Rev. Proc. 2005-24 requires spousal waiver to avoid CRT disqualification.

The IRS recently issued controversial Rev. Proc. 2005-24, requiring spousal waivers to avoid disqualification of certain charitable remainder trusts (CRTs), regardless of whether they are charitable remainder annuity trusts or unitrusts.

Background

Virtually all common law states provide a statutory right to a surviving spouse, allowing him or her to elect to receive a statutory portion of the probate estate of u deceased spouse in lieu of amounts bequeathed to the survivor under the decedent's testamentary plan. Some states have gone further, enacting "augmented share" provisions that allow claims against assets outside the probate estate (such as lifetime gifts or inter virus trusts). The IRS is concerned that such statutes could result in a surviving spouse having a claim against assets otherwise passing to a charity via a CRT.

New Rule

Accordingly, Rev. Proc. 2005-24 requires u spouse to affirmatively waive the right to elect against CRT property for all CRTs created after June 27, 2005 in states with augmented share provisions. Existing CRTs can also be affected if u surviving spouse actually exercises a right of election under a state statute.

Strategy

Rev. Proc. 2005-24 has the potential to put tax advisers at great risk if a waiver is not obtained, as it will disqualify a CRT. AICPA Tax Division members with clients owning or interested in CRTs are encouraged to read the procedure carefully to identify situations in which immediate action may be required. The AICPA Tax Division's Trust, Estate and Gift Tax TRP's CRT Task Force continues to analyze this procedure and is considering commenting to the IRS.

by Steven A. Thorne, CPA, Deloitte Tax LLP, Chicago, IL, and Vice Chair, AICPA Tax Division's Trust, Estate and Gift Tax Technical Resource Panel (TRP), and Eileen Sherr, CPA, MT, AICPA Tax Division Technical Manager