SECTION 9. ALTERNATE — Internal Revenue Bulletin 2007-29

LEAD ANNUITY TRUST

.01 Annuity Period for the Life of One Individual .

(1) Explanation . As an alternative to establishing a CLAT for a term of years, the trust instrument of a grantor CLAT may

provide for payment of the annuity amount for the life or lives of an individual or individuals. However, only one or more of the following individuals may be used as measuring lives: the donor, the donor’s spouse, and an individual who, with respect to all remainder beneficiaries (other than charitable organizations described in § 170, 2055, or 2522), is either a lineal ancestor or the spouse of a lineal ancestor of those beneficiaries. A trust will satisfy the requirement that each measuring life is a lineal ancestor (or the spouse of a lineal ancestor) of all noncharitable remainder beneficiaries if there is a less than 15 percent probability at the time of the contribution to the trust that individuals who are not lineal descendants of an individual who is a measuring life will receive any trust principal. The probability must be computed under the applicable tables in § 20.2031–7. Sections 1.170A–6(c)(2)(i)(A), 20.2055–2(e)(2)(vi)( a ), and 25.2522(c)–3(c)(2)(vi)( a ). (2) Instruction for use . Replace the fifth and sixth sentences of paragraph 2, Payment of Annuity Amount, of the sample trust

in section 7 with the following sentences:

The annuity period is the lifetime of [ designated measuring life ]. The first day of the annuity period shall be the date the property is transferred to the trust, and the last day of the annuity period shall be the date of death of [ designated measuring life ].

.02 Retention of the Right to Substitute the Charitable Lead Beneficiary .

(1) Explanation . The donor to a grantor CLAT may retain the right to substitute another charitable beneficiary for the charitable

beneficiary named in the trust instrument and still claim a deduction under § 170(a) in the year of the transfer to the CLAT. Note, however, that the retention of this right will cause the gift of the annuity interest to be incomplete for gift tax purposes and may cause some or all of the trust property (depending on the date of the donor’s death) to be included in the donor’s gross estate. See §§ 2035, 2036(a)(2), and 2038(a)(1) and § 25.2511–2(c). See section 8.01(3) for a discussion of the income tax deductibility limitations applicable to contributions to a grantor CLAT. (2) Instruction for use . Replace the third sentence of paragraph 2, Payment of Annuity Amount, of the sample trust in section

7 with the following two sentences: Notwithstanding the preceding sentence, the Donor reserves the right to designate as the charitable annuity recipient, at any time and from time to time, in lieu of [ designated charitable recipient named above ], one or more organizations described in §§ 170(c), 2055(a), and 2522(a) and shall make any such designation by giving written notice to the Trustee. The term “the Charitable Organization” shall be used herein to refer collectively to the organization(s) then constituting the charitable recipient, whether named in this paragraph or subsequently selected as the substitute charitable recipient.

.03 Apportionment of the Annuity Amount in the Discretion of the Trustee .

(1) Explanation . The donor or the trustee of a grantor charitable lead trust may be granted the power to apportion the annuity

payment from time to time among a class of qualifying charitable beneficiaries. Note that a retained power of apportionment by the donor will cause the gift of the annuity interest to be incomplete for gift tax purposes and may cause some or all of the trust property to be included in the donor’s gross estate. See §§ 2035(a), 2036(a)(2), and 2038(a)(1) and § 25.2511–2(c). (2) Instruction for use . Replace the first three sentences of paragraph 2, Payment of Annuity Amount, of the sample trust in

section 7 with the following two sentences:

In each taxable year of the trust during the annuity period, the Trustee shall pay to one or more members of a class comprised of organizations described in §§ 170(c), 2055(a), and 2522(a) (hereinafter, collectively “the Charitable Organization”) an annuity amount equal to [ number representing the annual annuity percentage to be paid to the Charitable Organization ] percent of the initial net fair market value of all property transferred to the trust, valued as of the date of

2007–29 I.R.B. 100 July 16, 2007

the transfer. The Trustee may pay the annuity amount to one or more members of the class, in equal or unequal shares, as the Trustee, in the Trustee’s sole discretion, from time to time may deem advisable.

.04 Annuity Amount as a Specific Dollar Amount .

(1) Explanation . As an alternative to stating the annuity amount as a percentage of the initial net fair market value of the assets

transferred to the trust, the annuity amount may be stated as a specific dollar amount. (2) Instructions for use .

(a) Replace the first sentence in paragraph 2, Payment of Annuity Amount, of the sample trust in section 7 with the following

sentence:

In each taxable year of the trust during the annuity period, the Trustee shall pay to [ designated charitable recipient ] an annuity amount equal to [ the stated dollar amount ]. (b) Delete the last sentence in paragraph 2, Payment of Annuity Amount, of the sample trust in section 7 concerning the

incorrect valuation of trust assets.

.05 Designation of an Alternate Charitable Beneficiary in the Trust Instrument .

(1) Explanation . The sample trust in section 7 provides that if the charitable beneficiary designated in the trust instrument is

not an organization described in §§ 170(c), 2055(a), and 2522(a) at the time any payment is to be made to it, the trustee shall distribute such payments to one or more organizations described in §§ 170(c), 2055(a), and 2522(a) as the trustee shall select. As an alternative, the trust instrument may specifically designate one or more alternate charitable beneficiaries. See section 8.01(3) for a discussion of the income tax deductibility limitations applicable to contributions to a grantor CLAT. (2) Instruction for use . Replace the second sentence in paragraph 2, Payment of Annuity Amount, of the sample trust in section

7 with the following two sentences: If [ designated charitable recipient ] is not an organization described in §§ 170(c), 2055(a), and 2522(a) at the time any payment is to be made to it, the Trustee shall instead distribute such payments to [ designated substitute charitable re- cipient ]. If neither [ designated charitable recipient ] nor [ designated substitute charitable recipient ] is an organization described in §§ 170(c), 2055(a), and 2522(a) at the time any payment is to be made to it, the Trustee shall instead distribute such payments to one or more organizations described in §§ 170(c), 2055(a), and 2522(a) as the Trustee shall select, and in such proportions as the Trustee shall decide, from time to time, in the Trustee’s sole discretion.

.06 Restriction of the Charitable Beneficiary to a Public Charity .

(1) Explanation . Because the charitable lead interest of a grantor charitable lead trust is considered to be made “for the use of”

the charitable beneficiary, the income tax charitable deduction available to an individual taxpayer is generally limited as set forth in § 170(b)(1)(B) to 30 percent of the taxpayer’s contribution base as defined in § 170(b)(1)(G). However, if the property contributed to the CLAT is capital gain property as defined in § 170(b)(1)(C)(iv) and the charitable beneficiary (including any alternate charitable beneficiaries named in the trust instrument or selected by the trustee) is not limited to a public charity, the individual taxpayer’s income tax charitable deduction generally is limited as set forth in § 170(b)(1)(D) to 20 percent of the taxpayer’s contribution base. Section 170(b)(1)(D). See §§ 1.170A–8(c) and (d). In addition, the amount of a charitable contribution of certain types of property may be reduced under § 170(e). See § 1.170A–4. (2) Instructions for use . To restrict the charitable beneficiary to a public charity, each and every time the phrase “an organiza tion described in §§ 170(c), 2055(a), and 2522(a) of the Code” appears in the sample trust, replace it with the phrase “an organization described in §§ 170(b)(1)(A), 170(c), 2055(a), and 2522(a) of the Code.”