Section 2055(e)(3) allows the charitable deduction for split-interest trusts
that are subject to a "qualified reformation," defined as a change within a governing instrument (by reformation, amendment, construction, or otherwise) of a "reformable interest" into a "qualified interest.
With the high annual operating and administration costs of split-interest trusts
and private foundations, a donor may be looking for an easier planning technique that stops short of handing a check directly to charity.
These trusts made up about 6 percent of all split-interest trusts
73-29, section 664 trusts, pooled income funds under section 642(c)(5), and all other split-interest trusts
described in section 4947(a)(2) were required to file Form 5227.
Overall, split-interest trusts
averaged approximately $86,000 gross income per return.
The operation of a split-interest trust
typically involves one beneficiary-type (either charitable or non-charitable) receiving payments over a period of time, and then the other beneficiary-type receiving the remaining trust assets.
Of the three types of split-interest trusts
(SITs), trustees of charitable lead trusts continued to be the most likely to file both initial and final returns, with returns for ongoing trusts making up only 86 percent of the CLTs filed.
Three types of split-interest trusts
are sanctioned by the Internal Revenue Code, so the interest passing to the charitable organizations qualifies for the charitable deduction for income, gift, and/or estate tax purposes--charitable remainder trusts, pooled income funds, and charitable lead trusts.
Charitable split-interest trusts
are no longer required to file Form 1041-A, Trust Accumulation of Charitable Amounts, sections of which are now incorporated in Form 5227.
While this might be acceptable for the typical family or residuary trust, caution is needed when dealing with split-interest trusts
that may be eligible for the marital or charitable deduction.
Private foundations are defined to include certain split-interest trusts
, such as charitable annuity, lead and unitrusts, if such trusts are not exempt from taxation under Sec.
This article focuses on the information and activities of split-interest trusts
for Filing Year 2008, based on Tax Year 2007 returns and, to a much lesser degree, those from prior tax years.