PLR 1022001: Charitable residuary trust qualifies for an estate tax deduction

Plain-English summary

The IRS ruled that a charitable residuary trust created under a decedent's will would qualify for the estate tax charitable deduction under § 2055. The will directed the trustees to build and maintain buildings for a town and to benefit listed charities and other charitable organizations. A court resolved an ambiguity in the will by ordering payments to two individual beneficiaries and directing the executor to fund the trust with the estate's remainder. The IRS relied on the court's order and the representations provided, while stating that all other requirements of § 2055 must still be satisfied.

Ruling snapshot

• Question: Does the residuary trust qualify for an estate tax charitable deduction under § 2055?
• Outcome: Approved
• Key authorities: IRC §§ 170(c), 2055(a), and 501(c)(3); Rev. Rul. 89-31

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201022001
Release Date: 6/4/2010
Index Number: 2055.00-00 Person To Contact:
-------------------, ID No. -------------
Telephone Number:

                                                            ---------------------

------------------------------ Refer Reply To:
------------------------- CC:PSI:B04 – PLR-133418-09
Date:
January 11, 2010

Re: -------------------------------------------------------------------

Legend:

Decedent = ------------------------
A = ----------------------------
B = --------------------
C = -------------------------
Date 1 = -------------------
Date 2 = -------------------
Date 3 = -------------------
Date 4 = -------------------------------------------------------------------------------------------------
Date 5 = --------------
Court = -------------------------------------------------------------------------------------------------
--------
a = --------
b = -----------
c = -----------
d = --------------
Town = ----------------------
State = --------

Dear ----------------------:

   This responds to a letter dated July 10, 2009, submitted by your authorized

representative, requesting a ruling under § 2055 of the Internal Revenue Code.

     Decedent died testate on Date 1. Under Articles SECOND and THIRD of the

will, Decedent bequeathed his truck to A and his car to B, respectively. Article FOURTH
provides that if A and B are living at Decedent’s death, then the co-trustees shall set
apart out of the estate and shall allocate to A and B each $a per month, for life. Article
FIFTH provides that all the rest residue and remainder of Decedent’s property be
transferred to A and C, as co-trustees, in trust (Trust).

   Under the terms of Trust, Decedent directed the co-trustees to build several

buildings for Town with the balance of the funds to be used for the upkeep of said
buildings and to benefit several listed charities and “any other charitable organization”
as determined by the co-trustees. If Town declines the gift of the buildings then Trust is
to benefit the listed charities and “any other charitable organization” as determined by the
co-trustees. It is represented that two of the listed charities are qualified exempt
organizations under § 501(c)(3) and that the third listed charity is a political subdivision
of State.

     On Date 2, Decedent’s executor filed proceedings with Court asking Court to

resolve an ambiguity as to how it would be possible to “set apart out of [Decedent’s]
estate,” the lifetime payments to A and B, while also establishing in a timely manner
Trust with “all the rest, residue and remainder” of the estate. Court entered an Order on
Date 3. In the Order, Court concluded that Decedent intended to establish a charitable
trust from the residuary estate; that Decedent’s will contained an ambiguity regarding
the establishment of Trust and the general legacies to A and B; and that Decedent
intended Trust to qualify for the estate tax charitable deduction under § 2055 and that
Decedent intended to provide that an actuarial amount using the § 7520 interest rate for
Date 5 be set apart and distributed to A and B in full settlement of the general legacies.
In order to carry out Decedent’s intent, Court ordered that A be paid b and B be paid c
in full satisfaction of the general legacies and that the executor fund Trust with the
remainder of the estate. In addition, Court added Article ELEVENTH to the will, which
clarifies the definition of “charitable organization” to mean an organization as defined
under §§ 2055 and 501(c)(3).

   On Date 4, the executor filed Decedent’s Form 706 (United States Estate (and

Generation-Skipping Transfer) Tax Return). On Form 706, the executor reported each
bequest to A and B in the amounts determined in the Order. On Schedule O of Form
706, the executor reported that the amount transferred to Trust is d, which equals the
remainder of Decedent’s estate.

  You have requested that an estate tax charitable deduction under § 2055 is

allowed for the value of Trust.

    Section 2055(a) provides that the value of the taxable estate shall be

determined by deducting from the value of the gross estate the amount of all
bequests, legacies, devises, and transfers to or for a corporation or certain other
organizations organized and operated exclusively for religious, charitable, scientific,
literary, or educational purposes.

   In Rev. Rul. 89-31, 1989-1 C.B. 277, the decedent died testate. Under his will,

the decedent bequeathed the residue of the estate to a trust the terms of which
provided that income was to be paid to A, an individual, for A’s life and the remainder
was to be paid to a charitable organization described in §§ 170(c) and 2055(a). In
good faith, A challenged the validity of the will, and as a result of a settlement, the
estate made an immediate payment to A and distributed the balance of the trust to the
charitable organization. The revenue ruling holds that the amount paid to the
charitable organization qualifies for the estate tax charitable deduction under
§ 2055(a).

    In the present case, Trust was established under Decedent’s will for the benefit

of various charitable organizations and a political subdivision of State. The will
contained an ambiguity regarding the payment of general legacies to A and B and the
establishment of Trust. The executor initiated a proceeding in Court to resolve the
ambiguity. Court concluded that Decedent intended to create a charitable trust intended
to qualify for a charitable deduction under § 2055 and ordered that the general legacies
be determined and distributed to A and B and the remainder of the estate to be held in
trust for the charities. Court further ordered that the will be clarified to indicate that
Decedent intended “charitable organization” to mean an organization described in §§
170(c) and 2055. Court’s Order will be effective upon the issuance of a favorable letter
ruling from the Internal Revenue Service. Based upon the facts submitted and
representations made, and assuming that other requirements of § 2055 are satisfied,
we conclude that Trust will qualify for the estate tax charitable deduction under § 2055.

  The rulings contained in this letter are based upon information and

representations submitted by the taxpayer and accompanied by a penalty of perjury
statement executed by an appropriate party. While this office has not verified any of
the material submitted in support of the request for rulings, it is subject to verification on
examination

   Except as specifically ruled herein, we express no opinion on the federal tax

consequences of the transaction under the cited provisions or under any other
provisions of the Code.

  This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3)

provides that it may not be used or cited as precedent.

                                        Sincerely,




                                        Lorraine E. Gardner
                                        Senior Counsel Branch 4
                                        (Passthroughs and Special Industries)

Enclosure
Copy for section 6110 purposes

cc: