Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 77-58

1977-1 C.B. 175

Section 664

IRS Headnote

Charitable remainder trusts; qualification; power to invade. An otherwise qualifying charitable remainder trust, whose trustee is not prohibited or limited by the trust instrument from exercising the power granted under State law to invade the trust for the benefit of the donor and the beneficiary, does not qualify as a charitable remainder trust.

Full Text

Rev. Rul. 77-58

Advice has been requested whether, under the circumstances described below, certain powers conferred upon trustees under applicable local law will disqualify the trust created in the State as a charitable remainder trust under section 664 of the Internal Revenue Code of 1954 and the regulations thereunder.

The Trust Act of State X provides that, in the absence of contrary or limiting provisions in the instrument creating the trust, or a subsequent order or decree by a court of competent jurisdiction, the trustee of any trust created in the State has all the powers, duties, and responsibilities conferred by the trust laws of the State.

Under the trust laws of State X, the trustee is granted the power to invade the trust for the benefit of the donor and the beneficiary by (1) permitting real estate held in trust to be occupied by a surviving spouse or minor child of either the donor or surviving spouse, (2) investing trust funds in real property to be used for a home by a surviving spouse or minor child of the donor or surviving spouse, and (3) using any part of the trust assets to pay funeral expenses of the donor or surviving spouse.

An individual created a trust in State X naming a resident of the State as trustee. The governing instrument of the trust, which otherwise qualifies as a charitable remainder trust under section 664 of the Code and the regulations thereunder, does not refer in any manner to the trust laws of State X and is totally silent regarding whether the trustee has the power to invade the trust for the benefit of the donor and the beneficiary as permitted under the trust laws.

Section 1.664-1(a)(2) of the Income Tax 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.

Section 1.664-2(a)(4) and 1.664-3(a)(4) of the regulations provide that no amount other than the annuity amount or the unitrust amount may be paid to or for the use of any person other than an organization described in section 170(c) of the Code. The trust may not be subject to a power to invade, alter, amend, or revoke for the beneficial use of a person other than an organization described in section 170(c). Notwithstanding the preceding sentence, the grantor may retain the power exercisable only by will to revoke or terminate the interest of any recipient other than an organization described in section 170(c).

Since the governing instrument of the trust does not deal in any manner with the powers, duties, and responsibilities of the trustee, the trust laws of State X empower the trustee to invade the trust for the benefit of the donor and the beneficiary.

Accordingly, the trust does not meet the requirements of section 664 of the Code and the regulations thereunder in every respect and does not qualify as a charitable remainder trust.