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Regulation and Compliance > Federal Regulation > IRS

Feds Ponder Spousal Right To Charitable Trust Assets

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The Internal Revenue Service says it needs more time to make a final decision about a conflict between state laws and the federal rules governing charitable remainder trusts.

The matter involves husbands and wives who set up charitable remainder annuity trusts or charitable remainder unitrusts.

Laws in some states may give one spouse the right to get cash from the trust when the other spouse dies.

If John Doe died and his wife, Jane, elected to receive a statutory share of the CRAT or CRUT assets, that would violate Section 664(d)(1)(B) or Section 664(d)(2)(B) of the Internal Revenue Code, Susan Levy, an IRS official, writes in IRS Notice 2006-15.

In June 2005, the IRS published Revenue Procedure 2005-24, a document that describes a safe harbor procedure a couple could use to avoid running into trust problems, by proving that the surviving spouse has no intention of taking cash out of the trust.

But several commentators say the procedure is too complicated, and now the IRS is reconsidering the approach it took, Levy writes.

In the revenue procedure, the IRS established a June 28, 2005, grandfather date.

Now, “the service is extending the June 28, 2005, grandfather date,” Levy writes. “Until further guidance is published regarding the effect of a spousal right of election on a trust’s qualification as a CRAT or CRUT, the service will disregard the existence of such a right of election, even without a waiver…, but only if the surviving spouse does not exercise the right of election.”

A copy of the IRS notice is on the Web at Document Link


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