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Split-Interest Trusts Had $121B in Assets at End of 2010: IRS Bulletin

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In Filing Year 2010, nearly 119,000 Split-Interest Trust Information Returns (Form 5227) were filed for charitable remainder trusts, charitable lead trusts and pooled income funds, according to the IRS’ Statistics of Income Bulletin: Winter 2012.

In its report, the SOI said split-interest trust filers reported a total of $8 billion in gross income and $121 billion in end-of-year assets. Corporate stock accounted for the majority of assets held by split-interest trusts. Total net income reported on Form 5227 declined by 81% between 2009 and 2010.

Form 5227 is used to disclose a trust’s financial activities, not to calculate its tax liability. The filings covered mainly Tax Year 2009. 

The SOI Bulletin said that trustees of charitable remainder trusts filed 110,768 returns, accounting for 93.2% of split-interest trusts in 2010. With this type of trust, an income stream is distributed annually to one or more non-charitable beneficiaries for a defined period, with remaining assets after the trust is dissolved going to predetermined charitable beneficiaries.

In 2010, 6,609 charitable lead trusts were filed. These trusts make annual distributions to a predetermined charitable beneficiary; at the end of their predetermined life, they distribute remaining income and assets to a designated non-charitable beneficiary.

Trustees of pooled income funds, the least common type of split-interest trust, filed 1,410 returns in 2010. Under the PIF arrangement, private donors to a charitable entity make irrevocable contributions to a pool of donated assets, and in return receive income payments for the remainder of their lives.

In Filing Year 2010, split-interest trusts distributed principal more often and in larger dollar amounts than they distributed income. Approximately 16,777 distributions of principal amounting to $2.2 billion were made to charitable groups. The dollar amount of distributions grew by 45.2% between 2009 and 2010, despite a 1.8% decrease in the number of distributions, the report said. 

See AdvisorOne’s Special Report, 22 Days of Tax Planning Advice for 2012, throughout the month of March.