We're trustees of two charitable lead annuity trusts, created under the same family trust instrument with currently identical beneficiaries, that co-own New York real property as tenants-in-common. We're proposing to combine them into one 'Surviving Trust' by court order because their income no longer covers required annual charitable payments. To protect the separate remainder beneficiaries' interests, we're setting up a detailed 'Pro Forma Account' formula (tracking what each set of beneficiaries would have received had the trusts stayed separate, adjusted for years of investment gains/losses and a complex liquidity test) plus a 'Loan-Back Agreement' so that if a 2003 distribution requires deeding out New York real property, the recipients can immediately loan the property back to the Surviving Trust. Will combining the trusts -- or the later Pro-Forma-driven mechanism -- trigger New York's Real Estate Transfer Tax or Real Property Transfer Gains Tax?

Plain-English summary

Doris Jones Stein created a revocable trust in 1982 that, upon her death in 1984, established two charitable lead annuity trusts -- Annuity Trust I and Annuity Trust II -- each required to make annual payments to the Jules and Doris Stein Foundation until fixed termination dates (2003 and 2012, respectively), after which remaining assets would pass to trusts for the Trustor's grandchildren ("Grandchild Trusts") and, contingently, more remote issue ("Issue Trusts"). The two trusts had identical trustees, currently identical remainder beneficiaries, and were co-owners (as tenants-in-common, in undivided one-third and two-thirds interests) of two parcels of New York real property. This ruling reflects the trustees' request for advance approval of a proposed combination -- before it actually closed. (A follow-up opinion, TSB-A-96(10)R, was issued later in 1996 after the trustees told the Department the actual facts of the combination had changed, and should be treated as the Department's more current position on the completed transaction.)

Why combine them. Declining real estate values and rental income, plus lower-than-expected returns on the trusts' stock and securities portfolios, meant the trusts' income could no longer keep pace with their mandatory annual charitable payments. The trustees proposed petitioning a California court to combine the trusts into a single "Surviving Trust," which would assume all the combined obligations to the Foundation.

Protecting the separate remainder interests -- in detail. Because Annuity Trust I and Annuity Trust II had different termination dates, the trustees proposed an elaborate mechanism to ensure the combination didn't shortchange either set of remainder beneficiaries: a "Pro Forma Account," a bookkeeping record valued as of the combination's effective date, credited with Annuity Trust I's contributed value and then adjusted annually -- increased by a formula-based share of the Surviving Trust's investment income (including capital gains) and reduced by both distributions to the Foundation (up to what Annuity Trust I alone would have owed) and a formula-based share of expenses (including capital losses). As of February 10, 2003 (Annuity Trust I's original termination date), the account would be further adjusted for previously unrecognized appreciation or depreciation, and a distribution would be made to the Annuity Trust I beneficiaries only if the trustees determined -- through a specific liquidity test comparing the Surviving Trust's available liquid assets ("Net Value") against the discounted present value of its remaining obligations to the Foundation (with a built-in 10% safety margin) -- that sufficient assets would remain to keep meeting the charitable obligations. If the test failed, the process would repeat annually until it passed, or until the Surviving Trust itself terminated. If New York real property had to be deeded out to fund a Pro Forma Account distribution, a pre-arranged "Loan-Back Agreement" would let the distributee Grandchild Trusts immediately lend the needed portion back to the Surviving Trust (via simultaneously recorded matching deeds), preserving the Surviving Trust's cash flow without permanently losing the real estate.

Why it's exempt. New York's transfer tax and gains tax both exempt conveyances/transfers that are a "mere change of identity or form of ownership or organization" with no change in beneficial ownership -- previously applied to a similar transfer of real property into a revocable grantor trust in Hilles Timpson, TSB-A-92(7)R. Here, the beneficiaries of Annuity Trust I and Annuity Trust II were currently identical and, per the trustees' representations, would remain identical at the time of combination, with the same proportional interests preserved: the Foundation would keep the same aggregate distribution rights, and the remainder beneficiaries would keep the same vested/future rights to the same portions of trust corpus on the same schedule as before. Because no one's beneficial ownership interest in the underlying real property would actually change, the Department held both the proposed trust combination itself, and the elaborate Pro-Forma-Account funding mechanism (including the anticipated deed-and-loan-back), would qualify for the mere-change exemption from the transfer tax and the gains tax.

What this means for you

Trustees seeking advance clarity before combining or merging trusts that hold New York real property

This ruling shows the Department will evaluate a detailed, not-yet-executed trust combination plan in advance, based on the trustees' representations about what will happen -- useful for getting tax certainty before committing to a complex restructuring. But if material facts change before closing (as happened here -- see the follow-up ruling, TSB-A-96(10)R), get a fresh opinion on the actual, final facts rather than relying on the earlier prospective one.

Estate planners structuring complex remainder-interest protections with built-in liquidity tests

A bookkeeping mechanism like a "Pro Forma Account," combined with a formal liquidity test before any distribution and a pre-arranged loan-back to avoid an involuntary real estate sale, doesn't itself create a taxable transfer -- the Department looked past the mechanics to the economic reality that no one's beneficial share of the property would change.

Accountants and tax professionals reviewing older multi-step trust transactions

Watch for the repealed Real Property Transfer Gains Tax when reviewing pre-June 15, 1996 real estate transfers in estate and trust files -- it no longer applies to any current transaction. Also note this specific ruling was a prospective one, later superseded on the actual facts by TSB-A-96(10)R -- when researching this transaction, treat the later ruling as authoritative for what actually happened.

Common questions

Q: Can trustees get an advisory opinion on a trust combination before it actually happens?
A: Yes -- this ruling is exactly that: a prospective opinion issued based on the trustees' detailed representations about a planned (not-yet-executed) combination. If the actual facts change before closing, a follow-up opinion may be warranted, as happened here.

Q: Does combining two trusts that co-own New York real property automatically trigger transfer tax?
A: Not if the trusts have identical beneficiaries with the same proportional beneficial interests before and after -- that's treated as a mere change of form, exempt from both the transfer tax and (for pre-1996 transfers) the gains tax.

Q: What if my facts change after I get a prospective ruling like this one?
A: Get an updated ruling on the actual facts -- the Department itself did this here, issuing a follow-up opinion (TSB-A-96(10)R) later the same year once the trustees reported that the combination's actual facts had changed from what was described in this earlier ruling.

Q: Is the Real Property Transfer Gains Tax discussed in this ruling still relevant to new transactions?
A: No -- it was repealed for transfers occurring on or after June 15, 1996 and does not apply to current transfers; it's only relevant for reviewing pre-1996 transaction history.

Citations and references

Statutes and prior opinions:

• Section 1401(e) of the Tax Law (definition of "conveyance" -- any transfer of any interest by any method, including trust combinations)
• Section 1402 of the Tax Law (RETT on conveyances over $500 consideration)
• Section 1405(a)(6) of the Tax Law (mere-change-of-form exemption from the transfer tax)
• Section 1440.7 of the Tax Law (gains tax definition of "transfer of real property")
• Sections 1441, 1443.1 of the Tax Law (gains tax on transfers of $1 million+; repealed by Chapter 309 of the Laws of 1996 for transfers on/after June 15, 1996)
• Section 1443(5) of the Tax Law (mere-change-of-form exemption from the gains tax)
• Hilles Timpson, Adv Op Comm T&F, November 3, 1992, TSB-A-92(7)R
• Follow-up ruling on the completed transaction (updated facts): TSB-A-96(10)R, September 10, 1996

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_estate_tran_ao_1996.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/multitax/a96_1r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (1) R
Real Estate Transfer Tax
Real Property Transfer Gains Tax
January 30, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M950911A

On September 11, 1995, a Petition for Advisory Opinion was received from Lew R.
Wasserman, Jean Stein, Gerald H. Oppenheimer and Andrew Shiva, as Trustees of Annuity Trusts
I & II under the Restatement of Doris Jones Stein Family Trust dated 4/20/82, P.O. Box 30, Beverly
Hills, California 90213.
The issues raised by Petitioners, Lew R. Wasserman, Jean Stein, Gerald H. Oppenheimer and
Andrew Shiva, as Trustees of Annuity Trusts I & II under the Restatement of Doris Jones Family
Trust dated 4/20/82, are:
1.

Is the combination of Annuity Trust I with Annuity Trust II, pursuant to which the
New York Properties will be transferred to the Surviving Trust, including the
execution of the Loan-Back Agreement, exempt from the Transfer Tax pursuant to
Tax Law §1405(b)(6) and 20 NYCRR 575.10 as a mere change of identity or form
of ownership or organization?

2.

Is the combination of Annuity Trust I with Annuity Trust II, pursuant to which the
New York Properties will be transferred to the Surviving Trust, including the
execution of the Loan-Back Agreement, exempt from Gains Tax pursuant to Tax
Law §1443(5) and 20 NYCRR 590.7, as a mere change of identity or form of
ownership or organization?

Petitioner presents the following facts. On April 20, 1982, Doris Jones Stein (the "Trustor"),
as trustor, created a revocable inter vivos trust, known as the Doris Jones Stein Family Trust (the
"Family Trust"). The instrument establishing the Family Trust, as amended and restated on April 20,
1982, provides for the creation of two charitable lead trusts following the death of the Trustor. The
two trusts are referred to separately as "Annuity Trust I" and "Annuity Trust II" and collectively as
the "Trusts". The Trustor died on April 7, 1984, and Annuity Trust I and Annuity Trust II were
thereafter established in accordance with the terms of the Family Trust instrument and under the
jurisdiction of the Los Angeles County Superior Court.
Annuity Trust I and Annuity Trust II are each required to make certain annual charitable
payments until their respective termination dates. At that time any remaining assets are to be
distributed to trusts for the benefit of certain heirs of the Trustor or their appointees.
The remainder beneficiaries of Annuity Trust I and Annuity Trust II are trusts for the benefit
of the Trustor's grandchildren (the "Grandchild Trusts") and more remote issue (the "Issue Trusts").
The Grandchild Trusts were established, and the Issue Trusts were provided for, at the date of the

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January 30, 1996
Trustor's death according to the terms of the Family Trust instrument. There are now ten living
grandchildren of the Trustor and none of the grandchildren have died. Since none of the Trustor's
grandchildren have died leaving issue, no Issue Trust has been established.
The terms and provisions of Annuity Trust I and Annuity Trust II are substantially identical
except that the Trusts pay different annual amounts to charity and have different termination dates.
Annuity Trust I terminates on February 10, 2003 and Annuity Trust II terminates on April 7, 2012.
The annual payments for the Trusts are required to be made to the Jules and Doris Stein Foundation
(the "Foundation"), an organization exempt from Federal income tax pursuant to Section 501(c)(3)
of the Internal Revenue Code.
The beneficiaries of Annuity Trust I and the beneficiaries of Annuity Trust II are currently
identical. Births, deaths and the naming of appointees hereafter could change the identity of the
beneficiaries of either Trust. However, it is anticipated that if the Trusts are combined, the
beneficiaries of the Trusts will be identical at the time of the combination of the Trusts.
A substantial portion of the assets of Annuity Trust I and of Annuity Trust II consists of
stocks and securities. In addition, Annuity Trust I and Annuity Trust II are co-owners of two parcels
of real property located in New York City (the "New York Properties") in undivided one-third and
two-thirds interests, respectively, as tenants-in-common. Recently, both the value and the rental
income of the New York Properties have declined. Moreover, due to current economic conditions,
the income of the Trusts from their portfolios of stocks and securities has been lower than was
foreseen at the time of their creation. As a result of these developments, the Trusts' obligations to
make annual contributions to the Foundation are substantially greater than their current income.
Due to the financial difficulties facing the Trusts, the trustees have agreed to combine the
Trusts on the terms and subject to certain conditions as set forth in an Agreement to Combine Trusts
(the "Agreement"), a Petition for Order Authorizing Combination of Trusts and Amending Trust
Instrument to Effectuate Combination to be filed with the Los Angeles County Superior Court, and
an Order Authorizing Combination of Trusts and Amending Trust Instrument to Effectuate
Combination to be signed by the Los Angeles County Superior Court (the "Order").
The Agreement and the Order provide that, on the effective date specified in the Agreement
(the "Effective Date"), Annuity Trust I will be combined with Annuity Trust II. The Surviving Trust
will succeed to all of the assets and will assume all the liabilities of the Trusts existing on the
Effective Date. The Surviving Trust will have an obligation to make annual distributions to the
Foundation equal to the sum of obligations currently required of the Trusts. Prior to February 10,
2003 (the termination date of Annuity Trust I), the Surviving Trust will be required to annually
distribute an amount to the Foundation equal to the total of the amount which would have been
required to be distributed by the Trusts. After that date, the Surviving Trust will be required to
distribute to the Foundation only the amount required to be distributed by Annuity Trust II.

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The Family Trust provides that the trustees of Annuity Trust I and Annuity Trust II are to be
the persons who serve from time to time as the directors of the Foundation. The combination of the
Trusts will effect no change in the identity of the trustees. In addition, the trustees will have the same
powers with respect to the Surviving Trust that they currently have with respect to the Trusts.
The Agreement and the Order provide a method for determining the amount and timing of
any distribution to be made to the remainder beneficiaries of Annuity Trust I (the "Annuity Trust I
Beneficiaries") from the Surviving Trust on February 10, 2003, or thereafter. That method is such
that there will be established on the books of the Surviving Trust a financial record referred to in this
Agreement as the "Pro Forma Account". The Pro Forma Account will be set up so that the remainder
interests of the Annuity Trust Beneficiaries and the Foundation's right to distributions will not be
affected by the combination of the Trusts.
The Pro Forma account will function as follows: all of the assets of Annuity Trust I and
Annuity Trust II will be valued at their fair market value as of the Effective Date. The Pro Forma
Account will be credited on the Effective Date with the then fair market value of the principal and
current and accumulated income contribution to the Surviving Trust by Annuity Trust I, less the
liabilities, if any, of Annuity Trust I (other than the liability to make annual payments to the
Foundation). All liabilities of the Annuity Trust I on the Effective Date are to be assumed by the
Surviving Trust. Thereafter, until February 10, 2003, the Pro Forma Account will be reduced by
distributions when and as made to the Foundation by the Surviving Trust, but only up to the amount
which would have been distributed by Annuity Trust I had Annuity Trust I remained in existence.
Until February 10, 2003, the Pro Forma Account will be increased by an amount of the income of
the Surviving Trust equal to the sums of (1) one-third of the gross income from the New York
Properties when and as received by the Surviving Trust, plus (2) the remaining gross income of the
Surviving Trust when and as received excluding gross income from the New York Properties,
multiplied by a fraction, the numerator of which is the balance of the Pro Forma Account (excluding
one-third of the value of the New York Properties) and the denominator of which is the value of the
Surviving Trust (excluding the entire value of the New York Properties). Both the numerator and
denominator of the fraction shall be determined as of the Effective Date. The Pro Forma Account
will also be reduced by (3) one-third of the amount of the expenses of the New York Properties when
and as paid, and (4) a portion of the Surviving Trust's expenses unrelated to the New York Properties
when and as paid determined by multiplying these expenses by the same fraction as is used for
allocating trust income other than income from the New York Properties under clause (2) above. In
accordance with the Agreement, the computation of the Pro Forma Account will be made not less
frequently than annually. Additionally, gross income will include capital gains and expense will
include capital losses, these gains and losses to be determined by reference to the carrying value of
the Surviving Trust's capital assets.
As of February 10, 2003, the balance of the Pro Forma Account as determined above will be
further adjusted by (1) one-third of any previously unrecognized appreciation or depreciation in the
New York Properties, (2) one-third of any accrued but unreceived or unpaid income or expenses with
respect to the New York Properties, (3) the same fraction as provided in the preceding paragraph of

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Real Property Transfer Gains Tax
January 30, 1996
any previously unrecognized appreciation or depreciation in the Surviving Trust's assets other than
the New York Properties, and (4) the same fraction of any accrued but unreceived or unpaid income
or expenses with respect to assets other than the New York Properties. This determination will
require an appraisal of the real property and other non-liquid assets of the Surviving Trust as of
February 10, 2003. There will be a distribution to the Annuity Trust I Beneficiaries on February 10,
2003, or as soon as practicable thereafter, equal to the positive (but not negative) balance of the Pro
Forma Account, but only if the trustees determine that the Surviving Trust will have sufficient liquid
assets remaining after the distributions to continue to meet its obligations to the Foundation through
the termination date of the Surviving Trust. This determination will be made by the trustees first
valuing all of the assets of the Surviving Trust (including the New York Properties) as of February
10, 2003. This amount will be reduced by (1) the balance of the Pro Forma Account as of that date
and (2) the value of any real estate and any other nonliquid assets of the Surviving Trust. The
resulting balance, referred to in the Agreement as the "Net Value," will reflect the value of the
available liquid assets of the Surviving Trust as of February 10, 2003. The trustees will then
determine the present value of all future payments required to be made to the Foundation, using a
discount rate equal to the average return on investment realized by the Surviving Trust over the
immediately preceding five years. This amount will then be increased by 10%. The resulting amount,
referred to in the Agreement as the "Discounted Payments", is intended to reflect the present value
of the obligation of the Surviving Trust to the Foundation, with a 10% safety factor added. If the Net
Value equals or exceeds the Discounted Payments, then a distribution equal to the positive balance
of the Pro Forma Account will be made to the Annuity Trust I Beneficiaries on February 10, 2003,
or as soon thereafter as practicable. If the Net Value is less than the Discount Payments, then no
distribution will be made as of February 10, 2003.
If the Net Value does not equal or exceed the Discounted Payments as of February 10, 2003,
the Pro Forma Account will be credited with interest at the legal rate on judgments under California
law, but shall not be increased or reduced by any income, expenses, gains or losses of the Surviving
Trust accrued after February 10, 2003. The Annuity Trust Beneficiaries will receive notice of their
respective interests in the Surviving Trust, if any, which will be their respective shares of the positive
balance of the Pro Forma Account that would have been distributed to them on February 10, 2003,
but for the fact that the Surviving Trust did not have sufficient liquid assets to meet its future
obligations to the Foundation at that time. The Annuity Trust I Beneficiaries will be informed in
writing that their interests in the part of the Surviving Trust represented by the Pro Forma Account
are fully vested as of February 10, 2003, and are fully transferable.
If no distribution is made to the Annuity Trust I Beneficiaries as of February 10, 2003, the
trustees of the Surviving Trust will make a similar computation to that described above as of
December 31, 2004, and as of December 31st of each succeeding year until the Net Value equals or
exceeds the Discounted Payments, so that a distribution equal to the Pro Forma Account may be
made. If no distribution is made to the Annuity Trust I Beneficiaries prior to the termination of the

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Surviving Trust, then upon termination of the Surviving Trust, the Annuity Trust I Beneficiaries will
receive a distribution equal to the positive balance of the Pro Forma Account, if any, as of the date
of termination and the Annuity Trust II beneficiaries will receive a distribution equal to the balance
of the Surviving Trust.
The Family Trust, as amended and restated on April 20, 1982 (the "Restatement"), contains
an in-kind distribution clause which grants the Trustees the discretion to make trust distributions in
cash or in-kind or a combination of each. Since the Restatement is the governing instrument of both
Annuity Trust I and Annuity Trust II, it would therefore be at the discretion of the Trustees of the
Surviving Trust to make the distribution of the Pro Forma Account in 2003 to the various Grandchild
Trusts which would be the remaindermen of Annuity Trust I had it remained in existence. In other
words, those Trustees will have discretion whether the distribution is to be in cash, in-kind, or a
combination of cash and in-kind. Presumably, those Trustees will take into account the economic
conditions at the time of distribution, the projections for the future, possible tax consequences, etc.
when making the determination as to the nature of the assets which are to be distributed.
In all events, the total value of the assets to be distributed in satisfaction of the Pro Forma
Account in 2003 will be equal in value to the value of the assets which would have been distributed
in 2003 had the combination under the Agreement to Combine not occurred and had Annuity Trust
I remained in existence. The assets actually distributed will be referred to as the "Distributed Assets"
Given current projections, it seems likely that there will be little, if any, cash or other liquid
assets available for distribution to the remaindermen in 2003. If there are more cash and liquid assets
than projected, it also seems possible that any of the cash or other liquid assets would be retained by
the Trustees of the Surviving Trust in order to provide funds to service future payments by the
Surviving Trust to the Foundation. Therefore, it is assumed that all or a major part of the Distributed
Assets, if any, will consist of an undivided interest in the New York Properties (recognizing that the
possibility that future economic events might reduce the Pro Forma Account balance to zero).
Following the distribution in 2003, if any, there may (and most likely will) be a need for the
Surviving Trust to borrow back some or all of the Distributed Assets in order to provide sufficient
cash flow to meet the remaining annuity trust obligations to the Foundation. The distributees of the
Distributed Assets (the Trustees of the Grandchild Trusts) have agreed at this time to lend back from
the Distributed Assets in 2003 an amount, having a type and value reasonably required by the
Trustees of the Surviving Trust, as will enable the Surviving Trust to complete its obligations to the
Foundation without the need to distribute undivided interests in the New York Properties. The loan­
back will be accomplished pursuant to the terms of a Loan-Back Agreement which will be executed
at this time by the Trustees of the Grandchild Trusts.

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Real Property Transfer Gains Tax
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To the extent liquid assets are not available in 2003, the Trustees of the Surviving Trust
would deed interests in the New York Properties to the Trustees of the Grandchild Trusts at that
time. If the loan-back of all or any part of the interests is required by the Trustees of the Surviving
Trust pursuant to the Loan-Back Agreement, the Trustees of the Grandchild Trusts will execute
deeds in favor of the Trustees of the Surviving Trusts, which will be recorded immediately following
recordation of the deeds from the Trustees of the Surviving Trust to the Trustees of the Grandchild
Trusts. The Trustees of the Grandchild Trusts would jointly execute a Distributee's Receipt and
Loan-Back Agreement by which (1) the trustees of the Grandchild Trusts acknowledge the
distribution and loan-back of the real property, and (2) the Trustees of the Surviving Trust would
acknowledge the loan-back and value of the real property being lent to the Surviving Trust. A pro
forma account for the assets which have been loaned back ("Extended Pro Forma Account") will be
maintained in the same manner as the Pro Forma Account prior to 2003. The Loan-Back Agreement
prescribes a valuation method for the assets to be loaned back.
The Loan-Back Agreement allows the Trustees of the Surviving Trust to repay the loan in
whole or in part at the time or times when the conditions in the Agreement to Combine are met and
the Extended Pro Forma Account can be distributed to the Grandchild Trusts possessing a vested
interest in the loan-back, in accordance with the Agreement to Combine.
In summary, the mechanics of the loan-back will be (1) an actual distribution to the
Grandchild Trusts of all assets in 2003 which are reflected in the Pro Forma Account (if positive);
(2) a loan-back of assets to the extent required by the Trustees of the Surviving Trust; and (3) the
Grandchild Trusts (and their respective beneficiaries to the extent the beneficiaries' interest) will be
treated as the owners of the Distributed Assets (including the assets that are loaned back) for legal
and tax purposes.
Discussion
Section 1402 of Article 31 of the Tax Law, imposes the real estate transfer tax on each
conveyance of real property or interest therein when the consideration for the conveyance exceeds
five hundred dollars.
Section 1401(e) of the Tax Law provides, in pertinent part, that the term "conveyance" means
the transfer or transfers of any interest in real property by any method. This would include a
conveyance upon the combination of trusts with an interest in real property.
Section 1405 of the Tax Law provides, in part, as follows:
Sec. 1405. Exemptions. -- (a) The following shall be exempt from payment of the
real estate transfer tax:
*

*

*

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6. Conveyances to effectuate a mere change of identity or form of ownership or
   organization where there is no change in beneficial ownership, other than conveyances to a
   cooperative housing corporation of the real property comprising the cooperative dwelling or
   dwellings;
   In addition, pursuant to Sections 1441 and 1443.1 of the Tax Law, a tax is imposed on gains
   derived from the transfer of real property or an interest therein (the gains tax) where the real property
   is located in New York State and where the consideration for the transfer is $1 million or more.
   Section 1440.7 of the Tax Law defines the term "transfer of real property", in part, to mean
   the transfer or transfers of any interest in real property by any method. This would include a transfer
   upon combination of trusts with an interest in real property.
   Also, Section 1443 of the Tax Law provides, in part, as follows:
   Sec. 1443. Exemptions. -- A total or partial exemption shall be allowed in the
   following cases:
   *

*

*

5. If a transfer of real property, however effected, consists of a mere change of
   identity or form of ownership or organization, where there is no change in beneficial interest.
   In Hilles Timpson, Adv Op Comm T&F, November 3, 1992, TSB-A-92(7)R, the
   Commissioner held that the transfer of real property to a revocable grantor trust was exempt from
   the transfer tax and the gains tax pursuant to the exemptions provided at Sections 1405(a)(6) and
   1443.5 (the mere change exemption) respectively.
   In this case, the beneficiaries of Annuity Trust I and Annuity Trust II are currently identical,
   and following the combination will remain the same along with their respective interests. In addition,
   immediately after the combination of the Trusts, the charitable annuitant will have the same rights
   to distributions that it had prior to the combination. Likewise, the remainder beneficiaries of the
   Trusts, will be entitled to the same portion of corpus to which they were entitled before the
   combination. Annuity Trust II will terminate upon the same date as before the combination, and the
   Annuity Trust I Beneficiaries will be entitled to a distribution, or they will have a vested interest in
   a future distribution, on the same date that Annuity Trust I would have terminated had the
   combination not occurred.
   With respect to issue no. 1, since the beneficiaries of the Trusts will remain the same and will
   have the same beneficial interest in the Surviving Trust as they held in the Trusts prior to their
   combination and the charitable annuitant will have the same rights to distribution that it had before
   the combination, there is no change in the beneficial ownership of the real property as a result of the
   conveyance. Accordingly, the combination of the Trusts results in a conveyance which is exempt
   from the transfer tax pursuant to the exemption provided at Section 1405(b)(6) (the mere change
   exemption).

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With respect to issue no. 2, the transfer of real property resulting from the combination of
the Trusts is exempt from the gains tax pursuant to the exemption provided at Section 1443.5 of the
Tax Law for the same reasons.
The execution of the Loan-Back Agreement does not affect the availability of the
exemptions.

DATED: January 30, 1996

/s/
DORIS S. BAUMAN
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.