annuity payouts. Each trust would otherwise continue to operate according to its originalterms, paying the same annuities to the remaining nephews and nieces and theirdescendants, with the remainder at the death of the last annuitant to the charities. As part of the agreement, the charities also undertook to buy from their own resourcescommercial annuity contracts for the benefit of each of the three remaining family groups.The relationship between the amount of the annuity payout or the cost of these contracts andany of the other amounts involved in the transaction is not made clear in the text of therulings as released.The
ruled:the transaction would not cause the trust to lose its "grandfathered" status under section1433(b)(2)(A) of the Tax Reform Act of 1986 or
26.2601-1(b)(4)(i), exemptingit from
taxation;1.the partial termination and early
to remaindermen would not result in"immediate" realization of
, or taxable income by any of theannuitants, the trust itself, or the charities; and2.the purchase by the charities of the commercial annuity contracts would not result in the"immediate" realization of capital
, capital loss, or taxable income by any of theannuitants.3.
There is a problem in these rulings with
, concepts whichare basically ignored.The amount transferred to the
did not impair, at least actuarially, the ability of the
to continue to pay the fixed
, and everything in excess of the amount requiredto fund the annuities was already committed to the charities. Thus neither the trust nor theindividual annuitants would be in a position to claim an income tax charitable
. Thecharities received exactly what they would be entitled to receive, albeit about 43 years early.This being the case, why did the charities purchase the commercial
? Was this a hedgeagainst the possibility that the trust might become unable at some future date to pay thefixed annuities? The immediate effect of the charities' implicit obligation to purchase thesecommercial annuities is to increase the amounts the annuitants are receiving. Isn't thisprivate inurement or excess benefit? Doesn't this guarantee viatiate the concept that theincome beneficiary of a
can only look to trust assets for repayment?
Fifteen PLRs Approve Partial Termination of CRAThttps://www.charitableplanning.com/commentary/comments/1445830?sim...2 of 37/23/2012 10:22 AM