Rev. Rul. 76-270

Advice has been requested whether, under the circumstances described below, a trust qualifies as a charitable remainder trust under section 664 of the Internal Revenue Code of 1954 and the applicable regulations.

An individual concurrently created trust A, and a separate trust, trust B. Under the governing instrument of trust A, a trust that otherwise qualifies as a charitable remainder trust, the specified distribution is to be made to trust B for the benefit of C, an incompetent, who is the individual named as the lifetime beneficiary of trust A. The governing instrument of trust B provides that the income of the trust will be used exclusively for the benefit of C and that upon the death of C the trust will terminate.

The governing instrument of trust B further provides for payment to C each month of a designated portion of the amount it receives from trust A and if at any time, in the sole judgement of the trustee, the monthly payment to C is insufficient to provide adequately for the care, support, and maintenance of C, or is insufficient for the needs of C for any reason, additional amounts will be paid as needed to or on behalf of C from trust B. The instrument further provides that any amounts remaining in trust B at C's death will be distributed to C's estate.

The specific question presented is whether trust A would be disqualified as a charitable remainder trust because it makes the specified distribution to trust B for the benefit of C rather than making such distribution directly to C.

Section 1.664-1(a)(1) of the Income Tax Regulations provides the general rule that a charitable remainder trust is a trust that provides for a specified distribution, at least annually, to one or more beneficiaries, at least one of which is not a charity, for life or a term of years, with an irrevocable remainder interest to be held for the benefit of, or paid over to, charity.

Section 1.664-1(a)(2) of the regulations provides that a trust is a charitable remainder trust only if it is either a charitable remainder annuity trust in every respect or a charitable remainder unitrust in every respect.

Sections 1.664-2(a)(3) and 1.664-3(a)(3) of the regulations provide, with regard to charitable remainder annuity trusts and charitable remainder unitrusts, respectively, that distributions must be payable to or for the use of a named person or persons. However, sections 1.664-2(a)(5) and 1.664-3(a)(5) provide that only an individual or an organization described in section 170(c) of the Code may receive an amount for the life of an individual.

Since the only function of trust B is to receive and administer the payments it receives from trust A for the benefit of C, an incompetent who is the named individual lifetime beneficiary of trust A, C is considered to have received the specified distribution directly from trust A.

Accordingly, in the instant case, although the form of the income payments is from trust A to trust B to individual C for the life of C, the payment of the specified distribution to trust B will not disqualify trust A as a charitable remainder trust under section 664 of the Code and the applicable regulations.