(Archived Content)
JS-2344
WASHINGTON, DC – The Treasury Department and Internal Revenue Service issued guidance today to provide a safe harbor procedure to avoid the disqualification of a charitable remainder trust by reason of the existence of a spousal right of election under state law.
The existence of a surviving spouse’s right to elect to receive a statutory share of the estate of the grantor of a charitable remainder trust has not been widely recognized by taxpayers as potentially disqualifying the trust. The safe harbor in the revenue procedure issued today provides a method of avoiding the adverse tax consequences arising from such a right under state law. The revenue procedure issued today also provides transition relief for trusts created beforeJune 28, 2005.
A problem exists under current law only if applicable state law gives the grantor’s spouse the right to receive a statutory share of the grantor’s estate that could be paid from the trust’s assets. For trusts created on or afterJune 28, 2005, this problem can be avoided if the grantor’s spouse waives the right of election against trust assets as described in the revenue procedure.
Trusts created beforeJune 28, 2005, may also benefit from this safe harbor procedure. However, as long as the spousal right of election is not actually exercised, the Service will not challenge the qualification of a pre-June 28, 2005, trust solely by reason of the existence of that right, even if such a waiver is not obtained.
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