From David T. Leibell and Daniel L. Daniels of Cummings & Lockwood LLC in Stamford, Conn., we have these updates on charitable giving:
Supreme Court Denies Certiorari in Atkinson. On Oct. 14, the U.S. Supreme Court denied review of Atkinson v. Commissioner, 309 F.3d 1290 (11th Cir. Oct. 16, 2002), rehearing denied 61 Fed. Appx. 673, 2003 WL 346973 (11th Cir. Feb. 3, 2003), cert. denied 2003 WL 21696224 (U.S. Oct. 14, 2003). Atkinson disqualified a charitable remainder trust because its trustees failed to make the required annuity payments to the donor for several years and improperly paid estate taxes from the trust property. The case highlights the importance of proper administration of charitable remainder trusts and may lead more clients to see the benefits of an institutional trustee, who can attend to administrative tasks relating to the trust — and be held financially responsible if those tasks are not properly completed.
IRS Rules Against Charitable Crummey Trust. In Technical Advice Memorandum 200341002, released Oct. 10, an individual had created an irrevocable trust containing Crummey withdrawal powers for his children and four charities. The Internal Revenue Service ruled that no charitable deduction was available for the amounts receivable by the four charities, because their interest in the trust was a contingent interest for which no charitable deduction is available under Section 25.2522(c)-3(b)(2) of the Treasury Regulations. In the second section of the memorandum, the Service ruled that no annual exclusion would be allowed with respect to the charities' withdrawal rights because there was sloppiness in the administration of Crummey notice letters to the charities and other evidence that the charities understood they were not to exercise their withdrawal rights. Although the second section of the ruling was directed at Crummey powers held by charities, it would apply equally to Crummey powers contained in a standard non-charitable Crummey trust, such as an insurance trust agreement, and serves as a reminder to practitioners of the need to dot “i”s and cross “t”s when preparing and sending Crummey notice letters.
IRS Allows Reformation of Charitable Remainder Trust Based on Scrivener's Error. In Private Letter Ruling 200338006, released Sept. 19, the Internal Revenue Service ruled favorably on the reformation of a charitable remainder trust because of a scrivener's error. A donor had intended to create a standard charitable remainder unitrust (STANCRUT). But the donor's lawyer drafted a net income with make-up unitrust (NIMCRUT). The trustee administered the trust as a STANCRUT. Upon discovery of the drafting error, the trustee sought a court order, with the permission of all beneficiaries and the state attorney general, reforming the trust to remove the NIMCRUT payment provision and insert a STANCRUT payment provision. The court ordered the reformation, contingent upon the trust receiving a favorable private letter ruling from the Service. The IRS found that the judicial reformation would neither adversely affect the trust's qualification as a charitable remainder unitrust nor result in an act of self-dealing under Internal Revenue Code Section 4941.
IRS to Focus on Abusive Supporting Organizations and Donor Advised Funds. According to the Service's Exempt Organizations Workplan for the fiscal year beginning Oct. 1, the Service will focus increased audit attention on tax-avoidance schemes and shelters involving tax-exempt organizations, including supporting organizations and donor advised funds. For more information, go to www.irs.gov/pub/irs-tege/eowrkpln_04.pdf.
Number of Split-Interest Charitable Trusts Exceeds 100,000. According to the Internal Revenue Service's latest statistics, as of the end of 2000 there were 113,075 charitable remainder trusts, charitable lead trusts and pooled income funds in existence, with a total value of almost $94 billion. Charitable remainder trusts made up 94.5 percent of the total number, holding 86.8 percent of total assets. Charitable lead trusts comprised only 4 percent of the total number but held 11.5 percent of the total assets. Pooled income funds, which have fallen out of favor in recent years due to the low-interest-rate environment, made up only 1.5 percent of the total number, holding 1.7 percent of the total assets. Charitable gift annuities were not included in the Service's statistics. This information comes from the IRS Statistics of Income Bulletin — Spring 2003, IRC 2003-80, published June 26.