SECTION 2. BACKGROUND

.01 In general, a testator is free to dispose of property in accordance with the testator’s own wishes. However, in most jurisdictions, state statutes protect S from disinheritance. In most common law jurisdictions, these statutes are in the form of elective share provisions, many of which are based on the elective share provisions of the Uniform Probate Code (UPC), §§ 2–201– 2–214 (amended 1993). Elective share statutes provide S the right to elect to receive a statutory share of G ’s estate, regardless of whether G made any

bequests to S . For purposes of this revenue procedure, S ’s statutory share of G ’s estate will be referred to as an “elective share” and the right to elect to receive an elective share will be referred to as a “right of election”, regardless of what terms different jurisdictions may use to describe these concepts.

.02 In some states, the elective share is based solely on the probate estate but, in others, G ’s estate is defined more broadly for purposes of computing the elective share and may include assets of the CRAT or CRUT. In states that have adopted the elective share provisions of the UPC, S has the right of election to take a percentage (generally determined by the duration of the marriage, but subject to a minimum dollar amount in some cases) of the “augmented estate” provided that certain requirements are met. UPC § 2–202. The augmented estate includes G ’s net probate estate, as well as certain nonprobate assets of G, certain property transferred by G to others (including to S ) during life, and certain other property. UPC §§ 2–202 and 2–207. The assets of the CRAT or CRUT may be included in the augmented estate and, therefore, may be used to determine and satisfy the elective share amount. UPC § 2–209. In some states, the CRAT or CRUT assets may be used to satisfy the elective share only after other property in the augmented estate first has been exhausted.

.03 Sections 664(d)(1)(B) (in the case of a CRAT) and (d)(2)(B) (in the case of a CRUT) provide that no amount other than the annuity payments described in § 664(d)(1)(A) or the unitrust payments described in § 664(d)(2)(A), respectively, (other than qualified gratuitous payments described in §§ 664(d)(1)(C) and (d)(2)(C)) may be paid to or for the use of any person other than an organization described in § 170(c). The requirements of §§ 664(d)(1)(B) and (d)(2)(B) are not satisfied in situations in which S may exercise the right of election to receive an elective share and the share could include assets of the CRAT or CRUT, because the mere existence of the right of election under applicable law, whether or not exercised, and the resulting possibility that the CRAT or CRUT may be invaded for the benefit of S, causes the trust to fail to qualify under § 664(d).

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of election is valid under applicable state law and satisfies the other requirements of this revenue procedure, the existence of the right of election will be disregarded for the purpose of determining whether the trust has qualified continuously since its creation as a CRAT under § 664(d)(1)(B). Further, in each of Examples 1 through 3, the result would be the same if, instead of executing only a partial waiver, S had waived the full right of election with respect to all assets in G’s augmented estate.

.04 Example 4 . G creates the trust in 2007 while married to S . Under applicable state law in effect on the date that G creates the trust, the elective share includes the assets in the trust. Later in the same year, applicable state law is amended to provide that the augmented estate does not include the assets of a CRAT or CRUT and the amendment applies retroactively to include the trust created by G . Accordingly, no waiver of the right of election is required with respect to the assets of the trust in order for the trust to continue to qualify as a CRAT.

.05 Example 5 . The facts are the same as in Example 2 except that the waiver is contained in, or is signed pursuant to the requirements of, a prenuptial agreement. Unless the agreement as a whole (or only the waiver) is subsequently found to be invalid or unenforceable, the waiver will satisfy the requirements of this revenue procedure.

.06 Example 6 . The facts are the same as in Example 1, except that S dies in 2010. In 2012, G marries S2 . S2 refuses to waive S2 ’s right to receive an elective share with regard to the assets in the trust. The existence of S ’s right of election will be disregarded for the purpose of determining whether the trust has qualified continuously since its creation up until G ’s marriage to S2, as a CRAT under § 664(d)(1)(B). However, because S2 did not timely and irrevocably waive S2 ’s right to receive an elective share with regard to the assets in the trust, the trust does not qualify as a CRAT under § 664(d)(1)(B).

If, in these examples, G had instead created a CRUT, the results would be the same for purposes of § 664(d)(2)(B).