Example - Gift of Unitrust Income Interest2. Sale of Income Interest - A donor may sell his or her entire income interest to the remainder charities. The donor will not receive a charitable deduction, but may receive cash equal to his or her income interest. If the donor has retained the right to change charities, he or she will also need to vest selected charities with the remainder. The selected charities will own vested interests in both the income and remainder of the CRT and, under the doctrine of merger, may terminate the trust and distribute the assets. Under state law, a probate court may need to approve the termination. With the sale option, the donor will report the full sale price as a capital gain. See PLR 200152018. Under Sec. 1001(e)(1), the basis in the income interest is zero.
Joe and Mary created a two-life charitable remainder trust five years ago. Their estate grew substantially and the donors did not require income from the trust. The trust document permitted them to select the charitable remainder recipient. They irrevocably selected Favorite Charity as the remainder recipient and transferred their current and contingent income interests to Favorite Charity. They received a charitable deduction for the value of the income interest. As a capital gain-type gift, the deduction was limited to 30% of their adjusted gross income, with a carry forward for five years. See PLR 9550026.
Example -- Specimen Unitrust Income Interest Gift Language
City, State Zip Code
Re: Charitable Remainder Unitrust ______________
We are currently the income recipients of a two-life charitable remainder unitrust that was created on July 4, 2022, with trust grantors Joe and Mary Jones, 123 Main Street, Anytown, Illinois 00000 and initial trustee Charitable Organization, 456 Main Street, Anytown, Illinois 00000. The unitrust federal ID number is __________________.
As life income recipients, we have retained the power under section ________________ of that trust document to add, remove or modify by name or percentage the qualified exempt charitable remainder recipients. We declare our intention through this signed and dated writing to modify the charitable remainder recipients by irrevocably designating all of our income and remainder interests, whether vested or contingent, to a qualified exempt charity and relinquishing all powers to change charitable remainder interests.
In order to make a charitable gift of this charitable remainder unitrust, I hereby irrevocably designate qualified exempt charity ____________________________, of City, State, as the recipient of 100% of both the income and remainder interests in unitrust number _________________.
The trustee is authorized to recognize that under the doctrine of merger of income and remainder interests, the named exempt charity now owns all interests in this remainder unitrust. Therefore, the trustee may distribute the trust principal to the named exempt charity. Under the law of the state of ____________, this merger of interests may require consent of all trust beneficiaries or order of a probate court.
I understand that this transfer to a charitable organization may qualify under IRC Sec. 170 provisions for a charitable income tax deduction for the present value of the gifted income interest.
____________________________ Date: ____________
Unitrust Income Recipient
Golden Age for Gift Annuities - Part IV
Golden Age for Gift Annuities – Part III
Golden Age for Gift Annuities – Part II