Charity Advisor Resource Newsletter - Volume 1.2 2009

Revenue Ruling 78-101

Rev. Rul. 78-101, 1978-1 CB 301, IRC Sec(s). 2522

On December 30, 1976, the donor transferred property in trust under the terms of which the trustee is directed to pay a charitable lead unitrust amount equal to 4 percent of the net fair market value of the trust property, determined annually, to such organizations described in sections 170(c) and 2522(a) of the Internal Revenue Code of 1954, as the trustee may select. The trust is to terminate at the expiration of ten years and one month, at which time the trust corpus is to revert to the donor if living; and if the donor is not living, then to the donor's estate.

Section 25.2522(c)-3(c)(2)(vi)(e) of the Gift Tax Regulations provides that, with certain exceptions not relevant here, a charitable lead unitrust interest will be considered a qualifying unitrust interest provided no amount other than the unitrust amount may be paid by the trust for a private purpose; that is, a purpose other than a charitable purpose described in section 2522(a) of the Code.

Rev. Rul. 76-371, 1976-2 C.B. 305, holds that a charitable remainder unitrust interest will not be disallowed under section 25.2522(c)-3(c)(2)(iv) of the regulations where the trustee possessed the power to add or substitute charitable remaindermen but was required to select only organizations that qualified under section 2522(a) of the Code.

Held, the failure to designate the specific charitable recipients of a charitable lead interest in the form of a unitrust interest will not disqualify the interest for the charitable deduction where the trustee is empowered to select the charitable beneficiaries and the governing instrument requires that only charitable organizations that meet the requirements of section 2522(a) of the Code can be selected.