The Internal Revenue Service has issued a batch of guidance that could help estate planners and others with clients who want to split charitable remainder trusts.
IRS officials write in IRS Revenue Ruling 2008-41 in response to questions about whether the “pro rata division of a trust that qualifies as a charitable remainder trust … into two or more separate trusts [will] cause the trust or any of the separate trusts to fail to qualify” as a charitable remainder trust.
The officials also write about what happens to each part of a charitable remainder trust’s basis of its share of each asset when a trust is divided in a pro rata fashion.
Is the basis of “each asset the same share of the basis of that asset in the hands of the trust immediately before the division of the trust, and … does each separate trust’s holding period for an asset transferred to it by the original trust include the holding period of the asset as held by the original trust immediately before the division?” officials ask.
Officials hold in the ruling that, in the situations described, the divided charitable remainder trusts would continue to qualify as charitable remainder trusts, and that the basis of each separate trust’s share of each asset would be the same as the basis share recorded before the trust divided.
Under the provisions of the Internal Revenue Code, “each separate trust’s holding period for an asset transferred to it by the original trust includes the holding period of the asset as held by the original trust immediately before the division,” officials write.