Reg. § 53.4947-1 Application of tax.
(a) In general Section subjects trusts which are not exempt from taxation under section , all or part of the unexpired interests in which are devoted to one or more of the purposes described in section , and which have amounts in trust for which a deduction was allowed under section , , 556(b)(2), , , , or to the same requirements and restrictions as are imposed on private foundations. The basic purpose of section is to prevent these trusts from being used to avoid the requirements and restrictions applicable to private foundations. For purposes of this section, a trust shall be presumed (in the absence of proof to the contrary) to have amounts under section , , 556(b)(2), , , , or if a deduction would have been allowable under one of these sections. Also for purposes of this section and , the term “purposes described in section ” shall be treated as including purposes described in section .
(b) Charitable trusts
(1) General rule
(i) For purposes of this section and , a charitable trust, within the meaning of section , is a trust which is not exempt from taxation under section , all of the unexpired interests in which are devoted to one or more of the purposes described in section , and for which a deduction was allowed under section , , 556(b)(2), , , , or (or the corresponding provisions of prior law). A trust is one for which a deduction was allowed under section , within the meaning of section , once a deduction is allowed under section to the trust for any amount paid or permanently set aside. (See sections and for the limitation on such deduction in certain cases.) A charitable trust (as defined in this paragraph) shall be treated as an organization described in section and, if it is determined under section that the trust is a private foundation, then Part II of Subchapter F of chapter 1 of the Code (other than section (a), (b) and (c) and Chapter 42 shall apply to the trust. However, the charitable trust is not treated as an organization described in section for purposes of exemption from taxation under section . Thus, the trust is subject to the excise tax on its investment income under section rather than the tax imposed by section . For purposes of satisfying the organizational test described in when a charitable trust seeks an exemption from taxation under section , a charitable trust (as defined in this paragraph) shall be considered organized on the day it first becomes subject to section . However, for purposes of the special and transistional rules in section , , and (B) and section , (B), (C), and (D), and (1)(3) of the Tax Reform Act of 1969, a charitable trust (as defined in this paragraph) shall be considered organized on the first day it has amounts in trust for which a deduction was allowed (within the meaning of of this section) under section , , 556(b)(2), , , , or . Thus, under this rule, a trust may be treated as a private foundation in existence on a date governing one of the applicable special and transistional rules even though the trust did not otherwise become subject to the provisions of Chapter 42 until a later date.
(ii) The provisions of of this section may be illustrated by the following examples:
Example 1. On January 30, 1970, X creates an inter vivos trust under which M receives 50 percent and N receives 50 percent of the trust's income for 10 years, and upon the termination of which, at the end of the 10-year period, the corpus is to be distributed to O. M, N and O are all organizations described in section and X is allowed a deduction under section for the value of all interests placed in trust. The trustees of the trust do not give notice to the Internal Revenue Service under the provisions of section , and the trust will therefore not be exempt from taxation under section . The trust is a charitable trust within the meaning of section from the date of its creation.
Example 2. On March 1, 1971, Y creates a charitable remainder annuity trust described in section under which Z, Y's son, receives $10,000 per year for life, remainder to be held in trust for P, an organization described in section . Y is allowed a deduction under section for the present value of the remainder interest to P. During Z's lifetime, the trust is a split-interest trust described in section and of this section. Upon the death of Z, all unexpected interests (consisting of P's remainder interest) will be devoted to section purposes. Except as provided in (relating to a reasonable period of settlement) the trust will be treated as a charitable trust within the meaning of section from the date of the death of Z unless the trustees of the trust apply for recognition of section status under the provisions of section .
(2) Scope of application of section 4947(a)(1)
(i) In general Subject to through of this section, section applies to nonexempt trusts in which all unexpired interests are charitable. For purposes of this section, the term charitable when used to describe an interest or beneficiary refers to the purposes described in section . An estate from which the executor or administrator is required to distribute all of the net assets in trust to such beneficiaries will not be considered a charitable trust under section during the period of estate administration or settlement, except as provided in of this section. A charitable trust created by will shall be considered a charitable trust under section as of the date of death of the decedent-grantor, except as provided in of this section (relating to trusts which wind up. For the circumstances under which segregated amounts are treated as charitable trusts, see .
(ii) Estates
(A) When an estate from which the executor or administrator is required to distribute all of the net assets in trust for charitable beneficiaries, or free of trust to such beneficiaries, is considered terminated for Federal income tax purposes under , then the estate will be treated as a charitable trust under section between the date on which the estate is considered terminated under and the date final distribution of all of the net assets is made to or for the benefit of the charitable beneficiaries. This (ii) does not affect the determination of the tax liability under Subtitle A of the beneficiaries of the estates.
(B) The provisions of this (ii) may be illustrated by the following example:
Example. X bequeaths his entire estate, including 100 percent of the stock of a wholly-owned corporation, to M, an organization described in section , under a will which gives his executor authority to hold the stock and manage the corporation for a period of up to 10 years for the benefit of M prior to its ultimate disposition. A deduction for the charitable bequest was allowed to X's estate under section . The executor is vested with a full range of powers, including the power of sale. Upon the death of X, his executor distributes X's assets to M except for the stock of the corporation, which he holds for 5 years prior to its disposition. The continued holding of the stock of the corporation by the executor after the expiration of a reasonable time for performance of all the ordinary duties of administration causes the estate to be considered terminated for Federal income tax purposes pursuant to and thereby subjects it to the provisions of section from the date of such termination to the date of final disposition of the stock of the corporation.
(iii) Certain split-interest trusts which wind up A split-interest trust (as defined in of this section) in which all of the unexpired interests are charitable remainder interests and in which the charitable beneficiaries have become entitled to distributions of corpus in trust or free of trust shall continue to be treated as as split-interest trust under section until the date on which final distribution of all the net assets is made. However, if after the expiration of any intervening interests the trust is considered terminated for Federal income tax purposes under , then the trust will be treated as a charitable trust under section , rather than a split interest trust under section , between the date on which the trust is considered terminated under and the date on which such final distribution of all of the net assets is made to or for the benefit of the charitable remainder beneficiaries. This (iii) does not affect the determination of the tax liability under subtitle A of the beneficiaries of the trusts.
(iv) Split-interest trusts which become charitable trusts
(A) A split-interest trust (as defined in of this section) in which all of the unexpired interests are charitable remainder interests and in which some or all of the charitable beneficiaries are not entitled to distributions of corpus within the meaning of of this section shall continue to be treated as a split-interest trust under section rather than a charitable trust under section for a reasonable period of settlement after the expiration of the noncharitable interest. Thus, a split-interest trust which under its terms is to continue to hold assets for charitable beneficiaries after the expiration of the noncharitable interest rather than distributing them as in of this section is given a reasonable period of settlement before being treated as a charitable trust. For purposes of this paragraph, the term reasonable period of settlement means that period reasonably required (or if shorter, actually required) by the trustee to perform the ordinary duties of administration necessary for the settlement of the trust. These duties include, for example, the collection of assets, the payment of debts, taxes, and distributions, and the determination of the rights of the subsequent beneficiaries.
(B) This (iv) may be illustrated by the following example:
Example. On January 15, 1971, A creates a charitable remainder annuity trust described in section under which the trustees are required to distribute $10,000 a year to B, A's wife, for life, remainder to be held in trust for the use of M, an organization described in section . A is allowed a deduction under section for the amount of the charitable interest, and the trust is, therefore, treated as a split-interest trust under section from the date of its creation. B dies on February 10, 1975. On April 15, 1975, the trustees complete performance of the ordinary duties of administration necessary for the settlement of the trust brought about by the death of B. These duties include, for example, an accounting for and payment to the estate of B of amounts accrued by B while alive during 1975. However, the trustees do not distribute the corpus to M by April 15, 1975. The trust shall continue to be treated as a split-interest trust under section until April 15, 1975. After April 15, 1975, the trust shall be treated as a charitable trust under section .
(v) Certain revocable and testamentary trusts which wind up A revocable trust that becomes irrevocable upon the death of the decedent-grantor, or a trust created by will, from which the trustee is required to distribute all of the net assets in trust for or free of trust to charitable beneficiaries is not considered a charitable trust under section for a reasonable period of settlement (within the meaning of of this section) after becoming irrevocable. After that period the trust is considered a charitable trust under section .
(vi) Revocable trusts which become charitable trusts A revocable trust that becomes irrevocable upon the death of the decedent-grantor in which all of the unexpired interests are charitable and under the terms of the governing instrument of which the trustee is required to hold some or all of the net assets in trust after becoming irrevocable solely for charitable beneficiaries is not considered a trust under section for a reasonable period of settlement (within the meaning of of this section) after becoming irrevocable except that section may apply if the requirements of are not met. After that period, the trust is considered a charitable trust under section .
(vii) Trust devoted to 170(c) purposes
(A) A trust all of the unexpired interests in which are devoted to section (c) (3) or (5) purposes together with section purposes shall be considered a charitable trust except that payments under the terms of the governing instrument to an organization described in section (3) or (5) shall not be considered a violation of section or any other provisions of Chapter 42 and shall be considered qualifying distributions under section .
(B) Example The application of of this section may be illustrated by the following example:
Example. On January 30, 1970, H creates an inter vivos trust under the terms of the governing instruments of which M, an organization described in section , and N, an organization described in section , are each to receive 50 percent of the income for a period of 10 years. At the end of the 10 year period, the corpus is to be distributed to O, an organization also described in section . H is allowed a deduction under section for the value of all interests placed in trust. The payments to M do not constitute a violation of section or any other provision of Chapter 42 and constitute qualifying distributions under section . However, except as provided in the previous sentence, the trust shall be considered a charitable trust.
(3) Charitable trusts described in section 509(a)(3) For purposes of section , a charitable trust shall be treated as if organized on the day on which it first becomes subject to section . However, for purposes of applying and the previous relationship between the charitable trust and the section (1) or (2) organizations it benefits or supports may be considered. If the charitable trust otherwise meets the requirements of section , it may obtain recognition of its status as a section organization by requesting a ruling from the Internal Revenue Service. For the special rules pertaining to the application of the organizational test to organizations terminating their private foundation status under the 12-month or 60-month termination period provided under section by becoming “public” under section , see the regulations in this part under section .
(c) Split-interest trusts
(1) General rule
(i) Definition For purposes of this section and , a split-interest trust, within the meaning of section , is a trust which is not exempt from taxation under section , not all of the unexpired interests in which are devoted to one or more of the purposes described in section , and which has amounts in trust for which a deduction was allowed (within the meaning of of this section) under section , , 556(b)(2), , , , or . A trust is one which has amounts in trust for which a deduction was allowed under section within the meaning of section once a deduction is allowed under section to the trust for any amount permanently set aside. This (i) also includes any trust which is not treated as a charitable trust by operation of or of this section (relating to split-interest trusts in the process of winding up or during a reasonable period of settlement). Section shall apply to a trust described in this (i) (without regard to section , (B), or (C)) from the first date upon which the provisions of or of this section are satisfied. For the circumstances under which a trust all of the unexpired interests in which are devoted to section (3) or (5) purposes together with section purposes is considered a charitable trust, see .
(ii) Applicability of statutory rules A split-interest trust is subject to the provisions of section (except as provided in of this section), 508(e) (to the extent applicable to a split-interest trust), 4941, 4943 (except as provided in section ), 4944 (except as provided in section ), and 4945 in the same manner as if such trust were a private foundation.
(iii) Special rules A newly created trust shall, for purposes of section , be treated as having amounts in trust for which a deduction was allowed under section , , 556(b)(2), , , , or from the date of its creation, even if a deduction was allowed for such amounts only at a later date. For purposes of this (iii), the date of creation of a charitable remainder trust shall be determined by applying the rules in .
(2) Exception for amounts payable to income beneficiaries
(i) Under section , of this section does not apply to any amounts payable under the terms of a split-interest trust to income beneficiaries unless a deduction was allowed under section , (B), or 2522(c)(2)(B) with respect to the income interest of any such beneficiary. See , , and for rules regarding the allowance of these deductions. However, section does not apply when the value of all interests in property transferred in trust are deductible under section , , 556(b)(2), , , , or .
(ii) The application of this subparagraph may be illustrated by the following examples:
Example 1. H creates a charitable remainder unitrust (described in section ) which is required annually to pay W, H's wife, 5 percent of the net fair market value of the trust assets, valued annually, for her life; and to pay the remainder to Y, a section organization. A deduction under section was allowed with respect to the remainder interest of Y. Under section , each annual amount which becomes payable to W during her life is not subject to of this section on or after the date upon which it becomes so payable and the payment of each amount to W is not an act of self-dealing under section and does not violate any other provision of chapter 42. However, except as provided in the preceding sentence, the trust is subject to of this section in the same manner as any other split-interest trust.
Example 2. H bequeaths the residue of his estate in trust for the benefit of S, his son, and Y, an organization described in section . A guaranteed annuity interest of $10,000 is to be paid to S for 20 years. A guaranteed annuity interest of $5,000 which meets the requirements contained in is also to be paid to Y for 20 years. Upon termination of the 20-year term, the corpus is to be distributed to Z, another organization described in section . The trust is a charitable remainder annuity trust as described in section and the regulations thereunder, and a deduction under section was allowed with respect to the remainder interest of Z. A deduction was also allowed under section with respect to the guaranteed annuity interest of Y. The assets in the trust are not segregated under section and of this section. Under section , each payment of $10,000 to S is not subject to section and of this section. The payment of each amount to S is not an act of self-dealing under section and does not violate any other provision of chapter 42. However, except as provided in the preceding sentence, the trust is subject to section and of this section in the same manner as any other split-interest trust.
Example 3. H creates a trust under which the trustees are required to pay over an annuity interest of $20,000 to W. H's wife, for her life. A guaranteed annuity interest of $10,000 which meets the requirements contained in is also to be paid X, an organization described in section , for the life of W. Upon the death of W, the corpus of the trust, which consists of office buildings M and N, is to be distributed to S. H's son. H received a deduction under section for the value of X's income interest in the trust. The assets in the trust are not segregated under section and of this section. Under section , each payment of $20,000 to W is not subject to section and of this section. The payment of each amount to W is not an act of self-dealing under section and does not violate any other provision of chapter 42. However, except as provided in the preceding sentence, the trust is subject to of this section in the same manner as any other split-interest trust. See example (1) of of this section for the application of section to a similar trust where the trustees segregate the assets of the trust.
(3) Exception for certain segregated amount
(i) In general Under section of this section does not apply to assets held in trust (together with the income and capital gains derived from the assets), which are segregated from other assets held in trust for which a deduction was allowed for an income or remainder interest under section , , 556(b)(2), , , , or .
(ii) Segregation of amounts Amounts will generally be considered segregated (within the meaning of section if:
(A) Assets with respect to which no deduction was allowed (for an income or remainder interest) under section , , 556(b)(2), , , , or , are separately accounted for under section and of this section from assets for which such a deduction was allowed for any income or remainder interest and,
(B) By reason of the separate accounting the trust can be treated as two separate trusts, one of which is devoted exclusively to noncharitable income and remainder interests and the other of which is a charitable trust described in section or a split-interest trust described in section .
Under these circumstances, only the “trust” which is devoted exclusively to noncharitable income and remainder interests will be considered a segregated amount which under section , is not subject to section and of this section.
(iii) Exclusively charitable amounts If, under section ,
(A) An amount held in trust which is devoted exclusively to noncharitable income and remainder interests is segregated from
(B) An amount held in trust which is devoted exclusively to charitable income and remainder interests,
Then for purposes of this section the amount described in of this section will be treated as a charitable trust which is subject to the provisions of section .
(iv) Charitable and noncharitable amounts If, under section (2)(B),
(A) An amount held in trust which is devoted exclusively to noncharitable income and remainder interests is segregated from
(B) An amount held in trust which is devoted to both charitable income or remainder interests and noncharitable income or remainder interests,
Then for purposes of this section the amount described in of this section will be treated as a split-interest trust which is subject to the provisions of section .
(v) Examples The application of of this section may be illustrated by the following examples:
Example 1. H creates a trust under which the trustees are required to pay over annually 5 percent of the net fair market value of M building, valued annually, to W, H's wife, for life, remainder to S, H's son. The other asset in the trust is N building, with respect to which the trustees are required to pay over annually 5 percent of the net fair market value of the building, valued annually, to X, a section organization, for a period of 15 years, remainder to S. Each asset is separately accounted for under section and of this section. He received a deduction under section for the value of X's income interest in N building. Under these circumstances, M building is considered segregated (within the meaning of section ) from N building and is not subject to section (a)(2). The remainder interest of S in N building is not considered segregated from the income interest of X in N building, since both are interests in the same asset. N building is considered held in a split-interest trust which is subject to section (a)(2) and of this section.
Example 2. H transfers $50,000 in trust to pay $2,500 per year to Z, a section organization, for a term of 20 years, remainder to S. H's son. H is allowed a deduction under section for the present value of Z's income interest. The income interest of Z in the trust asset cannot be segregated (within the meaning of section ) from the remainder interest of S since both are interests in the same asset. Therefore, the entire trust is subject to section and of this section.
(4) Accounting for segregated amounts
(i) General rule Under section , a trust with respect to which amounts are segregated within the meaning of of this section must separately account for the various income, deduction, and other items properly attributable to each segregated amount in the books of account and separately account to each of the beneficiaries of the trust.
(ii) Method Separate accounting shall be made:
(A) According to the method regularly employed by the trust, if the method is reasonable, and
(B) In all other cases in a manner which, in the opinion of the Commissioner, is reasonable.
A method of separate accounting will be considered “regularly employed” by a trust when the method has been consistently followed in prior taxable years or when a trust which has never before maintained segregated amounts initiates a reasonable method of separate accounting for its segregated amounts and consistently follows such method thereafter. The trust shall keep permanent records and other data relating to the segregated amounts as are necessary to enable the district director to determine the correctness of the application of the rules prescribed in and of this section.
(5) Amounts transferred in trust before May 27, 1969
(i) General rule Under section , of this section does not apply to any amounts transferred in trust before May 27, 1969. For purposes of this (5), an amount shall be considered to be transferred in trust only when the transfer is one which meets the requirements for the allowance of a deduction under section , , 556(b)(2), , , , or (or the corresponding provisions of prior law). Income and capital gains which are derived at any time from amounts transferred in trust before May 27, 1969, shall also be excluded from the application of of this section. If an asset which was transferred in trust before May 27, 1969, is sold or exchanged after May 26, 1969, any asset received by the trust upon the sale or exchange shall be treated as an asset which was transferred in trust before May 27, 1969.
(ii) Requirement for separate accounting for amounts transferred in trust before May 27, 1969 If:
(A) Amounts are transferred in trust after May 26, 1969, and the trust to which the amounts are transferred also contains
(B) Amounts transferred in trust before May 27, 1969,
the general rule of of this section applicable to the amounts described in of this section will apply only if the amounts described in of this section (together with all income and capital gains derived therefrom) are separately accounted for (within the meaning of of this section) from the amounts described in of this section, together with all income and capital gains derived therefrom. For the application of section to a trust with respect to which amounts were transferred both before and after May 27, 1969, see section and the regulations thereunder.
(iii) Exception for certain testamentary trusts
(A) Amounts transferred in trust before May 27, 1969 include amounts transferred in trust after May 26, 1969 when the transfer is made under the terms of a testamentary trust created by the will of a decedent who died before May 27, 1969, (regardless of whether the executors or the testamentary trustees are required to execute testamentary trusts by court order under applicable local law). Amounts transferred in trust before May 27, 1969, also include amounts transferred to a testamentary trust created by the will of a decedent who died after May 26, 1969 if the will was executed before May 27, 1969 and no dispositive provision of the will was amended (within the meaning of and ) by the decedent by codicil or otherwise, after May 26, 1969, and the decedent was on May 27, 1969, and at all times thereafter under a mental disability (as defined in ) to amend the will by codicil or otherwise.
(B) The provisions of this (iii) may be illustrated by the following example:
Example. X executed a will in 1960 which provided for the creation of a testamentary trust which meets the description of a split-interest trust under section . X died on April 15, 1969. Under the provisions of his will, the probate court permitted certain property in X's estate to be transferred to the testamentary trust at fixed intervals over a period of two years during the administration of the estate. Section does not apply to any amount described in this example, including the amounts transferred after May 26, 1969, because, for purposes of section , each such transfer will be treated as an amount transferred in trust before May 27, 1969, within the meaning of section .
(6) Scope of application of section 4947(a)(2)
(i) In general Subject to , , and of this section, section applies to trusts in which some but not all unexpired interests are charitable. An estate from which the executor or administrator is required to distribute all of the net assets in trust or free of trust to both charitable and noncharitable beneficiaries will not be considered to be a split-interest trust under section during the period of estate administration or settlement, except as provided in of this section. A split-interest trust created by will shall be considered a split-interest trust under section as of the date of death of the decedent-grantor, except as provided in of this section.
(ii) Estates
(A) When an estate from which the executor or administrator is required to distribute all of the net assets in trust or free of trust to both charitable and noncharitable beneficiaries is considered terminated for Federal income tax purposes under , then the estate will be treated as a split-interest trust under section (or a charitable trust under section 4957(a)(1), if applicable) between the date on which the estate is considered terminated under and the date on which final distribution of the net assets to the last remaining charitable beneficiary is made. This (ii) does not affect the determination of the tax liability under subtitle A of either charitable or noncharitable beneficiaries of the estates.
(B) The provisions of this (ii) may be illustrated by the following example:
Example. X dies on January 15, 1973 and bequeaths $10,000 to M, an organization described in section , and the residue of his estate to W, his wife. A deduction for the charitable bequest was allowed to X's estate under section . Substantially all of X's estate consists of 100 percent of the stock of a wholly owned corporation, certain liquid assets such as marketable stocks and securities and bank accounts, and X's home, automobile, and other personal property. X's will gives his executor a full range of powers, including the power to sell the stock of the wholly owned corporation. After the death of X, his executor continues to manage the wholly owned corporation while attempting to sell the stock of the corporation. During this period, the executor makes no distributions to M. On May 24, 1978, the Internal Revenue Service determines under that the administration of the estate has been unduly prolonged and the estate is considered terminated as of that date for Federal income tax purposes. X's estate will be treated as a split-interest trust described in section between May 24, 1978 and the date on which the $10,000 bequest to M is satisfied. X's estate will therefore be subject to the applicable private foundation provisions during that period and, for example, a sale of the house by the estate to any disqualified person (as defined in section ) will be an act of self-dealing under section .
(iii) Revocable trusts which become split-interest trusts A revocable trust that becomes irrevocable upon the death of the decedent-grantor under the terms of the governing instrument of which the trustee is required to hold some or all of its net assets in trust after becoming irrevocable for both charitable and noncharitable beneficiaries is not considered a split-interest trust under section for a reasonable period of settlement after becoming irrevocable except that section may apply if the requirements of are not met.
After that period, the trust is considered a split-interest trust under section . For purposes of this (iii), the term reasonable period of settlement means that period reasonably required (or if shorter, actually required) by the trustee to perform the ordinary duties of administration necessary for the settlement of the trust. These duties include, for example, the collection of assets, the payment of debts, taxes, and distributions, and the determination of rights of the subsequent beneficiaries.
(iv) Certain revocable and testamentary trusts which wind up A revocable trust that becomes irrevocable upon the death of the decedent-grantor, or a trust created by will, from which the trustee is required to distribute all of the net assets in trust or free of trust to both charitable and noncharitable beneficiaries is not considered a split-interest trust under section for a reasonable period of settlement (within the meaning of of this section) after becoming irrevocable. After that period, the trust is considered a split-interest trust under section (or a charitable trust under section , if applicable).
(d) Cross references; Governing instrument requirements and charitable deduction limitations For the application of section (relating to section limitations on charitable deductions of non-exempt private foundation trusts) to a trust described in section , see . For the denial of a deduction under section , , 556(b)(2), , , , or for a gift, a bequest, or an amount paid to (and the denial of a deduction under section for an amount set aside in) a trust described in section or (2) that fails to meet the applicable governing instrument requirements of section by the end of the taxable year of the trust, see section and . Since a charitable remainder trust (as defined in section ) is not exempt under section , it is subject to section , and thus to the governing instrument requirements of section to the extent they are applicable.
(e) Application of section 507(a)
(1) General rule The provisions of section shall not apply to a trust described in section (1) or (2) by reason of any payment to a beneficiary that is directed by the terms of the governing instrument of the trust and is not discretionary with the trustee or, in the case of a discretionary payment, by reason of, or following, the expiration of the last remaining charitable interest in the trust.
(2) Examples The provisions of this (e) may be illustrated by the following examples:
Example 1. H creates a section trust under which the income is to be paid for 15 years to R, a section organization. Upon the expiration of 15 years, the trust is to terminate and distribute all of its assets to S, another section organization. Distribution of the corpus of the trust to S will not be considered a termination of the trust's private foundation status within the meaning of section .
Example 2. H creates a trust under which X, a section organization, receives $20,000 per year for a period of 20 years, remainder to S, H's son. H is allowed a deduction under section for the present value of X's interest. When the final payment to X has been made at the end of the 20-year period in accordance with the terms of the trust, the provisions of section will cease to apply to the trust because the trust no longer retains any amounts for which the deduction under section was allowed. However, the final payment to X will not be considered a termination of the trust's private foundation status within the meaning of section .
Example 3. J creates a charitable remainder annuity trust described in section under which S, J's son, receives $10,000 per year for life, remainder to be distributed outright to P, an organization described in section . J is allowed a deduction under section for the value of the remainder interest placed in trust for the benefit of P, and the provisions of section apply to the trust. At the death of S, the trust will terminate and all assets will be distributed to P. However, such final distribution to P will not be considered a termination of the trust's private foundation status within the meaning of section .
[T.D. 7431, 41 FR 35515, Aug. 23, 1976, as amended by T.D. 9981, 88 FR 71301, Oct. 16, 2023]