SERVICE PROVIDES SAMPLE DECLARATION OF QUALIFIED INTER VIVOS CHARITABLE REMAINDER UNITRUST.

Rev. Proc. 89-20

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 asset to the charitable remainder beneficiary, if the trust document also creates a valid trust under local law. If the trust in 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 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 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 of 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.

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The Service will recognize a trust as meeting all of the requirements of a qualified charitable remainder annuity trust 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 value 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).