PLR 200029031: Donors may serve as trustees of a marketable-asset unitrust

Plain-English summary

Two donors created a charitable remainder unitrust and later became its sole trustees. They amended the trust to bar assets without an objectively ascertainable market value, such as real estate or closely held stock. The IRS ruled that their service as trustees did not disqualify the trust under section 664 where the trust could accept and hold only assets with an objectively ascertainable market value. The ruling addressed that trustee provision, rather than every aspect of the trust's formation or operation.

Ruling snapshot

• Question: Do the donors' roles as sole trustees disqualify the charitable remainder unitrust?
• Outcome: Approved under the stated asset restriction.
• Key authorities: IRC § 664(d)(2); Treas. Reg. § 1.664-1(a)(7).

Full text (IRS public release)

Internal Revenue Service          Department of the Treasury

Index Number:   664.00-00         Washington, DC 20224



Number: 200029031                 Person to Contact:
Release Date: 7/21/2000
                                  Telephone Number:

                                  Refer Reply To:
                                  CC:DOM:P&SI:2 - PLR-115753-99
                                  Date:
                                  April 19, 2000


A          =

B          =

Trust      =

State      =

D1         =

D2         =

D3         =

$x         =

Dear             :

     This is in response to your letter, dated September 15,
1999, and subsequent correspondence, submitted on behalf of A and
B, requesting a ruling that Trust will not be disqualified as a
charitable remainder unitrust under section 664(d)(2) of the
Internal Revenue Code.
     The information submitted states that A and B as Grantors
established Trust under the laws of State on D1. Trust was
funded with publicly traded stock with a fair market value of $x.
Trust was intended to qualify as a charitable remainder unitrust
under section 664(d)(2) of the Code.

     Relevant provisions of the governing instrument of Trust are
as follows:
     Article II provides that Trust is irrevocable but can be
amended for the sole purpose of ensuring that the Trust qualifies
and continues to qualify as a charitable remainder unitrust.

     Article III 1. provides that a unitrust amount is payable in
equal shares to the Grantors for their joint lives and that the
unitrust amount will be an amount equal to 8 percent of the net
fair market value of the trust assets (determined as of the first

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day of the taxable year of Trust by the trustee).

     Article III 2. a. provides that at the end of the unitrust
term, the entire principal and income of Trust shall be
distributed to charitable organizations, as defined in sections
170(c), 170(b)(1)(A), 2055(a) and 2522(a).

     Article IV provides that the trustee of Trust is authorized
and empowered to invest and reinvest the Trust Fund in common or
preferred shares of any corporation, legal or equitable interest
in real estate, and any other property of any kind or
description, free from any limitation then or thereafter imposed
by law whether or not such assets be of the character authorized
by law for trust investments.

     An institution acted as the initial trustee of Trust. On D2
Grantors exercised their authority under the trust instrument to
remove the trustee and appoint themselves as sole trustees . On
D3 Grantors, as trustees, amended Article IV of Trust by adding
Paragraph 16. a.

     Article IV 16. a. provides that trustee is prohibited from
accepting, investing in or holding any assets such as real
estate, stock in a closely held corporation or any other assets
which do not have an objectively ascertainable market value and
would result in disallowance of the charitable deduction.

     Pursuant to section 4.01(39) of Rev. Proc. 2000-3, 2000-1
I.R.B. 111, the Internal Revenue Service has generally
discontinued issuing rulings concerning whether a charitable
remainder trust that provides for unitrust payments for one or
two measuring lives satisfies the requirements described in
section 664 of the Code.

     In lieu of seeking the Service’s advance approval of a
charitable remainder unitrust, taxpayers are directed to follow
the sample provisions for charitable remainder unitrusts outlined
in Rev. Proc. 90-30, 1990-1 C.B. 534. By following the models
contained in Rev. Proc. 90-30, taxpayers can be assured that the
Service will recognize the trust as meeting all the requirements
of a qualified charitable remainder unitrust under section
664(d)(2) of the Code, provided that the trust operates in a
manner consistent with the terms of the trust instrument and
provided it is a valid trust under applicable local law. In
addition, for transfers to a qualifying charitable remainder
unitrust, the remainder interest will be deductible under
sections 170(f)(2)(A) and 2522(c)(2)(A) if the charitable
beneficiary otherwise meets all of the requirements of those
sections.

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     In the present case, Grantors are the sole trustees of Trust
and hence Trust contains a provision which is not specifically
addressed by the model language in Rev. Proc. 90-30. Therefore,
we will issue a ruling on whether this provision disqualifies
Trust under section 664 of the Code.

     Section 664(d)(2) of the Code sets forth the requirements to
be a charitable remainder unitrust. Section 664(d)(2)(A)
provides that a fixed percentage (which is not less than 5
percent) of the net fair market value of the assets, valued
annually, is to be paid, not less often than annually, to one or
more persons (at least one of whom is not an organization
described in section 170(c) and, in the case of individuals, only
to an individual who is living at the time of the creation of the
trust) for a term of years (not in excess of 20 years) or for the
life or lives of such individual or individuals. No amount other
than the above-described payments may be paid to or for the use
of any person other than an organization described in section
170(c). Following the termination of the payments described
above, the remainder interest in the trust is to be transferred
to, or for the use of, an organization described in section
170(c).

     Section 1.664-1(a)(7)(i) of the Income Tax Regulations
provides that, if unmarketable assets are transferred to or held
by a trust, the trust will not be a trust with respect to which a
deduction is available under section 170, 2055, 2106, or 2522, or
will be treated as failing to function exclusively as a
charitable remainder trust unless, whenever the trust is required
to value such assets, the valuation is (a) performed exclusively
by an independent trustee; or (b) determined by a "current
qualified appraisal", as defined in § 1.170A-13(c)(3), from a
"qualified" appraiser, as defined in § 1.170A-13(c)(5).
    Section 1.664-1(a)(7)(ii) of the regulations provides that
unmarketable assets are assets that are not cash, cash
equivalents, or other assets that can be readily sold or
exchanged for cash or cash equivalents. For example,
unmarketable assets include real property, closely-held stock,
and an unregistered security for which there is no available
exemption permitting public sale.

     We conclude that the fact that the Grantors are the sole
trustees of Trust does not disqualify the Trust as a charitable
remainder unitrust under section 664 of the Code and the
applicable regulations where Trust may only accept, invest in and
hold assets with an objectively ascertainable market value.

     No opinion is expressed as to the federal tax consequences
of the formation or operation of Trust under the provisions of

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any other section of the Code.

     A copy of this letter should be attached to the first
federal tax return that reflects this transaction.

     This ruling is directed only to the taxpayers who requested
it. Section 6110(k)(3) of the Code provides that it may not be
used or cited as precedent.

     Pursuant to a power of attorney on file with this office, a
copy of this letter is being sent to the Grantors.

                          Sincerely yours,
                          J.THOMAS HINES
                          Acting Branch Chief Branch 2
                          Office of the Assistant Chief Counsel
                          (Passthroughs and Special Industries)

Enclosures: 2
     Copy of this letter
     Copy for § 6110 purposes