 170(c), 2055(a), and 2522(a), but grant to a trustee or other person the power to designate the actual charitable remainderman. The gift of the remainder interest will be incomplete for gift tax purposes if, for example: (i) the donor retains the power to substitute the charitable remainderman; or (ii) the trust instrument provides the trustee with the power to designate the charitable remainderman and the donor is not prohibited from serving as trustee. See section 25.2511-2(c). Note, however, that an income tax charitable deduction is available even if the donor has the authority to substitute the charitable remainderman or the trustee has the authority to designate the charitable remainderman. Rev. Rul. 68-417, 1968-2 C.B. 103; Rev. Rul. 79-368, 1979-2 C.B. 109. See section 6.07 of this revenue procedure for an alternate provision in which the donor retains the right to substitute the charitable remainderman. See section 6.08 of this revenue procedure for an alternate provision in which a recipient is granted a power of appointment to designate the charitable remainderman.




(1) Payment of the annuity amount. Payment of the annuity amount to the recipients is not considered an act of self-dealing within the meaning of section 4941(d), as modified by section 4947(a)(2)(A), or a



taxable expenditure within the meaning of section 4945(d), as modified by section 4947(a)(2)(A). Section 53.4947-1(c)(2) of the Foundation and Similar Excise Taxes Regulations.



SECTION 6. ALTERNATE PROVISIONS FOR SAMPLE INTER VIVOS CHARITABLE REMAINDER ANNUITY TRUST -- TWO LIVES, CONSECUTIVE INTERESTS





In each taxable year of the trust during the annuity period, the Trustee shall pay to [permissible recipient] (hereinafter "the Initial Recipient") until the Initial Recipient's death and thereafter to [permissible recipient] (hereinafter "the Successor Recipient") (subject to any proration in paragraph 4),



an annuity amount equal to [the stated dollar amount]. (b) Delete the last sentence of paragraph 2, Payment of Annuity Amount, of the sample trust concerning the incorrect valuation of trust assets.


(1) Explanation. An organization described in section 170(c) may receive part, but not all, of any annuity amount. Section 664(d)(1)(A). If a gift tax charitable deduction, and, if needed, an estate tax charitable deduction are sought for the present value of the annuity interest passing to a charitable organization, the trust instrument must contain additional provisions. First, the trust instrument must specify the portion of each annuity payment that is payable to the noncharitable recipient and to the charitable organization described in sections 170(c), 2522(a), and, if needed, section 2055(a). Second, the trust instrument must contain a means for selecting an alternative qualified charitable organization if the designated organization is not a qualified organization at the time when any annuity amount is to be paid to it. Third, the trust instrument must contain prohibitions against investments that jeopardize the exempt purpose of the trust for purposes of section 4944, as modified by section 4947(a)(2)(A), and against retaining any excess business holdings for purposes of section 4943, as modified by section 4947(a)(2)(A).



Payment of Annuity Amount. The annuity amount is equal to [a number no less than 5 and no more than 50] percent of the initial net fair market value of all property transferred to the trust, valued as of the above date (that is, the date of transfer). In each taxable year of the trust during the annuity period, the Trustee shall pay [the percentage of the annuity amount payable to the noncharitable recipients] percent of the annuity amount to [permissible recipient] (hereinafter "the Initial Recipient") until the Initial Recipient's death, and thereafter to [permissible recipient] (hereinafter "the Successor Recipient") (subject to any proration in paragraph 4). In each taxable year of the trust during the annuity period, the Trustee shall pay [the percentage of the annuity amount payable to the charitable recipient] percent of the annuity amount to [an organization described in sections 170(c), 2055(a), and 2522(a) of the Code] (hereinafter "the Charitable Recipient"). The first day of the annuity period shall be the date the property is transferred to the trust and the last day of the annuity period shall be the date of the death of the survivor of the Initial Recipient and the Successor Recipient.



If the Charitable Recipient is not an organization described in sections 170(c), 2055(a), and 2522(a) of the Code at the time when any annuity payment is to be distributed to it, then the Trustee shall distribute that annuity payment to one or more organizations described in sections 170(c), 2055(a), and 2522(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion. The annuity amount shall be paid in equal quarterly installments at the end of each calendar quarter from income, and to the extent income is not sufficient, from principal. Any income of the trust for a taxable year in excess of the annuity amount shall be added to principal. If the initial net fair market value of the trust assets is incorrectly determined, then within a reasonable period after the value is finally determined for federal tax purposes, the Trustee shall pay to the Initial Recipient and/or the Successor Recipient and the Charitable Recipient (in the case of an undervaluation) or receive from the Initial Recipient and/or the Successor Recipient and the Charitable Recipient (in the case of an overvaluation) an amount equal to the difference between the annuity amount(s) properly payable and the annuity amount(s) actually paid.


(other than any amount due the Initial Recipient, the Successor Recipient, or their estates and the Charitable Recipient under the provisions above).




(1) Explanation. Under section 664(f), payment of the annuity amount may terminate upon the earlier of the occurrence of a qualified contingency (as defined in section 664(f)(3)) or the death of the survivor of the initial recipient and the successor recipient. The amount of the charitable deduction, however, will be determined without regard to a qualified contingency. See section 664(f)(2).




The first day of the annuity period shall be the date the property is transferred to the trust and the last day of the annuity period shall be the date of the death of the survivor of the Initial Recipient and the Successor Recipient or, if earlier, the date on which occurs the [qualified contingency].

.04 Retaining the Right to Revoke the Interest of the Successor Recipient.

(1) Explanation. The donor may retain the right to revoke or terminate the interest of the successor recipient. This right is exercisable only by the donor's last will and testament. Section 1.664-2(a)(4). The retention of this right may have gift and estate tax consequences. It will affect the value of the annuity interests transferred. It may also cause a portion of the trust to be included in the donor's gross estate for federal estate tax purposes, even if it would otherwise not be includible. The following alternate provision provides for the donor's retention of the right to revoke when the donor is also a recipient.

(2) Instructions for use. To retain the right to revoke the successor recipient's interest by the donor's last will and testament:

(a) Designate the donor as the initial recipient in paragraph 2, Payment of Annuity Amount, of the sample trust.

(b) Replace the second sentence of paragraph 2, Payment of Annuity Amount, of the sample trust with the following two sentences:

The Donor hereby expressly reserves the power, exercisable only by the Donor's last will and testament, to revoke and terminate the interest of the Successor Recipient under this trust. The first day of the annuity period shall be the date the property is transferred to the trust and the last day of the annuity period shall be the date of the death of the survivor of the Initial Recipient and the Successor Recipient or, if the Donor revokes the interest of the Successor Recipient, the date of the Initial Recipient's death.


(1) Explanation. As an alternative to prorating the annuity amount in the taxable year of the initial recipient's death, payment of the initial recipient's share of the annuity amount may terminate with the last regular payment preceding the initial recipient's death. Similarly, as an alternative to prorating the annuity amount in the taxable year of the termination of the annuity period, payment of the annuity amount may terminate with the last regular payment preceding the termination of the annuity period. However, the fact



that a recipient may not receive the last payment shall not be taken into account for purposes of determining the present value of the remainder interest. Section 1.664-2(a)(5)(i).


(a) To add an alternate provision to terminate the payment of the initial recipient's share of the annuity amount with the last regular payment preceding his or her death, replace paragraph 4, Proration of Annuity Amount, of the sample trust with the following paragraph:

Proration of Annuity Amount. Except as provided below, the Trustee shall prorate the annuity amount on a daily basis for any short taxable year. The obligation of the Trustee to pay the annuity amount to the Initial Recipient shall terminate with the regular quarterly installment next preceding the Initial Recipient's death. In the taxable year of the trust during which the annuity period ends, the Trustee shall prorate the annuity amount on a daily basis for the number of days of the annuity period in that taxable year.

(b) To add an alternate provision to terminate the payment of the annuity amount with the last regular payment preceding the termination of the annuity period, replace paragraph 4, Proration of Annuity Amount, of the sample trust with the following paragraph:

Proration of Annuity Amount. Except as provided below, the Trustee shall prorate the annuity amount on a daily basis for any short taxable year. If the Successor Recipient survives the Initial Recipient, the Trustee shall prorate on a daily basis the next regular annuity payment due after the death of the Initial Recipient between the estate of the Initial Recipient and the Successor Recipient. In the taxable year of the trust during which the annuity period ends, the obligation of the Trustee to pay the annuity amount shall terminate with the regular quarterly installment next preceding the termination of the annuity period.

(c) To add an alternate provision terminating the payment of the initial recipient's share of the annuity amount with the last regular payment preceding his or her death, and terminating the payment of the annuity amount with the last regular payment preceding the termination of the annuity period, replace paragraph 4, Proration of Annuity Amount, of the sample trust with the following paragraph:

Proration of Annuity Amount. Except as provided below, the Trustee shall prorate the annuity amount on a daily basis for any short taxable year. The obligation of the Trustee to pay the annuity amount to the Initial Recipient shall terminate with



the regular quarterly installment next preceding the Initial Recipient's death. In the taxable year of the trust during which the annuity period ends, the obligation of the Trustee to pay the annuity amount shall terminate with the regular quarterly installment next preceding the termination of the annuity period.



(2) Instruction for use. To restrict the charitable remainderman to a public charity, each and every time the phrase "an organization described in sections 170(c), 2055(a), and 2522(a) of the Code" appears in the sample trust, replace it with the phrase "an organization described in sections 170(b)(1)(A), 170(c), 2055(a), and 2522(a) of the Code."




The Donor reserves the right to designate, at any time and from time to time, in lieu of the Charitable Organization identified above, one or more organizations described in sections 170(c), 2055(a), and 2522(a) of the Code as the charitable remainderman and shall make any such designation by giving written notice to the Trustee.






Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principal and income of the trust (other than any amount due the Recipients or their estates under the provisions above) to one or more charitable organizations described in sections 170(c), 2055(a) and 2522(a) of the Code as [one of the named permissible recipients] shall appoint and direct by specific reference to this power of appointment by inter vivos or testamentary instrument. To the extent this power of appointment is not effectively exercised, the principal and income not effectively appointed shall be distributed to one or more organizations described in sections 170(c), 2055(a), and 2522(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion. If an organization fails to qualify as an organization described in sections 170(c), 2055(a), and 2522(a) of the Code at the time when any principal or income of the trust is to be distributed to it, then the Trustee shall distribute the then principal and income to one or more organizations described in sections 170(c), 2055(a), and 2522(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion.


Section 4 of Rev. Proc. 90-32 is superseded.






This revenue procedure contains an annotated sample declaration of trust and alternate provisions that meet the requirements of section 664(d)(1) of the Internal Revenue Code for an inter vivos charitable remainder annuity trust (CRAT) providing for annuity payments payable concurrently and consecutively for two measuring lives followed by the distribution of trust assets to a charitable remainderman.


Previously, the Internal Revenue Service issued sample trust instruments for certain types of CRATs. The Service is updating the previously issued samples and issuing new samples for additional types of CRATs; annotations and alternate sample provisions are included as further guidance. In addition to the sample trust instrument included in this revenue procedure for an inter vivos CRAT providing for annuity payments payable concurrently and consecutively for two measuring lives, samples are provided in separate revenue procedures for:



(c) an inter vivos CRAT providing for annuity payments payable consecutively for two measuring lives (see Rev. Proc. 2003-55, superceding section 4 of Rev. Proc. 90-32, 1990-1 C.B. 546);






Section 4 of this revenue procedure provides a sample declaration of trust for an inter vivos CRAT with concurrent and consecutive interests for two measuring lives that is created by an individual who is a citizen or resident of the United States. Section 5 of this revenue procedure provides annotations to the provisions of the sample trust. Section 6 of this revenue procedure provides samples of alternate provisions concerning: (.01) the statement of the annuity amount as a specific dollar amount; (.02) the payment of part of the annuity to an organization described in section 170(c); (.03) a qualified contingency; (.04) the retained right to revoke the interest of the survivor recipient; (.05) the last annuity payments to the recipients; (.06) the restriction of the charitable remainderman to a public charity; (.07) the retained right to substitute the charitable remainderman; and (.08) a power of appointment to designate the charitable remainderman.



For transfers to a qualifying CRAT, as defined in section 664(d)(1), the remainder interest will be deductible by a citizen or resident of the United States under sections 170(f)(2)(A), 2055(e)(2)(A), and 2522(c)(2)(A) for income, estate, and gift tax purposes, respectively, if the other requirements of sections 170(f)(2)(A), 2055(e)(2)(A), and 2522(c)(2)(A) (that is, the requirements not relating to the provisions of the governing instrument) are also met. The Service will recognize a trust as a qualified CRAT meeting all of the requirements of section 664(d)(1) if the trust operates in a manner consistent with the terms of the trust instrument, if the trust is a valid trust under applicable local law, and if the trust instrument: (i) is substantially similar to the sample in section 4 of this revenue procedure; or (ii) properly integrates one or more alternate provisions from section 6 of this revenue procedure into a document substantially similar to the sample in section 4 of this revenue procedure. A trust instrument that contains substantive provisions in addition to those provided in section 4 of this revenue procedure (other than properly integrated alternate provisions from section 6 of this revenue procedure, or provisions necessary to establish a valid trust under applicable local law that are not inconsistent with the applicable federal tax requirements), or that omits any of the provisions of section 4 of this revenue procedure (unless an alternate provision from section 6 of this revenue procedure is properly integrated), will not necessarily be disqualified, but neither will that trust be assured of qualification under the provisions of this revenue procedure. The Service generally will not issue a letter ruling on whether an inter vivos trust created by an individual and with concurrent and consecutive interests for two measuring lives qualifies as a CRAT. The Service, however, generally will issue letter rulings on the effect of substantive trust provisions, other than those contained in sections 4 and 6 of this revenue procedure, on the qualification of a trust as a CRAT.

SECTION 4. SAMPLE INTER VIVOS CHARITABLE REMAINDER ANNUITY TRUST -- TWO LIVES, CONCURRENT AND CONSECUTIVE INTERESTS



2. Payment of Annuity Amount. In each taxable year of the trust during the annuity period, the Trustee shall pay to [permissible recipient] and to [permissible recipient] (hereinafter "the Recipients") in equal shares during their lifetimes, an annuity amount equal to [a number no less than 5 and no more than 50] percent of the initial net fair market value of all property transferred to the trust, valued as of the above date (that is, the date of the transfer), and upon the death of one (hereinafter "the Predeceasing Recipient"), the Trustee shall pay the entire annuity amount (subject to any proration in paragraph 4) to the survivor (hereinafter "the Survivor Recipient"). The first day of the annuity period shall be the date the property is transferred to the trust and the last day of the annuity period shall be the date of the Survivor Recipient's death. The annuity amount shall be paid in equal quarterly installments at the end of each calendar quarter from income, and to the extent income is not sufficient, from principal. Any income



of the trust for a taxable year in excess of the annuity amount shall be added to principal. If the initial net fair market value of the trust assets is incorrectly determined, then within a reasonable period after the value is finally determined for federal tax purposes, the Trustee shall pay to the Recipients (in the case of an undervaluation) or receive from the Recipients (in the case of an overvaluation) an amount equal to the difference between the annuity amount(s) property payable and the annuity amount(s) actually paid.

3. Payment of Federal Estate Taxes and State Death Taxes. The lifetime annuity interest of the Survivor Recipient will continue in effect upon the death of the Predeceasing Recipient only if the Survivor Recipient furnishes the funds for payment of any federal estate taxes and state death taxes for which the Trustee may be liable upon the death of the Predeceasing Recipient. If the funds are not furnished by the Survivor Recipient, the annuity period shall terminate on the death of the Predeceasing Recipient, notwithstanding any other provision in this instrument to the contrary.

4. Proration of Annuity Amount. The Trustee shall prorate the annuity amount on a daily basis for any short taxable year. Upon the death of the Predeceasing Recipient, the Trustee shall prorate on a daily basis the Predeceasing Recipient's share of the next regular annuity payment between the estate of the Predeceasing Recipient and the Survivor Recipient. In the taxable year of the trust during which the annuity period ends, the Trustee shall prorate the annuity amount on a daily basis for the number of days of the annuity period in that taxable year.

5. Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principal and income of the trust (other than any amount due the Recipients or their estates under the provisions above) to [designated remainderman] (hereinafter "the Charitable Organization"). If the Charitable Organization is not an organization described in sections 170(c), 2055(a), and 2522(a) of the Code at the time when any principal or income of the trust is to be distributed to it, then the Trustee shall distribute the then principal and income to one or more organizations described in sections 1701(c), 2055(a), and 2522(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion.





10. Limited Power of Amendment. This trust is irrevocable. However, the Trustee shall have the power, acting alone, to amend the trust from time to time in any manner required for the sole purpose of ensuring



that the trust qualifies and continues to qualify as a charitable remainder annuity trust within the meaning of section 664(d)(1) of the Code.


SECTION 5. ANNOTATIONS REGARDING SAMPLE INTER VIVOS CHARITABLE REMAINDER ANNUITY TRUST -- TWO LIVES, CONCURRENT AND CONSECUTIVE INTERESTS


(1) Factors concerning qualification of trust. A deduction must be allowable under section 170, section 2055, or section 2522 for property contributed to the trust. Section 1.664-1(a)(1)(iii)(a) of the Income Tax Regulations. The trust must meet the definition of and function exclusively as a charitable remainder trust from the creation of the trust. Section 1.664-1(a)(4). Solely for purposes of section 664, a trust is deemed created at the earliest time that neither the grantor nor any other person is treated as the owner of the entire trust under subpart E, part 1, subchapter J, chapter 1, subtitle A of the Code (subpart E), but in no event prior to the time property is first transferred to the trust. Neither the donor nor the donor's spouse shall be treated as the owner of the trust under subpart E merely because he or she is named as a recipient of the annuity amount. Section 1.664-1(a)(4). In addition, funding the trust with certain types of assets may disqualify it as a charitable remainder trust. See section 1.664-1(a)(7) and Rev. Rul. 73-610, 1973-2 C.B. 213.








(1) Permissible recipients. For a CRAT having an annuity period based on the lives of two individuals, the annuity amount must generally be paid to those individuals, and both must be living at the time of the creation of the trust. See Rev. Rul. 2002-20, 2002-1 C.B. 794, for situations in which the annuity amount may be paid to a trust for the benefit of an individual who is financially disabled. An organization described in section 170(c) may receive part, but not all, of the annuity amount. Section 664(d)(1)(A) and section 1.664-2(a)(3)(i). See section 6.02 of this revenue procedure for an alternate provision that provides for payment of part of the annuity to an organization described in section 170(c).

(2) Division of annuity amount between recipients. The sample trust provides that while both recipients are alive they will share the annuity amount equally and upon the death of the predeceasing recipient the survivor recipient will receive all of the annuity amount, subject to any proration in paragraph 4. The annuity amount may be divided other than equally during the joint lives of the recipients. In addition, the share of the predeceasing recipient may be made payable to an organization described in section 170(c) for the rest of the survivor recipient's life.

(3) Percentage requirements. The sum certain annuity amount must be at least 5 percent and not more than 50 percent of the initial net fair market value of the assets placed in trust. Section 664(d)(1)(A). Even if the sum certain annuity amount is at least 5 percent and not more than 50 percent of the initial net fair market value of the assets placed in trust, no deduction will be allowable under section 2055 or section 2522 if the probability that the trust corpus will be exhausted before the death of the survivor of the recipients exceeds 5 percent. Rev. Rul. 77-37.4, 1977-2 C.B. 329 and Rev. Rul. 70-452, 1970-2 C.B. 199. See sections 1.7520-3(b) and 25.7520-3(b) for special rules that may be applicable in valuing interests transferred to CRATs. In addition, the value (determined under section 7520) of the charitable remainder interest must be at least 10 percent of the initial net fair market value of all property placed in the trust. Section 664(d)(1)(D).

(4) Payment of annuity amount in installments. Paragraph 2, Payment of Annuity Amount, of the sample trust specifies that the annuity amount is to be paid in equal quarterly installments at the end of each quarter. However, the trust instrument may specify that the annuity amount is to be paid to the recipients annually or in equal or unequal installments throughout the year. See section 1.664-2(a)(1)(i). The amount of the charitable deduction will be affected by the frequency of payment, by whether the installments are equal or unequal, and by whether each installment is payable at the beginning or end of the period. See section 1.664-2(c) and section 20.2031-7(d)(2)(iv).





.03 Annotation for Paragraph 3, Payment of Federal Estate Taxes and State Death Taxes, of the Sample Trust.

(1) Tax payment clause. If it is possible that all or part of the fair market value of the trust assets will be includible for federal estate tax purposes in the gross estate of the donor, the trust must contain a tax payment clause. If federal estate taxes and state death taxes are paid from other sources, the tax payment clause will never become operative. Nevertheless, the tax payment clause is necessary because it ensures that the trustee will never be required to pay federal estate taxes or state death taxes from the trust assets. See section 664(d)(1)(B); section 1.664-1(a)(6), Example 3; and Rev. Rul. 82-128, 1982-2 C.B. 71.






(2) Designated remainderman. Any named charitable remainderman must be an organization described in section 170(c) at the time of the transfer to the charitable remainder annuity trust. See section 664(d)(1)(C). Any named charitable remainderman also must be an organization described in section 2522(a) to qualify for the gift tax charitable deduction and an organization described in section 2055(a) to qualify for the estate tax charitable deduction. See Rev. Rul. 77-385, 1977-2 C.B. 331. If it is determined that a deduction under section 2055(a) will not be necessary in any event, all references to section 2055(a) in the trust instrument may be deleted. The trust instrument may restrict the charitable remainderman to an organization described in section section 170(c), 2055(a), and 2522(a), but grant to a trustee or other person the power to designate the actual charitable remainderman. The gift of the remainder interest will be incomplete for gift tax purposes if, for example: (i) the donor retains the power to substitute the charitable remainderman; or (ii) the trust instrument provides the trustee with the power to designate the charitable remainderman and the donor is not prohibited from serving as trustee. See section 25.2511-2(c). Note, however, that an income tax charitable deduction is available even if the donor has the authority to substitute the charitable remainderman or the trustee has the authority to designate the charitable remainderman. Rev. Rul. 68-417, 1968-2 C.B. 103; Rev. Rul. 79-368, 1979-2 C.B. 109. See section 6.07 of this revenue procedure for an alternate provision in which the donor retains the fight to substitute the charitable remainderman. See section 6.08 of this revenue procedure for an alternate provision in which a recipient is granted a power of appointment to designate the charitable remainderman.






(1) Payment of the annuity amount. Payment of the annuity amount to the recipients is not considered an act of self-dealing within the meaning of section 4941(d), as modified by section 4947(a)(2)(A), or a taxable expenditure within the meaning of section 4945(d), as modified by section 4947(a)(2)(A). Section 53.4947-1(c)(2) of the Foundation and Similar Excise Taxes Regulations.



SECTION 6. ALTERNATE PROVISIONS FOR SAMPLE INTER VIVOS CHARITABLE REMAINDER ANNUITY TRUST -- TWO LIVES, CONCURRENT AND CONSECUTIVE INTERESTS


(1) Explanation. As an alternative to stating the annuity amount as a fraction or percentage of the initial net fair market value of the assets transferred to the trust, the annuity amount may be stated as a specific dollar amount. Section 1.664-2(a)(1)(ii) and (iii). In either case, the annuity amount must be not less than



5 percent nor more than 50 percent of the initial net fair market value of all property placed in trust. Section 664(d)(1)(A).



In each taxable year of the trust during the annuity period, the Trustee shall pay to [permissible recipient] and to [permissible recipient] (hereinafter "the Recipients") in equal shares during their lifetimes an annuity amount equal to [the stated dollar amount], and upon the death of one (hereinafter "the Predeceasing Recipient"), the Trustee shall pay the entire annuity amount (subject to any proration in paragraph 4) to the survivor (hereinafter "the Survivor Recipient").



(1) Explanation. An organization described in section 170(c) may receive part, but not all, of any annuity amount. Section 664(d)(1)(A). If a gift tax charitable deduction and, if needed, an estate tax charitable deduction are sought for the present value of the annuity interest passing to a charitable organization, the trust instrument must contain additional provisions. First, the trust instrument must specify the portion of each annuity payment that is payable to the noncharitable recipients and to the charitable organization described in sections 170(c), 2522(a), and, if needed, section 2055(a). Second, the trust instrument must contain a means for selecting an alternative qualified charitable organization if the designated organization is not a qualified organization at the time when any annuity amount is to be paid to it. Third, the trust instrument must contain prohibitions against investments that jeopardize the exempt purpose of the trust for purposes of section 4944, as modified by section 4947(a)(2)(A), and against retaining any excess business holdings for purposes of section 4943, as modified by section 4947(a)(2)(A).



Payment of Annuity Amount. The annuity amount is equal to [a number no less than 5 and no more than 50] percent of the initial net fair market value of all property transferred to the trust, valued as of the above date (that is, the date of the transfer). In each taxable year of the trust during the annuity period, the Trustee shall pay [the percentage of the annuity amount payable to the noncharitable recipients] percent of



the annuity amount to [permissible recipient] and [permissible recipient] (hereinafter "the Recipients") in equal shares during their joint lives, and upon the death of one (hereinafter "the Predeceasing Recipient"), the Trustee shall pay that entire percentage of the annuity amount (subject to any proration in paragraph 4) to the survivor (hereinafter "the Survivor Recipient"). In each taxable year of the trust during the annuity period, the Trustee shall pay [the percentage of the annuity amount payable to the charitable recipient] percent of the annuity amount to [an organization described in sections 170(c), 2055(a), and 2522(a) of the Code] (hereinafter "the Charitable Recipient"). The first day of the annuity period shall be the date the property is transferred to the trust and the last day of the annuity period shall be the date of the Survivor Recipient's death. If the Charitable Recipient is not an organization described in sections 170(c), 2055(a), and 2522(a) of the Code at the time when any annuity payment is to be distributed to it, then the Trustee shall distribute that annuity payment to one or more organizations described in sections 170(c), 2055(a), and 2522(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion. The annuity amount shall be paid in equal quarterly installments at the end of each calendar quarter from income, and to the extent income is not sufficient, from principal. Any income of the trust for a taxable year in excess of the annuity amount shall be added to principal. If the initial net fair market value of the trust assets is incorrectly determined, then within a reasonable period after the value is finally determined for federal tax purposes, the Trustee shall pay to the Recipients and the Charitable Recipient (in the case of an undervaluation) or receive from the Recipients and the Charitable Recipient (in the case of an overvaluation) an amount equal to the difference between the annuity amount(s) properly payable and the annuity amount(s) actually paid.


(other than any amount due the Recipients or their estates and the Charitable Recipient under the provisions above).






(1) Explanation. Under section 664(f), payment of the annuity amount may terminate upon the earlier of the occurrence of a qualified contingency (as defined in section 664(f)(3)) or the death of the survivor recipient. The amount of the charitable deduction, however, will be determined without regard to a qualified contingency. See section 664(f)(2).


The first day of the annuity period shall be the date the property is transferred to the trust and the last day of the annuity period shall be the date of the Survivor Recipient's death or, if earlier, the date on which occurs the [qualified contingency].

.04 Retaining the Right to Revoke the Interest of the Survivor Recipient.

(1) Explanation. The donor may retain the right to revoke or terminate the interest of the other noncharitable recipient. This right is exercisable only by the donor's last will and testament. Section 1.664-2(a)(4). The retention of this right may have gift and estate tax consequences. It will affect the value of the annuity interests transferred. It may also cause a portion of the trust to be included in the donor's gross estate for federal estate tax purposes, even if it would otherwise not be includible. The following alternate provision provides for the donor's retention of the right to revoke when the donor is also a recipient.

(2) Instructions for use. To retain the right to revoke the other noncharitable recipient's interest by the donor's last will and testament:

(a) Designate the donor as a recipient in paragraph 2, Payment of Annuity Amount, of the sample trust.

(b) Replace the second sentence of paragraph 2, Payment of Annuity Amount, of the sample trust with the following two sentences:

The Donor hereby expressly reserves the power, exercisable only by the Donor's last will and testament, to revoke and terminate the interest of [the name of permissible recipient who is not the Donor] under this trust. The first day of the annuity period shall be the date the property is transferred to the



trust and the last day of the annuity period shall be the date of death of the Survivor Recipient, or on the earlier death of the Donor if the power to revoke [the name of permissible recipient who is not the Donor]'s interest is exercised.


(1) Explanation. As an alternative to prorating the annuity amount in the taxable year of the predeceasing recipient's death, payment of the predeceasing recipient's share of the annuity amount may terminate with the last regular payment preceding the predeceasing recipient's death. Similarly, as an alternative to prorating the annuity amount in the taxable year of the termination of the annuity period, payment of the annuity amount may terminate with the last regular payment preceding the termination of the annuity period. However, the fact that a recipient may not receive the last payment shall not be taken into account for purposes of determining the present value of the remainder interest. Section 1.664-2(a)(5)(i).


(a) To add an alternate provision to terminate the payment of the predeceasing recipient's share of the annuity amount with the last regular payment preceding his or her death, replace paragraph 4, Proration of Annuity Amount, of the sample trust with the following paragraph:

Proration of Annuity Amount. Except as provided below, the Trustee shall prorate the annuity amount on a daily basis for any short taxable year. The obligation of the Trustee to pay a share of the annuity amount to the Predeceasing Recipient shall terminate with the regular quarterly installment next preceding the Predeceasing Recipient's death. In the taxable year of the trust during which the annuity period ends, the Trustee shall prorate the annuity amount on a daily basis for the number of days of the annuity period in that taxable year.


Proration of Annuity Amount. Except as provided below, the Trustee shall prorate the annuity amount on a daily basis for any short taxable year. Upon the death of the Predeceasing Recipient, the Trustee shall prorate on a daily basis the Predeceasing Recipient's share of the next regular annuity payment between the estate of the Predeceasing Recipient and the Survivor Recipient. In the taxable year of the trust during which the annuity period ends, the obligation of the Trustee to pay the annuity amount shall terminate with the regular



quarterly installment next preceding the termination of the annuity period.

(c) To add an alternate provision terminating the payment of the predeceasing recipient's share of the annuity amount with the last regular payment preceding his or her death, and terminating the payment of the annuity amount with the last regular payment preceding the termination of the annuity period, replace paragraph 4, Proration of Annuity Amount, of the sample trust with the following paragraph:

Proration of Annuity Amount. Except as provided below, the Trustee shall prorate the annuity amount on a daily basis for any short taxable year. The obligation of the Trustee to pay a share of the annuity amount to the Predeceasing Recipient shall terminate with the regular quarterly installment next preceding the Predeceasing Recipient's death. In the taxable year of the trust during which the annuity period ends, the obligation of the Trustee to pay the annuity amount shall terminate with the regular quarterly installment next preceding the termination of the annuity period.



(2) Instructions for use. To restrict the charitable remainderman to a public charity, each and every time the phrase "an organization described in sections 170(c), 2055(a), and 2522(a) of the Code" appears in the sample trust, replace it with the phrase "an organization described in sections 170(b)(1)(A), 170(c), 2055(a), and 2522(a) of the Code."




The Donor reserves the right to designate, at any time and from time to time, in lieu of the Charitable Organization identified



above, one or more organizations described in sections 170(c), 2055(a), and 2522(a) of the Code as the charitable remainderman and shall make any such designation by giving written notice to the Trustee.




Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principal and income of the trust (other than any amount due the Recipients or their estates under the provisions above) to one or more charitable organizations described in sections 170(c), 2055(a), and 2522(a) of the Code as [one of the named permissible recipients] shall appoint and direct by specific reference to this power of appointment by inter vivos or testamentary instrument. To the extent this power of appointment is not effectively exercised, the principal and income not effectively appointed shall be distributed to one or more organizations described in sections 170(c), 2055(a), and 2522(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion. If an organization fails to qualify as an organization described in sections 170(c), 2055(a), and 2522(a) of the Code at the time when any principal or income of the trust is to be distributed to it, then the Trustee shall distribute the then principal and income to one or more organizations described in sections 170(c), 2055(a), and 2522(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion.




The principal authors of this revenue procedure are Karlene M. Lesho and Stephanie N. Bland of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For further information



regarding this revenue procedure, contact Karlene M. Lesho or Stephanie N. Bland at (202) 622-7830 (not a toll-free call).




This revenue procedure contains an annotated sample declaration of trust and alternate provisions that meet the requirements of section 664(d)(1) of the Internal Revenue Code for a testamentary charitable remainder annuity trust (CRAT) providing for annuity payments for one measuring life followed by the distribution of trust assets to a charitable remainderman.


Previously, the Internal Revenue Service issued sample trust instruments for certain types of CRATs. The Service is updating the previously issued samples and issuing new samples for additional types of CRATs; annotations and alternate sample provisions are included as further guidance. In addition to the sample trust instrument included in this revenue procedure for a testamentary CRAT providing for annuity payments for one measuring life, samples are provided in separate revenue procedures for:




(d) an inter vivos CRAT providing for annuity payments payable concurrently and consecutively for two measuring lives (see Rev. Proc. 2003-56, superceding section 5 of Rev. Proc. 90-32);





Section 4 of this revenue procedure provides a sample declaration of trust for a testamentary CRAT with one measuring life that is created by an individual who is a citizen or resident of the United States. Section 5 of this revenue procedure provides annotations to the provisions of the sample trust. Section 6 of this revenue procedure provides samples of alternate provisions concerning: (.01) the statement of the annuity amount as a specific dollar amount; (.02) the payment of part of the annuity to an organization described in section 170(c); (.03) a qualified contingency; (.04) the last annuity payment to the recipient; and (.05) a power of appointment to designate the charitable remainderman.

For transfers to a qualifying CRAT, as defined in section 664(d)(1), the remainder interest will be deductible by the estate of a citizen or resident of the United States under section 2055(e)(2)(A) if the other requirements of section 2055(e)(2)(A) (that is, the requirements not relating to the provisions of the governing instrument) are also met. The Service will recognize a trust as a qualified CRAT meeting all of



the requirements of section 664(d)(1) if the trust operates in a manner consistent with the terms of the trust instrument, if the trust is a valid trust under applicable local law, and if the trust instrument: (i) is substantially similar to the sample in section 4 of this revenue procedure; or (ii) properly integrates one or more alternate provisions from section 6 of this revenue procedure into a document substantially similar to the sample in section 4 of this revenue procedure. A trust instrument that contains substantive provisions in addition to those provided in section 4 of this revenue procedure (other than properly integrated alternate provisions from section 6 of this revenue procedure, or provisions necessary to establish a valid trust under applicable local law that are not inconsistent with the applicable federal tax requirements), or that omits any of the provisions of section 4 of this revenue procedure (unless an alternate provision from section 6 of this revenue procedure is properly integrated), will not necessarily be disqualified, but neither will that trust be assured of qualification under the provisions of this revenue procedure. The Service generally will not issue a letter ruling on whether a testamentary trust created by an individual and with one measuring life qualifies as a CRAT. The Service, however, generally will issue letter rulings on the effect of substantive trust provisions, other than those contained in sections 4 and 6 of this revenue procedure, on the qualification of a trust as a CRAT.

SECTION 4. SAMPLE TESTAMENTARY CHARITABLE REMAINDER ANNUITY TRUST -- ONE LIFE

I give, devise, and bequeath [property bequeathed] to my Trustee in trust to be administered under this provision. I intend this bequest to establish a charitable remainder annuity trust, within the meaning of Rev. Proc. 2003-57 and section 664(d)(1) of the Internal Revenue Code (hereinafter "the Code"). The trust shall be known as the ___ Charitable Remainder Annuity Trust and I hereby designate ___ as the initial trustee (hereinafter "the Trustee").

1. Payment of Annuity Amount. In each taxable year of the trust during the annuity period, the Trustee shall pay to [permissible recipient] (hereinafter "the Recipient") an annuity amount equal to [a number no less than 5 and no more than 50] percent of the initial net fair market value of all property passing to this trust as finally determined for federal estate tax purposes. The first day of the annuity period shall be the date of my death and the last day of the annuity period shall be the date of the Recipient's death. The annuity amount shall be paid in equal quarterly installments at the end of each calendar quarter from income, and to the extent income is not sufficient, from principal. Any income of the trust for a taxable year in excess of the annuity amount shall be added to principal. If the initial net fair market value of the trust assets is incorrectly determined, then within a reasonable period after the value is finally determined for federal estate tax purposes, the Trustee shall pay to the Recipient (in the case of an undervaluation) or receive from the Recipient (in the case of an overvaluation) an amount equal to the difference between the annuity amount(s) properly payable and the annuity amount(s) actually paid.

2. Deferral Provision. The obligation to pay the annuity amount shall commence with the date of my death, but payment of the annuity amount may be deferred from this date until the end of the taxable year in which the trust is completely funded. Within a reasonable time after the end of the taxable year in which the trust is completely funded, the Trustee must pay to the Recipient (in the case of an underpayment) or receive from the Recipient (in the case of an overpayment) the difference between any annuity amounts actually paid, plus interest, and the annuity amounts payable, plus interest. The interest



shall be computed for any period at the rate of interest, compounded annually, that the federal income tax regulations under section 664 of the Code prescribe for this computation.


4. Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principal and income of the trust (other than any amount due the Recipient or the Recipient's estate under the provisions above) to [designated remainderman] (hereinafter "the Charitable Organization"). If the Charitable Organization is not an organization described in sections 170(c) and 2055(a) of the Code at the time when any principal or income of the trust is to be distributed to it, then the Trustee shall distribute the then principal and income to one or more organizations described in sections 170(c) and 2055(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion.

5. Additional Contributions. No additional contributions shall be made to the trust after the initial contribution. The initial contribution, however, shall be deemed to consist of all property passing to the trust by reason of my death.






SECTION 5. ANNOTATIONS REGARDING SAMPLE TESTAMENTARY CHARITABLE REMAINDER ANNUITY TRUST -- ONE LIFE


(1) Factors concerning qualification of trust. A deduction must be allowable under section 2055 for property contributed to the trust. Section 1.664-1(a)(1)(iii)(a) of the Income Tax Regulations. The trust



must meet the definition of and function exclusively as a charitable remainder trust from the creation of the trust. Section 1.664-1(a)(4). Solely for purposes of section 664, a trust is deemed created at the earliest time that no person is treated as the owner of the entire trust under subpart E, part 1, subchapter J, chapter 1, subtitle A of the Code (subpart E). Section 1.664-1(a)(4). For purposes of section 2055, 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 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 this amount is deferred in accordance with section 1.664-1(a)(5)(i). Section 1.664-1(a)(5)(i). In addition, funding the trust with certain types of assets may disqualify it as a charitable remainder trust. See section 1.664-1(a)(7) and Rev. Rul. 73-610, 1973-2 C.B. 213.




(1) Permissible recipients. For a CRAT with an annuity period based on the life of one individual, the annuity amount must generally be paid to that individual and the individual must be living at the time of the creation of the trust. See Rev. Rul. 2002-20, 2002-1 C.B. 794, for situations in which the annuity amount may be paid to a trust for the benefit of an individual who is financially disabled. An organization described in section 170(c) may receive part, but not all, of the annuity amount. Section 664(d)(1)(A) and section 1.664-2(a)(3)(i). See section 6.02 of this revenue procedure for an alternate provision that provides for payment of part of the annuity to an organization described in section 170(c).

(2) Percentage requirements. The sum certain annuity amount must be at least 5 percent and not more than 50 percent of the initial net fair market value of the assets placed in trust. Section 664(d)(1)(A). Even if the sum certain annuity amount is at least 5 percent and not more than 50 percent of the initial net fair market value of the assets placed in trust, no deduction will be allowable under section 2055 if the probability that the trust corpus will be exhausted before the death of the recipient exceeds 5 percent. Rev. Rul. 77-374, 1977-2 C.B. 329. See section 20.7520-3(b) for special rules that may be applicable in valuing interests transferred to CRATs. In addition, the value (determined under section 7520) of the charitable remainder interest must be at least 10 percent of the initial net fair market value of all property placed in the trust. Section 664(d)(1)(D).

(3) Payment of annuity amount in installments. Paragraph 1, Payment of Annuity Amount, of the sample trust specifies that the annuity amount is to be paid in equal quarterly installments at the end of each quarter. However, the trust instrument may specify that the annuity amount is to be paid to the recipient annually or in equal or unequal installments throughout the year. See section 1.664-2(a)(1)(i). The



amount of the charitable deduction will be affected by the frequency of payment, by whether the installments are equal or unequal, and by whether each installment is payable at the beginning or end of the period. See section 1.664-2(c) and section 20.2031-7(d)(2)(iv).

(4) Payment of annuity amount by close of taxable year. Generally, the annuity amount for any taxable year must be paid before the close of the taxable year for which it is due. For circumstances under which the annuity amount may be paid within a reasonable time after the close of the taxable year, see section 1.664-2(a)(1)(i)(a). In addition, section 1.664-1(a)(5)(i) provides a special rule applicable to charitable remainder trusts created by testamentary transfer that may defer the requirement to pay the annuity amount until the end of the taxable year in which the trust is completely funded. See section 5.03(1) of this revenue procedure for additional information regarding the deferral of the payment of the annuity amount until the end of the taxable year in which the trust is completely funded.



(1) Deferral of requirement to pay annuity amount. The deferral provision in paragraph 2 of the sample trust authorizes deferring the payment of the annuity amount until the end of the taxable year of the trust in which the trust is completely funded. Section 1.664-1(a)(5)(i) provides the operational rule for deferring payment of the annuity amount in this circumstance.

(2) Treatment of distributions. For the proper treatment of distributions to a charitable remainder trust or to the recipient during the period of administration of an estate or settlement of a trust that is not a charitable remainder trust, see section 1.664-1(a)(5)(iii).



(2) Determining annuity amount payable in year of recipient's death. Paragraph 3, Proration of Annuity Amount, of the sample trust specifies that the annuity amount shall be prorated on a daily basis. See section 6.04 of this revenue procedure for an alternate provision that provides for the termination of the annuity amount with the last regular payment preceding the recipient's death.



(2) Designated remainderman. Any named charitable remainderman must be an organization described in sections 170(c) and 2055(a) at the time of the transfer to the charitable remainder annuity trust. See section 664(d)(1)(C) and Rev. Rul. 77-385, 1977-2 C.B. 331. The trust instrument may restrict the



charitable remainderman to an organization described in sections 170(c) and 2055(a), but grant to a trustee or other person the power to designate the actual charitable remainderman. See section 6.05 of this revenue procedure for an alternate provision in which the recipient is granted a power of appointment to designate the charitable remainderman.

(3) Multiple remaindermen. The remainder interest may pass to more than one charitable organization as long as each organization is described in sections 170(c) and 2055(a). Section 1.664-2(a)(6)(i).




(2) Prohibitions against certain investments and excess business holdings. Prohibitions against investments that jeopardize the exempt purpose of the trust for purposes of section 4944, as modified by section 4947(a)(2)(A), and against retaining any excess business holdings for purposes of section 4943, as modified by section 4947(a)(2)(A), are required if the trust provides for payment of part of an annuity amount to an organization described in section 170(c) and an estate tax charitable deduction is sought for this interest. See section 4947(b)(3). See section 6.02 of this revenue procedure for an alternate provision that provides for payment of part of the annuity to an organization described in section 170(c).

(3) Trust to continue in existence for benefit of charity. The governing instrument requirements of section 508(e) must be included in the trust instrument if, after the termination of the annuity period: (i) the trust instrument provides that the trust shall continue in existence for the benefit of the charitable remainderman and, as a result, the trust will become subject to the provisions of section 4947(a)(1); and (ii) the trust will be treated as a private foundation within the meaning of section 509(a), as modified by section 4947(a)(1). Except as provided in paragraph 6 of the sample trust, the trust instrument may limit the application of the provisions of section 508(e) to the period after the termination of the annuity period when the trust continues in existence for the benefit of the charitable remainderman.

SECTION 6. ALTERNATE PROVISIONS FOR SAMPLE TESTAMENTARY CHARITABLE REMAINDER ANNUITY TRUST -- ONE LIFE










(1) Explanation. An organization described in section 170(c) may receive part, but not all, of any annuity amount. Section 664(d)(1)(A). If an estate tax charitable deduction is sought for the present value of the annuity interest passing to a charitable organization, the trust instrument must contain additional provisions. First, the trust instrument must specify the portion of each annuity payment that is payable to the noncharitable recipient and to the charitable organization described in sections 170(c) and 2055(a). Second, the trust instrument must contain a means for selecting an alternative qualified charitable organization if the designated organization is not a qualified organization at the time when any annuity amount is to be paid to it. Third, the trust instrument must contain prohibitions against investments that jeopardize the exempt purpose of the trust for purposes of section 4944, as modified by section 4947(a)(2)(A), and against retaining any excess business holdings for purposes of section 4943, as modified by section 4947(a)(2)(A).



Payment of Annuity Amount. The annuity amount is equal to [a number no less than 5 and no more than 50] percent of the initial net fair market value of all property passing to this trust as finally determined for federal estate tax purposes. In each taxable year of the trust during the annuity period, the Trustee shall pay [the percentage of the annuity amount payable to the noncharitable recipient] percent of the annuity amount to [permissible recipient] (hereinafter "the Recipient") and [the percentage of the annuity amount payable to the charitable recipient] percent of the annuity amount to [an organization described in sections 170(c) and 2055(a) of the Code] (hereinafter "the Charitable Recipient"). The first day of the annuity period shall be the date of my death and the last day of the annuity



period shall be the date of the Recipient's death. If the Charitable Recipient is not an organization described in sections 170(c) and 2055(a) of the Code at the time when any annuity payment is to be distributed to it, then the Trustee shall distribute that annuity payment to one or more organizations described in sections 170(c) and 2055(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion. The annuity amount shall be paid in equal quarterly installments at the end of each calendar quarter from income, and to the extent income is not sufficient, from principal. Any income of the trust for a taxable year in excess of the annuity amount shall be added to principal. If the initial net fair market value of the trust assets is incorrectly determined, then within a reasonable period after the value is finally determined for federal estate tax purposes, the Trustee shall pay to the Recipient and the Charitable Recipient (in the case of an undervaluation) or receive from the Recipient and the Charitable Recipient (in the case of an overvaluation) an amount equal to the difference between the annuity amount(s) properly payable and the annuity amount(s) actually paid.

(b) In paragraph 2, Deferral Provision, of the sample trust, replace each reference to "the Recipient" with a reference to "the Recipient and the Charitable Recipient."

(c) Replace the first parenthetical in paragraph 4, Distribution to Charity, of the sample trust with the following parenthetical:

(other than any amount due the Recipient or the Recipient's estate and the Charitable Recipient under the provisions above).

(d) Add the following sentence after the first and only sentence in paragraph 6, Prohibited Transactions, of the sample trust:



(1) Explanation. Under section 664(f), payment of the annuity amount may terminate upon the earlier of the occurrence of a qualified contingency (as defined in section 664(f)(3)) or the death of the recipient.



The amount of the charitable deduction, however, will be determined without regard to a qualified contingency. See section 664(f)(2).


The first day of the annuity period shall be the date of my death and the last day of the annuity period shall be the date of the Recipient's death or, if earlier, the date on which occurs the [qualified contingency].


(1) Explanation. As an alternative to prorating the annuity amount in the taxable year of the recipient's death, payment of the annuity amount may terminate with the last regular payment preceding the recipient's death. However, the fact that the recipient may not receive the last payment shall not be taken into account for purposes of determining the present value of the remainder interest. Section 1.664-2(a)(5)(i).

(2) Instruction for use. Replace the second sentence of paragraph 3, Proration of Annuity Amount, of the sample trust with the following sentence:

In the taxable year of the trust during which the annuity period ends, the obligation of the Trustee to pay the annuity amount shall terminate with the regular quarterly installment next preceding the death of the Recipient.


(1) Explanation. The trust instrument may grant the recipient a power of appointment to designate the charitable remainderman. See Rev. Rul, 76-7, 1976-1 C.B. 179.


Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principal and income of the trust (other than any amount due the Recipient or the Recipient's estate under the provisions above) to one or more charitable organizations described in sections 170(c) and 2055(a) of the Code as the Recipient shall appoint and direct by specific reference to this power of appointment by inter vivos or testamentary instrument. To the extent the Recipient fails to effectively exercise the power of appointment, the principal and income not effectively appointed



shall be distributed to one or more organizations described in sections 170(c) and 2055(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion. If an organization fails to qualify as an organization described in sections 170(c) and 2055(a) of the Code at the time when any principal or income of the trust is to be distributed to it, then the Trustee shall distribute the then principal and income to one or more organizations described in sections 170(c) and 2055(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion.








This revenue procedure contains an annotated sample declaration of trust and alternate provisions that meet the requirements of section 664(d)(1) of the Internal Revenue Code for a testamentary charitable remainder annuity trust (CRAT) providing for annuity payments for a term of years followed by the distribution of trust assets to a charitable remainderman.


Previously, the Internal Revenue Service issued sample trust instruments for certain types of CRATs. The Service is updating the previously issued samples and issuing new samples for additional types of CRATs; annotations and alternate sample provisions are included as further guidance. In addition to the sample trust instrument included in this revenue procedure for a testamentary CRAT providing for annuity payments for a term of years, samples are provided in separate revenue procedures for:





(e) a testamentary CRAT providing for annuity payments for one measuring life (see Rev. Proc. 2003-57, superceding section 6 of Rev. Proc. 90-32);




Section 4 of this revenue procedure provides a sample declaration of trust for a testamentary CRAT that is created by an individual who is a citizen or resident of the United States and that provides for a term of years annuity period. Section 5 of this revenue procedure provides annotations to the provisions of the sample trust. Section 6 of this revenue procedure provides samples of alternate provisions concerning: (.01) the statement of the annuity amount as a specific dollar amount; (.02) the payment of part of the annuity to an organization described in section 170(c); (.03) the apportionment of the annuity amount among members of a named class in the discretion of the trustee; (.04) a qualified contingency; and (.05) a power of appointment to designate the charitable remainderman.

For transfers to a qualifying CRAT, as defined in section 664(d)(1), the remainder interest will be deductible by the estate of a citizen or resident of the United States under section 2055(e)(2)(A) if the



other requirements of section 2055(e)(2)(A) (that is, the requirements not relating to the provisions of the governing instrument) are also met. The Service will recognize a trust as a qualified CRAT meeting all of the requirements of section 664(d)(1) if the trust operates in a manner consistent with the terms of the trust instrument, if the trust is a valid trust under applicable local law, and if the trust instrument: (i) is substantially similar to the sample in section 4 of this revenue procedure; or (ii) properly integrates one or more alternate provisions from section 6 of this revenue procedure into a document substantially similar to the sample in section 4 of this revenue procedure. A trust instrument that contains substantive provisions in addition to those provided in section 4 of this revenue procedure (other than properly integrated alternate provisions from section 6 of this revenue procedure, or provisions necessary to establish a valid trust under applicable local law that are not inconsistent with the applicable federal tax requirements), or that omits any of the provisions of section 4 of this revenue procedure (unless an alternate provision from section 6 of this revenue procedure is properly integrated), will not necessarily be disqualified, but neither will that trust be assured of qualification under the provisions of this revenue procedure. The Service generally will not issue a letter ruling on whether a testamentary trust created by an individual and having a term of years annuity period qualifies as a CRAT. The Service, however, generally will issue letter rulings on the effect of substantive trust provisions, other than those contained in sections 4 and 6 of this revenue procedure, on the qualification of a trust as a CRAT.

SECTION 4. SAMPLE TESTAMENTARY CHARITABLE REMAINDER ANNUITY TRUST -- TERM OF YEARS


1. Payment of Annuity Amount. In each taxable year of the trust during the annuity period, the Trustee shall pay to [permissible recipient] (hereinafter "the Recipient") an annuity amount equal to [a number no less than 5 and no more than 50] percent of the initial net fair market value of all property passing to this trust as finally determined for federal estate tax purposes. The annuity period is a term of [a number not more than 20] years. The first day of the annuity period shall be the date of my death and the last day of the annuity period shall be the day preceding the [ordinal number corresponding to the length of the annuity period] anniversary of that date. The annuity amount shall be paid in equal quarterly installments at the end of each calendar quarter from income, and to the extent income is not sufficient, from principal. Any income of the trust for a taxable year in excess of the annuity amount shall be added to principal. If the initial net fair market value of the trust assets is incorrectly determined, then within a reasonable period after the value is finally determined for federal estate tax purposes, the Trustee shall pay to the Recipient (in the case of an undervaluation) or receive from the Recipient (in the case of an overvaluation) an amount equal to the difference between the annuity amount(s) properly payable and the annuity amount(s) actually paid.

2. Deferral Provision. The obligation to pay the annuity amount shall commence with the date of my death, but payment of the annuity amount may be deferred from this date until the end of the taxable year in which the trust is completely funded. Within a reasonable time after the end of the taxable year in



which the trust is completely funded, the Trustee must pay to the Recipient (in the case of an underpayment) or receive from the Recipient (in the case of an overpayment) the difference between any annuity amounts actually paid, plus interest, and the annuity amounts payable, plus interest. The interest shall be computed for any period at the rate of interest, compounded annually, that the federal income tax regulations under section 664 of the Code prescribe for this computation.


4. Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principal and income of the trust (other than any amount due the Recipient under the provisions above) to [designated remainderman] (hereinafter "the Charitable Organization"). If the Charitable Organization is not an organization described in sections 170(c) and 2055(a) of the Code at the time when any principal or income of the trust is to be distributed to it, then the Trustee shall distribute the then principal and income to one or more organizations described in sections 170(c) and 2055(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion.





9. Limited Power of Amendment. This trust is irrevocable. However, the Trustee shall have the power, acting alone, to amend the trust from time to time in any manner required for the sole purpose of ensuring that the trust qualifies and continues to qualify as a charitable remainder annuity trust within the meaning of section 664(d)(1) or the Code.




SECTION 5. ANNOTATIONS REGARDING SAMPLE TESTAMENTARY CHARITABLE REMAINDER ANNUITY TRUST -- TERM OF YEARS


(1) Factors concerning qualification of trust. A deduction must be allowable under section 2055 for property contributed to the trust. Section 1.664-1(a)(1)(iii)(a) of the Income Tax Regulations. The trust must meet the definition of and function exclusively as a charitable remainder trust from the creation of the trust. Section 1.664-1(a)(4). Solely for purposes of section 664, a trust is deemed created at the earliest time that no person is treated as the owner of the entire trust under subpart E, part 1, subchapter J, chapter 1, subtitle A of the Code (subpart E). Section 1.664-1(a)(4). For purposes of section 2055, 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 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 this amount is deferred in accordance with section 1.664-1(a)(5)(i). Section 1.664-1(a)(5)(i). In addition, funding the trust with certain types of assets may disqualify it as a charitable remainder trust. See section 1.664-1(a)(7) and Rev. Rul, 73-610, 1973-2 C.B. 213.


(3) Trustee provisions. Alternate or successor trustees may be designated in the trust instrument. In addition, the trust instrument may contain other administrative provisions relating to the trustee's duties and powers, as long as the provisions do not conflict with the rules governing charitable remainder trusts under section 664 and the regulations thereunder. Note that certain powers given to certain persons serving as the trustee may cause the trustee to be treated as the owner of the trust under subpart E and thus disqualify the trust as a charitable remainder trust. See section 1.664-1(a)(4). See section 6.03 of this revenue procedure for an alternate provision providing for the apportionment of the annuity amount among members of a named class in the discretion of the trustee.


(1) Permissible term. The period for which the annuity amount is payable must not exceed 20 years. Section 1.664-2(a)(5)(i). Thus, for example, the annuity period of a CRAT for a term of 20 years will end on the day preceding the twentieth anniversary of the date the trust was created.

(2) Permissible recipients. For a CRAT having a term of years annuity period, the annuity amount must generally be paid to a named person or persons (within the meaning of section 7701(a)(1)). If the annuity amount is to be paid to an individual or individuals, all the individuals must be living at the time of the creation of the trust. The annuity amount may be payable to the estate or heirs of a named recipient who dies prior to the expiration of the term of years. See Rev. Rul. 74-39, 1974-1 C.B. 156. The annuity amount may be payable to members of a named class and, because the annuity period is for a term of years, all of the members of the class need not be living or ascertainable at the creation of the trust. An organization described in section 170(c) may receive part, but not all, of the annuity amount. Section



664(d)(1)(A) and section 1.664-2(a)(3)(i). See section 6.02 of this revenue procedure for an alternate provision that provides for payment of part of the annuity to an organization described in section 170(c).

(3) Multiple noncharitable recipients. Generally, if the annuity amount is payable to more than one person, the trust instrument should describe the interest of each person. See section 6.03 of this revenue procedure for an alternate provision providing for the apportionment of the annuity amount among members of a named class in the discretion of the trustee.

(4) Percentage requirements. The sum certain annuity amount must be at least 5 percent and not more than 50 percent of the initial net fair market value of the assets placed in trust. Section 664(d)(1)(A). In addition, the value (determined under section 7520) of the charitable remainder interest must be at least 10 percent of the initial net fair market value of all property placed in the trust. Section 664(d)(1)(D). See section 20.7520-3(b) for special rules that may be applicable in valuing interests transferred to CRATs.


(6) Payment of annuity amount by close of taxable year. Generally, the annuity amount for any taxable year must be paid before the close of the taxable year for which it is due. For circumstances under which the annuity amount may be paid within a reasonable time after the close of the taxable year, see section 1.664- 2(a)(1)(i)(a). In addition, section 1.664-1(a)(5)(i) provides a special rule applicable to charitable remainder trusts created by testamentary transfer that may defer the requirement to pay the annuity amount until the end of the taxable year in which the trust is completely funded. See section 5.03(1) of this revenue procedure for additional information regarding the deferral of the payment of the annuity amount until the end of the taxable year in which the trust is completely funded.











(2) Designated remainderman. Any named charitable remainderman must be an organization described in sections 170(c) and 2055(a) at the time of the transfer to the charitable remainder annuity trust. See section 664(d)(1)(C) and Rev. Rul. 77-385, 1977-2 C.B. 331. The trust instrument may restrict the charitable remainderman to an organization described in sections 170(c) and 2055(a), but grant to a trustee or other person the power to designate the actual charitable remainderman. See section 605 of this revenue procedure for an alternate provision in which a recipient is granted a power of appointment to designate the charitable remainderman.

(3) Multiple remainderman. The remainder interest may pass to more than one charitable organization as long as each organization is described in sections 170(c) and 2055(a). Section 1.664-2(a)(6)(i).





(3) Trust to continue in existence for benefit of charity. The governing instrument requirements of section 508(e) must be included in the trust instrument if, after the termination of the annuity period: (i) the trust instrument provides that the trust shall continue in existence for the benefit of the charitable remainderman and, as a result, the trust will become subject to the provisions of section 4947(a)(1); and (ii) the trust will be treated as a private foundation within the meaning of section 509(a), as modified by section 4947(a)(1). Except as provided in paragraph 6 of the sample trust, the trust instrument may limit



the application of the provisions of section 508(e) to the period after the termination of the annuity period when the trust continues in existence for the benefit of the charitable remainderman.

SECTION 6. ALTERNATE PROVISIONS FOR SAMPLE TESTAMENTARY CHARITABLE REMAINDER ANNUITY TRUST -- TERM OF YEARS











Payment of Annuity Amount. The annuity amount is equal to [a number no less than 5 and no more than 50] percent of



the initial net fair market value of all property passing to this trust as finally determined for federal estate tax purposes. In each taxable year of the trust during the annuity period, the Trustee shall pay [the percentage of the annuity amount payable to the noncharitable recipient] percent of the annuity amount to [permissible recipient] (hereinafter "the Recipient") and [the percentage of the annuity amount payable to the charitable recipient] percent of the annuity amount to [an organization described in sections 170(c) and 2055(a) of the Code] (hereinafter "the Charitable Recipient"). The annuity period is a term of [not more than 20] years. The first day of the annuity period shall be the date of my death and the last day of the annuity period shall be the day preceding the [ordinal number corresponding to the length of the annuity period] anniversary of that date. If the Charitable Recipient is not an organization described in sections 170(c) and 2055(a) of the Code at the time when any annuity payment is to be distributed to it, then the Trustee shall distribute that annuity payment to one or more organizations described in sections 170(c) and 2055(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion. The annuity amount shall be paid in equal quarterly installments at the end of each calendar quarter from income, and to the extent income is not sufficient, from principal. Any income of the trust for a taxable year in excess of the annuity amount shall be added to principal. If the initial net fair market value of the trust assets is incorrectly determined, then within a reasonable period after the value is finally determined for federal estate tax purposes, the Trustee shall pay to the Recipient and the Charitable Recipient (in the case of an undervaluation) or receive from the Recipient and the Charitable Recipient (in the case of an overvaluation) an amount equal to the difference between the annuity amount(s) properly payable and the annuity amount(s) actually paid.

(b) In paragraph 2, Deferral Provision, and paragraph 4, Distribution to Charity, of the sample trust, replace each reference to "the Recipient" with a reference to "the Recipient and the Charitable Recipient."


The Trustee shall not make any investments that jeopardize the exempt purpose of the trust for purposes of section 4944 of the



Code, as modified by section 4947(a)(2)(A) of the Code, or retain any excess business holdings for purposes of section 4943 of the Code, as modified by section 4947(a)(2)(A) of the Code.

.03 Apportionment of the Annuity Amount among Members of a Named Class in the Discretion of the Trustee.

(1) Explanation. A trust is not a CRAT if any person has the power to alter the amount to be paid to any named person other than an organization described in section 170(c) if the power would cause any person to be treated as the owner of the trust, or any portion thereof, if subpart E were applicable to the trust. Section 1.664-2(a)(3)(ii). See Rev. Rul. 77-73, 1977-1 C.B. 175. A trustee's discretionary power, exercisable solely by that trustee, to allocate the annuity amount among the members of a class would cause the trustee to be treated as the owner of all or a portion of the trust under section 678(a) if the trustee is a member of the class, if the trustee may apply trust income or corpus to satisfy the trustee's own legal obligation, or if the trustee actually exercises the power to satisfy a support obligation owed by the trustee. Therefore, if any trustee is given the discretionary power exercisable solely by that trustee to allocate the annuity amount among members of a class, the trust instrument must provide that such trustee must be: (i) not a member of the recipient class; and (ii) prohibited from applying any part of the annuity payment in satisfaction of the trustee's own legal obligation.


(a) Add the following sentence to the sample trust:

Any trustee who is authorized in the trustee's sole discretion to allocate the annuity amount among members of a Recipient class must not be a member of the Recipient class.

(b) Replace the first sentence of paragraph 1, Payment of Annuity Amount, of the sample trust with the following three sentences:

In each taxable year of the trust during the annuity period, the Trustee shall pay to a member or members of a class of persons comprised of [designated members of class] (hereinafter "the Recipient") an annuity amount equal to [a number no less than 5 and no more than 50] percent of the initial net fair market value of all property passing to this trust as finally determined for federal estate tax purposes. The Trustee may pay the annuity amount to one or more members of the class, in equal or unequal shares, as the Trustee, in the Trustee's sole discretion, may from time to time deem advisable. The Trustee may not, however, apply the payment for the Trustee's own benefit, or in satisfaction of any support or other legal obligation of the Trustee.




(1) Explanation. Under section 664(f), payment of the annuity amount may terminate upon the earlier of the occurrence of a qualified contingency (as defined in section 664(f)(3)) or the expiration of the term of years. The amount of the charitable deduction, however, will be determined without regard to a qualified contingency. See section 664(f)(2).

(2) Instruction for use. Replace the second and third sentences of paragraph 1, Payment of Annuity Amount, of the sample trust with the following two sentences, respectively:

The annuity period is a term of [not more than 20] years, unless earlier terminated by the occurrence of [qualified contingency]. The first day of the annuity period shall be the date of my death and the last day of the annuity period shall be the day preceding the [ordinal number corresponding to the length of the annuity period] anniversary of that date or, if earlier, the date on which occurs the [qualified contingency].




Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principal and income of the trust (other than any amount due the Recipient under the provisions above) to one or more charitable organizations described in sections 170(c) and 2055(a) of the Code as the Recipient shall appoint and direct by specific reference to this power of appointment by inter vivos or testamentary instrument. To the extent the Recipient fails to effectively exercise the power of appointment, the principal and income not effectively appointed shall be distributed to one or more organizations described in sections 170(c) and 2055(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion. If an organization fails to qualify as an organization described in sections 170(c) and 2055(a) of the Code at the time when any principal or income of the trust is to be distributed to it, then the Trustee shall distribute the then principal and income to one or more organizations described in sections 170(c) and



2055(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion.






This revenue procedure contains an annotated sample declaration of trust and alternate provisions that meet the requirements of section 664(d)(1) of the Internal Revenue Code for a testamentary charitable remainder annuity trust (CRAT) providing for annuity payments payable consecutively for two measuring lives followed by the distribution of trust assets to a charitable remainderman.


Previously, the Internal Revenue Service issued sample trust instruments for certain types of CRATs. The Service is updating the previously issued samples and issuing new samples for additional types of CRATs; annotations and alternate sample provisions are included as further guidance. In addition to the sample trust instrument included in this revenue procedure for a testamentary CRAT providing for annuity payments payable consecutively for two measuring lives, samples are provided in separate revenue procedures for:






(f) a testamentary CRAT providing for annuity payments for a term of years (see Rev. Proc. 2003-59); and



Section 4 of this revenue procedure provides a sample declaration of trust for a testamentary CRAT with consecutive interests for two measuring lives that is created by an individual who is a citizen or resident of the United States. Section 5 of this revenue procedure provides annotations to the provisions of the sample trust. Section 6 of this revenue procedure provides samples of alternate provisions concerning: (.01) the statement of the annuity amount as a specific dollar amount; (.02) the payment of part of the annuity to an organization described in section 170(c); (.03) a qualified contingency; (.04) the last annuity payments to the recipients; and (.05) a power of appointment to designate the charitable remainderman.

For transfers to a qualifying CRAT, as defined in section 664(d)(1), the remainder interest will be deductible by the estate of a citizen or resident of the United States under section 2055(e)(2)(A) if the



other requirements of section 2055(e)(2)(A) (that is, the requirements not relating to the provisions of the governing instrument) are also met. The Service will recognize a trust as a qualified CRAT meeting all of the requirements of section 664(d)(1) if the trust operates in a manner consistent with the terms of the trust instrument, if the trust is a valid trust under applicable local law, and if the trust instrument: (i) is substantially similar to the sample in section 4 of this revenue procedure; or (ii) properly integrates one or more alternate provisions from section 6 of this revenue procedure into a document substantially similar to the sample in section 4 of this revenue procedure. A trust instrument that contains substantive provisions in addition to those provided in section 4 of this revenue procedure (other than properly integrated alternate provisions from section 6 of this revenue procedure, or provisions necessary to establish a valid trust under applicable local law that are not inconsistent with the applicable federal tax requirements), or that omits any of the provisions of section 4 of this revenue procedure (unless an alternate provision from section 6 of this revenue procedure is properly integrated), will not necessarily be disqualified, but neither will that trust be assured of qualification under the provisions of this revenue procedure. The Service generally will not issue a letter ruling on whether a testamentary trust created by an individual and with consecutive interests for two measuring lives qualifies as a CRAT. The Service, however, generally will issue letter rulings on the effect of substantive trust provisions, other than those contained in sections 4 and 6 of this revenue procedure, on the qualification of a trust as a CRAT.

SECTION 4. SAMPLE TESTAMENTARY CHARITABLE REMAINDER ANNUITY TRUST -- TWO LIVES, CONSECUTIVE INTERESTS


1. Payment of Annuity Amount. In each taxable year of the trust during the annuity period, the Trustee shall pay to [permissible recipient] (hereinafter "the Initial Recipient") until the Initial Recipient's death, and thereafter to [permissible recipient] (hereinafter "the Successor Recipient") (subject to any proration in paragraph 3), an annuity amount equal to [a number no less than 5 and no more than 50] percent of the initial net fair market value of all property passing to this trust as finally determined for federal estate tax purposes. The first day of the annuity period shall be the date of my death and the last day of the annuity period shall be the date of the death of the survivor of the Initial Recipient and the Successor Recipient. The annuity amount shall be paid in equal quarterly installments at the end of each calendar quarter from income, and to the extent income is not sufficient, from principal. Any income of the trust for a taxable year in excess of the annuity amount shall be added to principal. If the initial net fair market value of the trust assets is incorrectly determined, then within a reasonable period after the value is finally determined for federal estate tax purposes, the Trustee shall pay to the Initial Recipient and/or Successor Recipient (in the case of an undervaluation) or receive from the Initial Recipient and/or Successor Recipient (in the case of an overvaluation) an amount equal to the difference between the annuity amount(s) properly payable and the annuity amount(s) actually paid.

2. Deferral Provision. The obligation to pay the annuity amount shall commence with the date of my death, but payment of the annuity amount may be deferred from this date until the end of the taxable year



in which the trust is completely funded. Within a reasonable time after the end of the taxable year in which the trust is completely funded, the Trustee must pay to the Initial Recipient and/or the Successor Recipient (in the case of an underpayment) or receive from the Initial Recipient and/or the Successor Recipient (in the case of an overpayment) the difference between any annuity amounts actually paid, plus interest, and the annuity amounts payable, plus interest. The interest shall be computed for any period at the rate of interest, compounded annually, that the federal income tax regulations under section 664 of the Code prescribe for this computation.

3. Proration of Annuity Amount. The Trustee shall prorate the annuity amount on a daily basis for any short taxable year. If the Successor Recipient survives the Initial Recipient, the Trustee shall prorate on a daily basis the next regular annuity payment due after the death of the Initial Recipient between the estate of the Initial Recipient and the Successor Recipient. In the taxable year of the trust during which the annuity period ends, the Trustee shall prorate the annuity amount on a daily basis for the number of days of the annuity period in that taxable year.

4. Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principal and income of the trust (other than any amount due the Recipients or their estates under the provisions above) to [designated remainderman] (hereinafter "the Charitable Organization"). If the Charitable Organization is not an organization described in sections 170(c) and 2055(a) of the Code at the time when any principal or income of the trust is to be distributed to it, then the Trustee shall distribute the then principal and income to one or more organizations described in sections 170(c) and 2055(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion.









SECTION 5. ANNOTATIONS REGARDING SAMPLE TESTAMENTARY CHARITABLE REMAINDER ANNUITY TRUST -- TWO LIVES, CONSECUTIVE INTERESTS


(1) Factors concerning qualification of trust. A deduction must be allowable under section 2055 for property contributed to the trust. Section 1.664-1(a)(1)(iii)(a) of the Income Tax Regulations. The trust must meet the definition of and function exclusively as a charitable remainder trust from the creation of the trust. Section 1.664-1(a)(4). Solely for purposes of section 664, a trust is deemed created at the earliest time that no person is treated as the owner of the entire trust under subpart E, part 1, subchapter J, chapter 1, subtitle A of the Code (subpart E). Section 1.664-1(a)(4). For purposes of section 2055, 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 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 this amount is deferred in accordance with section 1.664-1(a)(5)(i). Section 1.664-1(a)(5)(i). In addition, funding the trust with certain types of assets may disqualify it as a charitable remainder trust. See section 1.664-1(a)(7) and Rev. Rul. 73-610, 1973-2 C.B. 213.




(1) Permissible recipients. For a CRAT with an annuity period based on the lives of two individuals, the annuity amount must generally be paid to those individuals and both must be living at the time of the creation of the trust. See Rev. Rul. 2002-20, 2002-1 C.B. 794, for situations in which the annuity amount may be paid to a trust for the benefit of an individual who is financially disabled. An organization described in section 170(c) may receive part, but not all, of the annuity amount. Section 664(d)(1)(A) and section 1.664-2(a)(3)(i). See section 6.02 of this revenue procedure for an alternate provision that provides for payment of part of the annuity to an organization described in section 170(c).

(2) Percentage requirements. The sum certain annuity amount must be at least 5 percent and not more than 50 percent of the initial net fair market value of the assets placed in trust. Section 664(d)(1)(A). Even if the sum certain annuity amount is at least 5 percent and not more than 50 percent of the initial net fair market value of the assets placed in trust, no deduction will be allowable under section 2055 if the



probability that the trust corpus will be exhausted before the death of the survivor of the recipients exceeds 5 percent. Rev. Rul. 77-374, 1977-2 C.B. 329. See section 20.7520-3(b) for special rules that may be applicable in valuing interests transferred to CRATs. In addition, the value (determined under section 7520) of the charitable remainder interest must be at least 10 percent of the initial net fair market value of all property placed in the trust. Section 664(d)(1)(D).

(3) Payment of annuity amount in installments. Paragraph 1, Payment of Annuity Amount, of the sample trust specifies that the annuity amount is to be paid in equal quarterly installments at the end of each quarter. However, the trust instrument may specify that the annuity amount is to be paid to the recipient annually or in equal or unequal installments throughout the year. See section 1.664-2(a)(1)(i). The amount of the charitable deduction will be affected by the frequency of payment, by whether the installments are equal or unequal, and by whether each installment is payable at the beginning or end of the period. See section 1-664-2(c) and section 20.2031-7(d)(2)(iv).

(4) Payment of annuity amount by close of taxable year. Generally, the annuity amount for any taxable year must be paid before the close of the taxable year for which it is due. For circumstances under which the annuity amount may be paid within a reasonable time after the close of the taxable year, see section 1.664-2(a)(1)(i)(a). In addition, section 1.664-1(a)(5)(i) provides a special rule applicable to charitable remainder trusts created by testamentary transfer that may defer the requirement to pay the annuity amount until the end of the taxable year in which the trust is completely funded. See section 5.03(1) of this revenue procedure for additional information regarding the deferral of the payment of the annuity amount until the end of the taxable year in which the trust is completely funded.







(2) Determining annuity amount payable in year of a recipient's death. Paragraph 3, Proration of Annuity Amount, of the sample trust specifies that the annuity amount shall be prorated on a daily basis. See



section 6.04 of this revenue procedure for alternate provisions that provide for termination of the annuity amount with the last regular payment preceding the death of each recipient.



(2) Designated remainderman. Any named charitable remainderman must be an organization described in sections 170(c) and 2055(a) at the time of the transfer to the charitable remainder annuity trust. See section 664(d)(1)(C) and Rev. Rul. 77-385, 1977-2 C.B. 331. The trust instrument may restrict the charitable remainderman to an organization described in sections 170(c) and 2055(a), but grant to a trustee or other person the power to designate the actual charitable remainderman. See section 6.05 of this revenue procedure for an alternate provision in which a recipient is granted a power of appointment to designate the charitable remainderman.






(3) Trust to continue in existence for benefit of charity. The governing instrument requirements of section 508(e) must be included in the trust instrument if, after the termination of the annuity period: (i) the trust instrument provides that the trust shall continue in existence for the benefit of the charitable remainderman and, as a result, the trust will become subject to the provisions of section 4947(a)(1); and (ii) the trust will be treated as a private foundation within the meaning of section 509(a), as modified by section 4947(a)(1). Except as provided in paragraph 6 of the sample trust, the trust instrument may limit the application of the provisions of section 508(e) to the period after the termination of the annuity period when the trust continues in existence for the benefit of the charitable remainderman.



SECTION 6. ALTERNATE PROVISIONS FOR SAMPLE TESTAMENTARY CHARITABLE REMAINDER ANNUITY TRUST -- TWO LIVES, CONSECUTIVE INTERESTS





In each taxable year of the trust during the annuity period, the Trustee shall pay to [permissible recipient] (hereinafter "the Initial Recipient") until the Initial Recipient's death and thereafter to [permissible recipient] (hereinafter "the Successor Recipient") (subject to any proration in paragraph 3), an annuity amount equal to [the stated dollar amount].






Payment of Annuity Amount. The annuity amount is equal to [a number no less than 5 and no more than 50] percent of the initial net fair market value of all property passing to



this trust as finally determined for federal estate tax purposes. In each taxable year of the trust during the annuity period, the Trustee shall pay [the percentage of the annuity amount payable to the noncharitable recipients] percent of the annuity amount to [permissible recipient] (hereinafter "the Initial Recipient") until the Initial Recipient's death, and thereafter to [permissible recipient] (hereinafter "the Successor Recipient") (subject to any proration in paragraph 3). In each taxable year of the trust during the annuity period, the Trustee shall pay [the percentage of the annuity amount payable to the charitable recipient] percent of the annuity amount to [an organization described in sections 170(c) and 2055(a) of the Code] (hereinafter "the Charitable Recipient"). The first day of the annuity period shall be the date of my death and the last day of the annuity period shall be the date of the death of the survivor of the Initial Recipient and the Successor Recipient. If the Charitable Recipient is not an organization described in sections 170(c) and 2055(a) of the Code at the time when any annuity payment is to be distributed to it, then the Trustee shall distribute that annuity payment to one or more organizations described in sections 170(c) and 2055(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion. The annuity amount shall be paid in equal quarterly installments at the end of each calendar quarter from income, and to the extent income is not sufficient, from principal. Any income of the trust for a taxable year in excess of the annuity amount shall be added to principal. If the initial net fair market value of the trust assets is incorrectly determined, then within a reasonable period after the value is finally determined for federal estate tax purposes, the Trustee shall pay to the Initial Recipient and/or the Successor Recipient and the Charitable Recipient (in the case of an undervaluation) or receive from the Initial Recipient and/or the Successor Recipient and the Charitable Recipient (in the case of an overvaluation) an amount equal to the difference between the annuity amount(s) properly payable and the annuity amount(s) actually paid.

(b) In paragraph 2, Deferral Provision, of the sample trust, replace each reference to "the Initial Recipient and/or the Successor Recipient" with a reference to "the Initial Recipient and/or the Successor Recipient and the Charitable Recipient."




(other than any amount due the Initial Recipient, the Successor Recipient, or their estates and the Charitable Recipient under the provisions above).




(1) Explanation. Under section 664(f), payment of the annuity amount may terminate upon the earlier of the occurrence of a qualified contingency (as defined in section 664(f)(3)) or the death of the survivor of the initial recipient and the successor recipient. The amount of the charitable deduction, however, will be determined without regard to a qualified contingency. See section 664(f)(2).

(2) Instructions for use. Replace the second sentence of paragraph 1, Payment of Annuity Amount, of the sample trust with the following sentence:

The first day of the annuity period shall be the date of my death and the last day of the annuity period shall be the date of the death of the survivor of the Initial Recipient and the Successor Recipient or, if earlier, the date on which occurs the [qualified contingency].


(1) Explanation. As an alternative to prorating the annuity amount in the taxable year of the initial recipient's death, payment of the initial recipient's share of the annuity amount may terminate with the last regular payment preceding the initial recipient's death. Similarly, as an alternative to prorating the annuity amount in the taxable year of the termination of the annuity period, payment of the annuity amount may terminate with the last regular payment preceding the termination of the annuity period. However, the fact that a recipient may not receive the last payment shall not be taken into account for purposes of determining the present value of the remainder interest. Section 1.664-2(a)(5)(i).



(2) Instruction for use.

(a) To add an alternate provision to terminate the payment of the initial recipient's share of the annuity amount with the last regular payment preceding his or her death, replace paragraph 3, Proration of Annuity Amount, of the sample trust with the following paragraph:

Proration of Annuity Amount. Except as provided below, the Trustee shall prorate the annuity amount on a daily basis for any short taxable year. The obligation of the Trustee to pay the annuity amount to the Initial Recipient shall terminate with the regular quarterly installment next preceding the Initial Recipient's death. In the taxable year of the trust during which the annuity period ends, the Trustee shall prorate the annuity amount on a daily basis for the number of days of the annuity period in that taxable year.


Proration of Annuity Amount. Except as provided below, the Trustee shall prorate the annuity amount on a daily basis for any short taxable year. If the Successor Recipient survives the Initial Recipient, the Trustee shall prorate on a daily basis the next regular annuity payment due after the death of the Initial Recipient between the estate of the Initial Recipient and the Successor Recipient. In the taxable year of the trust during which the annuity period ends, the obligation of the Trustee to pay the annuity amount shall terminate with the regular quarterly installment next preceding the termination of the annuity period.

(c) To add an alternate provision terminating the payment of the initial recipient's share of the annuity amount with the last regular payment preceding his or her death, and terminating the payment of the annuity amount with the last regular payment preceding the termination of the annuity period, replace paragraph 3, Proration of Annuity Amount, of the sample trust with the following paragraph:

Proration of Annuity Amount. Except as provided below, the Trustee shall prorate the annuity amount on a daily basis for any short taxable year. The obligation of the Trustee to pay the annuity amount to the Initial Recipient shall terminate with the regular quarterly installment next preceding the Initial Recipient's death. In the taxable year of the trust during which



the annuity period ends, the obligation of the Trustee to pay the annuity amount shall terminate with the regular quarterly installment next preceding the termination of the annuity period.




Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principal and income of the trust (other than any amount due the Recipients or their estates under the provisions above) to one or more charitable organizations described in sections 170(c) and 2055(a) of the Code as [one of the named permissible recipients] shall appoint and direct by specific reference to this power of appointment by inter vivos or testamentary instrument. To the extent this power of appointment is not effectively exercised, the principal and income not effectively appointed shall be distributed to one or more organizations described in sections 170(c) and 2055(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion. If an organization fails to qualify as an organization described in sections 170(c) and 2055(a) of the Code at the time when any principal or income of the trust is to be distributed to it, then the Trustee shall distribute the then principal and income to one or more organizations described in sections 170(c) and 2055(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion.








This revenue procedure contains an annotated sample declaration of trust and alternate provisions that meet the requirements of section 664(d)(1) of the Internal Revenue Code for a testamentary charitable remainder annuity trust (CRAT) providing for annuity payments payable concurrently and consecutively for two measuring lives followed by the distribution of trust assets to a charitable remainderman.


Previously, the Internal Revenue Service issued sample trust instruments for certain types of CRATs. The Service is updating the previously issued samples and issuing new samples for additional types of CRATs; annotations and alternate sample provisions are included as further guidance. In addition to the sample trust instrument included in this revenue procedure for a testamentary CRAT providing for annuity payments payable concurrently and consecutively for two measuring lives, samples are provided in separate revenue procedures for:






(f) a testamentary CRAT providing for annuity payments for a term of years (see Rev. Proc. 2003-58); and

(g) a testamentary CRAT providing for annuity payments payable consecutively for two measuring lives (see Rev. Proc. 2003-59, superceding section 7 of Rev. Proc. 90-32).


Section 4 of this revenue procedure provides a sample declaration of trust for a testamentary CRAT with concurrent and consecutive interests for two measuring lives that is created by an individual who is a citizen or resident of the United States. Section 5 of this revenue procedure provides annotations to the provisions of the sample trust. Section 6 of this revenue procedure provides samples of alternate provisions concerning: (.01) the statement of the annuity amount as a specific dollar amount; (.02) the payment of part of the annuity to an organization described in section 170(c); (.03) a qualified contingency; (.04) the last annuity payments to the recipients; and (.05) a power of appointment to designate the charitable remainderman.



For transfers to a qualifying CRAT, as defined in section 664(d)(1), the remainder interest will be deductible by the estate of a citizen or resident of the United States under section 2055(e)(2)(A) if the other requirements of section 2055(e)(2)(A) (that is, the requirements not relating to the provisions of the governing instrument) are also met. The Service will recognize a trust as a qualified CRAT meeting all of the requirements of section 664(d)(1) if the trust operates in a manner consistent with the terms of the trust instrument, if the trust is a valid trust under applicable local law, and if the trust instrument: (i) is substantially similar to the sample in section 4 of this revenue procedure; or (ii) properly integrates one or more alternate provisions from section 6 of this revenue procedure into a document substantially similar to the sample in section 4 of this revenue procedure. A trust instrument that contains substantive provisions in addition to those provided in section 4 of this revenue procedure (other than properly integrated alternate provisions from section 6 of this revenue procedure, or provisions necessary to establish a valid trust under applicable local law that are not inconsistent with the applicable federal tax requirements), or that omits any of the provisions of section 4 of this revenue procedure (unless an alternate provision from section 6 of this revenue procedure is properly integrated), will not necessarily be disqualified, but neither will that trust be assured of qualification under the provisions of this revenue procedure. The Service generally will not issue a letter ruling on whether a testamentary trust created by an individual and with concurrent and consecutive interests for two measuring lives qualifies as a CRAT. The Service, however, generally will issue letter rulings on the effect of substantive trust provisions, other than those contained in sections 4 and 6 of this revenue procedure, on the qualification of a trust as a CRAT.

SECTION 4. SAMPLE TESTAMENTARY CHARITABLE REMAINDER ANNUITY TRUST -- TWO LIVES, CONCURRENT AND CONSECUTIVE INTERESTS


1. Payment of Annuity Amount. In each taxable year of the trust during the annuity period, the Trustee shall pay to [permissible recipient] and to [permissible recipient] (hereinafter "the Recipients") in equal shares during their lifetimes, an annuity amount equal to [a number no less than 5 and no more than 50] percent of the initial net fair market value of all property passing to this trust as finally determined for federal estate tax purposes, and upon the death of one (hereinafter "the Predeceasing Recipient"), the Trustee shall pay the entire annuity amount (subject to any proration in paragraph 3) to the survivor (hereinafter "the Survivor Recipient"). The first day of the annuity period shall be the date of my death and the last clay of the annuity period shall be the date of the Survivor Recipient's death. The annuity amount shall be paid in equal quarterly installments at the end of each calendar quarter from income, and to the extent income is not sufficient, from principal. Any income of the trust for a taxable year in excess of the annuity amount shall be added to principal. If the initial net fair market value of the trust assets is incorrectly determined, then within a reasonable period after the value is finally determined for federal estate tax purposes, the Trustee shall pay to the Recipients (in the case of an undervaluation) or receive from the Recipients (in the case of an overvaluation) an amount equal to the difference between the annuity amount(s) properly payable and the annuity amount(s) actually paid.



2. Deferral Provision. The obligation to pay the annuity amount shall commence with the date of my death, but payment of the annuity amount may be deferred from this date until the end of the taxable year in which the trust is completely funded. Within a reasonable time after the end of the taxable year in which the trust is completely funded, the Trustee must pay to the Recipients (in the case of an underpayment) or receive from the Recipients (in the case of an overpayment) the difference between any annuity amounts actually paid, plus interest, and the annuity amounts payable, plus interest. The interest shall be computed for any period at the rate of interest, compounded annually, that the federal income tax regulations under section 664 of the Code prescribe for this computation.

3. Proration of Annuity Amount. The Trustee shall prorate the annuity amount on a daily basis for any short taxable year. Upon the death of the Predeceasing Recipient, the Trustee shall prorate on a daily basis the Predeceasing Recipient's share of the next regular annuity payment between the estate of the Predeceasing Recipient and the Survivor Recipient. In the taxable year of the trust during which the annuity period ends, the Trustee shall prorate the annuity amount on a daily basis for the number of days of the annuity period in that taxable year.

4. Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principal and income of the trust (other than any amount due the Recipients or their estates under the provisions above) to [designated remainderman] (hereinafter "the Charitable Organization"). If the Charitable Organization is not an organization described in sections 170(c) and 2055(a) of the Code at the time when any principal or income of the trust is to be distributed to it, then the Trustee shall distribute the then principal and income to one or more organizations described in sections 170(c) and 2055(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion.









SECTION 5. ANNOTATIONS REGARDING SAMPLE TESTAMENTARY CHARITABLE REMAINDER ANNUITY TRUST -- TWO LIVES, CONCURRENT AND CONSECUTIVE INTERESTS


(1) Factors concerning qualification of trust. A deduction must be allowable under section 2055 for property contributed to the trust. Section 1.664-1(a)(1)(iii)(a) of the Income Tax Regulations. The trust must meet the definition of and function exclusively as a charitable remainder trust from the creation of the trust. Section 1.664-1(a)(4). Solely for purposes of section 664, a trust is deemed created at the earliest time that no person is treated as the owner of the entire trust under subpart E, part 1, subchapter J, chapter 1, subtitle A of the Code (subpart E). Section 1.664-1(a)(4). For purposes of section 2055, 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 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 this amount is deferred in accordance with section 1.664-1(a)(5)(i). Section 1.664-1(a)(5)(i). In addition, funding the trust with certain types of assets may disqualify it as a charitable remainder trust. See section 1.664-1(a)(7) and Rev. Rul. 73-610, 1973-2 C.B. 213.




(1) Permissible recipients. For a CRAT having an annuity period based on the lives of two individuals, the annuity amount must generally be paid to those individuals, and both must be living at the time of the creation of the trust. See Rev. Rul. 2002- 20, 2002-1 C.B. 794, for situations in which the annuity amount may be paid to a trust for the benefit of an individual who is financially disabled. An organization described in section 170(c) may receive part, but not all, of the annuity amount. Section 664(d)(1)(A) and section 1.664-2(a)(3)(i). See section 6.02 of this revenue procedure for an alternate provision that provides for payment of part of the annuity to an organization described in section 170(c).

(2) Division of annuity amount between recipients. The sample trust provides that while both recipients are alive they will share the annuity amount equally and upon the death of the predeceasing recipient the survivor recipient will receive all of the annuity amount, subject to any proration in paragraph 3. The



annuity amount may be divided other than equally during the joint lives of the recipients. In addition, the share of the predeceasing recipient may be made payable to an organization described in section 170(c) for the rest of the survivor recipient's life.

(3) Percentage requirements. The sum certain annuity amount must be at least 5 percent and not more than 50 percent of the initial net fair market value of the assets placed in trust. Section 664(d)(1)(A). Even if the sum certain annuity amount is at least 5 percent and not more than 50 percent of the initial net fair market value of the assets placed in trust, no deduction will be allowable under section 2055 if the probability that the trust corpus will be exhausted before the death of the survivor of the recipients exceeds 5 percent. Rev. Rul. 77-374, 1977-2 C.B. 329. See section 20.7520-3(b) for special rules that may be applicable in valuing interests transferred to CRATs. In addition, the value (determined under section 7520) of the charitable remainder interest must be at least 10 percent of the initial net fair market value of all property placed in the trust. Section 664(d)(1)(D).

(4) Payment of annuity amount in installments. Paragraph 1, Payment of Annuity Amount, of the sample trust specifies that the annuity amount is to be paid in equal quarterly installments at the end of each quarter. However, the trust instrument may specify that the annuity amount is to be paid to the recipients annually or in equal or unequal installments throughout the year. See section 1.664-2(a)(1)(i). The amount of the charitable deduction will be affected by the frequency of payment, by whether the installments are equal or unequal, and by whether each installment is payable at the beginning or end of the period. See section 1.664-2(c) and section 20.2031-7(d)(2)(iv)

(5) Payment of annuity amount by close of taxable year. Generally, the annuity amount for any taxable year must be paid before the close of the taxable year for which it is due. For circumstances under which the annuity amount may be paid within a reasonable time after the close of the taxable year, see section 1.664- 2(a)(1)(i)(a). In addition, section 1.664-1(a)(5)(i) provides a special rule applicable to charitable remainder trusts created by testamentary transfer that may defer the requirement to pay the annuity amount until the end of the taxable year in which the trust is completely funded. See section 5.03(1) of this revenue procedure for additional information regarding the deferral of the payment of the annuity amount until the end of the taxable year in which the trust is completely funded.




(2) Treatment of distributions. For the proper treatment of distributions to a charitable remainder trust or to the recipients during the period of administration of an estate or settlement of a trust that is not a charitable remainder trust, see section 1.664-1(a)(5)(iii).




(1) Prorating annuity amount. To compute the annuity amount in a short taxable year and in the taxable year in which the annuity period terminates, see section 1.664- 2(a)(1)(iv)(a) and (b), respectively.




(2) Designated remainderman. Any named charitable remainderman must be an organization described in sections 170(c) and 2055(a) at the time of the transfer to the charitable remainder annuity trust. See section 664(d)(1)(C) and Rev. Rul. 77-385, 1977-2 C.B. 331. The trust instrument may restrict the charitable remainderman to an organization described in sections 170(c) and 2055(a), but grant to a trustee or other person the power to designate the actual charitable remainderman. See section 6.05 of this revenue procedure for an alternate provision in which a recipient is granted a power of appointment to designate the charitable remainderman.






(3) Trust to continue in existence for benefit of charity. The governing instrument requirements of section 508(e) must be included in the trust instrument if, after the termination of the annuity period: (i) the trust instrument provides that the trust shall continue in existence for the benefit of the charitable



remainderman and, as a result, the trust will become subject to the provisions of section 4947(a)(1); and (ii) the trust will be treated as a private foundation within the meaning of section 509(a), as modified by section 4947(a)(1). Except as provided in paragraph 6 of the sample trust, the trust instrument may limit the application of the provisions of section 509(e) to the period after the termination of the annuity period when the trust continues in existence for the benefit of the charitable remainderman.

SECTION 6. ALTERNATE PROVISIONS FOR SAMPLE TESTAMENTARY CHARITABLE REMAINDER ANNUITY TRUST -- TWO LIVES, CONCURRENT AND CONSECUTIVE





In each taxable year of the trust during the annuity period, the Trustee shall pay to [permissible recipient] and to [permissible recipient] (hereinafter "the Recipients") in equal shares during their lifetimes an annuity amount equal to [the stated dollar amount], and upon the death of one (hereinafter "the Predeceasing Recipient"), the Trustee shall pay the entire annuity amount (subject to any proration in paragraph 3) to the survivor (hereinafter "the Survivor Recipient").



(1) Explanation. An organization described in section 170(c) may receive part, but not all, of any annuity amount. Section 664(d)(1)(A). If an estate tax charitable deduction is sought for the present value of the annuity interest passing to a charitable organization, the trust instrument must contain additional provisions. First, the trust instrument must specify the portion of each annuity payment that is payable to the noncharitable recipients and to the charitable organization described in sections 170(c) and 2055(a). Second, the trust instrument must contain a means for selecting an alternative qualified charitable organization if the designated organization is not a qualified organization at the time when any annuity amount is to be paid to it. Third, the trust instrument must contain prohibitions against investments that jeopardize the exempt purpose of the trust for purposes of section 4944, as modified by section



4947(a)(2)(A), and against retaining any excess business holdings for purposes of section 4943, as modified by section 4947(a)(2)(A).



Payment of Annuity Amount. The annuity amount is equal to [a number no less than 5 and no more than 50] percent of the initial net fair market value of all property passing to this trust as finally determined for federal estate tax purposes. In each taxable year of the trust during the annuity period, the Trustee shall pay [the percentage of the annuity amount payable to the noncharitable recipients] percent of the annuity amount to [permissible recipient] and [permissible recipient] (hereinafter "the Recipients") in equal shares during their joint lives, and upon the death of one (hereinafter "the Predeceasing Recipient"), the Trustee shall pay that entire percentage of the annuity amount (subject to any proration in paragraph 3) to the survivor (hereinafter "the Survivor Recipient"). In each taxable year of the trust during the annuity period, the Trustee shall pay [the percentage of the annuity amount payable to the charitable recipient] percent of the annuity amount to [an organization described in sections 170(c) and 2055(a) of the Code] (hereinafter "the Charitable Recipient"). The first day of the annuity period shall be the date of my death and the last day of the annuity period shall be the date of the Survivor Recipient's death. If the Charitable Recipient is not an organization described in sections 170(c) and 2055(a) of the Code at the time when any annuity payment is to be distributed to it, then the Trustee shall distribute that annuity payment to one or more organizations described in sections 170(c) and 2055(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion. The annuity amount shall be paid in equal quarterly installments at the end of each calendar quarter from income, and to the extent income is not sufficient, from principal. Any income of the trust for a taxable year in excess of the annuity amount shall be added to principal. If the initial net fair market value of the trust assets is incorrectly determined, then within a reasonable period after the value is finally determined for federal estate tax purposes, the Trustee shall pay to the Recipients and the Charitable Recipient (in the case of an



undervaluation) or receive from the Recipients and the Charitable Recipient (in the case of an overvaluation) an amount equal to the difference between the annuity amount(s) properly payable and the annuity amount(s) actually paid.

(b) In paragraph 2, Deferral Provision, of the sample trust, replace each reference to "the Recipients" with a reference to "the Recipients and the Charitable Recipient."


(other than any amount due the Recipients or their estates and the Charitable Recipient under the provisions above).




(1) Explanation. Under section 664(f), payment of the annuity amount may terminate upon the earlier of the occurrence of a qualified contingency (as defined in section 664(f)(3)) or the death of the survivor recipient. The amount of the charitable deduction, however, will be determined without regard to a qualified contingency. See section 664(f)(2).


The first day of the annuity period shall be the date of my death and the last day of the annuity period shall be the date of the Survivor Recipient's death or, if earlier, the date on which occurs the [qualified contingency].


(1) Explanation. As an alternative to prorating the annuity amount in the taxable year of the predeceasing recipient's death, payment of the predeceasing recipient's share of the annuity amount may terminate with the last regular payment preceding the predeceasing recipient's death. Similarly, as an alternative to prorating the annuity amount in the taxable year of the termination of the annuity period, payment of the annuity amount may terminate with the last regular payment preceding the termination of the annuity



period. However, the fact that a recipient may not receive the last payment shall not be taken into account for purposes of determining the present value of the remainder interest. Section 1.664-2(a)(5)(i).


(a) To add an alternate provision to terminate the payment of the predeceasing recipient's share of the annuity amount with the last regular payment preceding his or her death, replace paragraph 3, Proration of Annuity Amount, of the sample trust with the following paragraph:

Proration of Annuity Amount. Except as provided below, the Trustee shall prorate the annuity amount on a daily basis for any short taxable year. The obligation of the Trustee to pay a share of the annuity amount to the Predeceasing Recipient shall terminate with the regular quarterly installment next preceding the Predeceasing Recipient's death. In the taxable year of the trust during which the annuity period ends, the Trustee shall prorate the annuity amount on a daily basis for the number of days of the annuity period in that taxable year.


Proration of Annuity Amount. Except as provided below, the Trustee shall prorate the annuity amount on a daily basis for any short taxable year. Upon the death of the Predeceasing Recipient, the Trustee shall prorate on a daily basis the Predeceasing Recipient's share of the next regular annuity payment between the estate of the Predeceasing Recipient and the Survivor Recipient. In the taxable year of the trust during which the annuity period ends, the obligation of the Trustee to pay the annuity amount shall terminate with the regular quarterly installment next preceding the termination of the annuity period.

(c) To add an alternate provision terminating the payment of the predeceasing recipient's share of the annuity amount with the last regular payment preceding his or her death, and terminating the payment of the annuity amount with the last regular payment preceding the termination of the annuity period, replace paragraph 3, Proration of Annuity Amount, of the sample trust with the following paragraph:

Proration of Annuity Amount. Except as provided below, the Trustee shall prorate the annuity amount on a daily basis for any short taxable year. The obligation of the Trustee to pay a share of the annuity amount to the Predeceasing Recipient shall



terminate with the regular quarterly installment next preceding the Predeceasing Recipient's death. In the taxable year of the trust during which the annuity period ends, the obligation of the Trustee to pay the annuity amount shall terminate with the regular quarterly installment next preceding the termination of the annuity period.




Distribution to Charity. At the termination of the annuity period, the Trustee shall distribute all of the then principal and income of the trust (other than any amount due the Recipients or their estates under the provisions above) to one or more charitable organizations described in sections 170(c) and 2055(a) of the Code as [one of the named permissible recipients] shall appoint and direct by specific reference to this power of appointment by inter vivos or testamentary instrument. To the extent this power of appointment is not effectively exercised, the principal and income not effectively appointed shall be distributed to one or more organizations described in sections 170(c) and 2055(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion. If an organization fails to qualify as an organization described in sections 170(c) and 2055(a) of the Code at the time when any principal or income of the trust is to be distributed to it, then the Trustee shall distribute the then principal and income to one or more organizations described in sections 170(c) and 2055(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee's sole discretion.




The principal authors of this revenue procedure are Karlene M. Lesho and Stephanie N. Bland of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For further information



regarding this revenue procedure, contact Karlene M. Lesho or Stephanie N. Bland at (202) 622-7830 (not a toll-free call).

cle pt ii - gfmlaw.coma. charitable remainder trusts 1. overview and definition generally, a...

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