Rev. Rul. 77-73

Advice has been requested whether, under the circumstances described below, a trust qualifies as a charitable remainder trust under section 664 of the Internal Revenue Code of 1954 and the regulations thereunder.

A created an inter vivos trust intended to qualify as a charitable remainder trust under section 664 of the Code. X Trust Company was appointed the sole independent trustee. The governing instrument of the trust provides that the trustee is to pay the specified distribution to or among the named individuals, B, C and D, in such amounts and proportions as the trustee, in its sole discretion, shall from time to time determine until the death of the survivor of B, C, or D. B is a child of A. C is unrelated to, but was a former employee of, A. D is unrelated to and was never employed by A. In all other respects, the trust instrument complies with the provisions of section 664 and the applicable regulations.

Section 664 of the Code provides, generally, that a charitable remainder trust is a trust that provides for a specified distribution, at least annually, to one or more beneficiaries, at least one of which is not an organization described in section 170(c), for life or for a term of years, with an irrevocable remainder interest to be held for the benefit of or paid over to an organization described in section 170(c).

Sections 1.664-2(a)(3)(i) and 1.664-3(a)(3)(i) of the Income Tax Regulations provide, in part, that the annuity or unitrust amount is payable to or for the use of a named person or persons, at least one of which is not an organization described in section 170(c) of the Code. If the amount payable is to be paid to an individual or individuals, all such individuals must be living at the time of the creation of the trust.

Sections 1.664-2(a)(3)(ii) and 1.664-3(a)(3)(ii) of the regulations provide, in part, that a trust is not a charitable remainder trust 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) of the Code, if such power would cause any person to be treated as the owner of the trust, or any portion thereof, if subpart E (sections 671-678) were applicable to the trust. For example, the governing instrument may not grant the trustee the power to allocate the annuity or unitrust amount among members of a class unless such power falls within one of the exceptions to section 674(a).

In the instant case, since X Trust Company is an independent trustee, the payments may be allocated among the named individuals, B, C and D, as prescribed in the governing instrument without precluding the trust from being a charitable remainder trust, since the power to make such an allocation would not cause any person to be treated as the owner of the trust, or any portion thereof, if subpart E were applicable to the trust.

Accordingly, in the instant case, the trust qualifies as a charitable remainder trust under section 664 of the Code.

See sections 5.03 and 7.03 of Rev. Rul. 72-395, 1972-2 C.B. 340, at 345 and 350, dealing with optional provisions that may be included in the trust instrument.