Internal Revenue Service
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 Rev. Rul. 76-17

1976-1 C.B. 279

Section 2055 -- Estate Tax Charitable Deduction

IRS Headnote

Charitable remainder trust; reformation by court. A charitable remainder testamentary trust not meeting the requirements of section 2055(e)(2)(A) of the Code, created by a will executed in March 1974 and reformed by a probate court to convert the life beneficiary's income interest to a life annuity and to pay over the remaining funds to the named charity after administration of the estate will not meet the requirements of section 2055(e)(3).

Full Text

Rev. Rul. 76-17 [fn1]

Advice has been requested whether a charitable deduction is allowable under section 2055 of the Internal Revenue Code of 1954 where a decedent's will has been reformed through local court procedures in the circumstances described below.

The decedent died on April 5, 1975. Under the decedent's will, which was executed on March 4, 1974, 100x dollars was bequeathed in trust. Trust income was payable to the decedent's child for the life of the child. At the child's death, the remaining principal was to have been payable to a charitable organization of the type described in section 2055(a)(2) of the Code.

The decedent's bequest of a remainder interest to charity qualifies for a charitable deduction under section 2055 of the Code in every respect except for the fact that it does not meet the requirement in section 2055(e)(2)(A) that the remainder interest be in a trust which is a charitable remainder annuity trust, a charitable remainder unitrust (described in section 664), or a pooled income fund (described in section 642(c)(5)).

In order to obtain a charitable deduction with respect to the decedent's bequest in trust, the decedent's executors requested, on September 8, 1975, that the local probate court decree a reformation of the decedent's will so that the 100x dollars bequest would be held in a charitable remainder unitrust as described in section 664 of the Code. Refusing to do so, the probate court instead decreed that a life annuity of 6x dollars per year be purchased for the decedent's child from the 100x dollars bequest and that the remaining funds be delivered to the named charity upon completion of the administration of the estate.

Section 2055(e)(3) of the Code provides that, in the case of a will executed before September 21, 1974, if a deduction is not allowable at the time of the decedent's death, because of the failure of an interest in property which passes from a decedent to charity to meet the requirements of section 2055(e)(2)(A), and if the governing instrument is amended or conformed on or before December 31, 1975 (or, if later, on or before the 30th day after the date on which judicial proceedings begun on or before December 31, 1975, and required for amending or conforming the governing instrument, become final), "so that the interest is in a trust which is a charitable remainder annuity trust, a charitable remainder unitrust (described in section 664), or a pooled income fund (described in section 642(c)(5))," a charitable deduction is nevertheless allowable.

In the present case, the local probate court changed the dispositive scheme of the decedent's will by converting the bequest from a testamentary trust to separate charitable and noncharitable interests payable directly to the beneficiaries.

Since the amendment procedure undertaken by the decedent's executors did not result in a trust that complies with the definition of either a charitable remainder annuity trust, a charitable remainder unitrust, or a pooled income fund as required in section 2055(e)(3) of the Code (quoted above), no charitable deduction is allowable under section 2055.

In the event that the decedent's will is amended or conformed before January 1, 1976, or if later, in the event that is amended through judicial proceedings begun before that date, so that the interest passing to charity meets the requirements of section 2055(e)(3) of the Code (in addition to the other requirements of section 2055), a charitable deduction will be allowable for Federal estate tax purposes.

[fn1] Also released as TIR-1427, dated Dec. 22, 1975.