ACGA and NCPG Oppose Proposed Charitable Lead Trust Regulations
Summary
SUMMARY:
A specific provision in a non-grantor charitable lead trust’s governing instrument (or a provision of local law) that identifies the source of the amounts to be paid to the charity beneficiary (often referred to herein as an income-ordering provision) should be respected by the Service, and a deemed distribution to the charity beneficiary on a pro rata basis of each class of income (often referred to herein as a deemed pro-rata-basis requirement) should not be imposed for these reasons:
I. An income-ordering provision has an economic effect in a charitable lead trust independent of income tax consequences. Not respecting that provision and imposing a deemed pro-rata-basis requirement could reduce the annual payments to the charity beneficiary and/or result in the trust being depleted before the end of the trust term. Further, a deemed pro-rata-basis requirement could jeopardize matching funds to be paid to the charity beneficiary. Finally, imposition of a deemed pro-rata-basis requirement may cause a trustee to delay diversifying trust assets in order to protect the trust from tax liabilities created by a deemed pro-rata-basis requirement.
II. Whether or not an income-ordering provision has an economic effect independent of income tax consequences, section 642(c) of the Code authorizes an income-ordering provision and does not require an economic effect apart from income tax consequences. The proposed regulation is contrary to the clear language of the Code, and its promulgation would exceed the authority of the Treasury and the Service to prescribe all needful rules and regulations.
III. The federal government’s long-standing policy is to encourage charitable gifts and benefit and protect charities; the proposed regulation is contrary to the Code and public policy.
IV. A sampling of existing charitable lead trusts shows how charities nationwide are benefitting; the proposed regulation would reduce the benefits to charities from lead trusts and discourage their use, to the detriment of charities.
V. The final regulations should recognize income-ordering provisions of non-grantor charitable lead trusts in all cases. The Service’s current revenue procedures that provide safe-harbor charitable lead trust agreements should be modified and supplemented to specifically state that income-ordering provisions of non-grantor lead trusts will be respected by the Service and safe-harbor income-ordering language should be provided.
Full Text:
This full document is attached below in PDF format.
Attachment | Size |
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Charitable Lead Trust -- Proposed Reg. Comments.pdf | 82.83 KB |
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