Rp 2005-24

26 CFR § 601.105: Examination of returns and
claims for refund, credit, or abatement; determination of correct tax liability.
(Also Part I, §§ 664; 1.664–1, 1.664–2, 1.664–3.)

Rev. Proc. 2005–24
SECTION 1. PURPOSE AND SCOPE
.01 This revenue procedure applies
to any charitable remainder annuity trust
(CRAT) or charitable remainder unitrust
(CRUT) that is created by the grantor, G,
if, under applicable state law, G’s surviving spouse, S, has a right of election
exercisable on G’s death to receive an
elective, statutory share of G’s estate, and
such share could be satisfied in whole or
in part from assets of the CRAT or CRUT
in violation of § 664(d)(1)(B) or (d)(2)(B)
of the Internal Revenue Code. In general,
only inter vivos CRATs or CRUTs are
within the scope of this revenue procedure.
.02 This revenue procedure provides
a safe harbor procedure under which the
Internal Revenue Service will disregard
the right of election for purposes of determining whether the CRAT or CRUT
meets the requirements of § 664(d)(1)(B)
or (d)(2)(B) continuously since its creation
if S irrevocably waives the right of election in the manner prescribed in this revenue procedure. For trusts created before
June 28, 2005, the Service will disregard
the right of election, even without a waiver,
but only if S does not exercise the right of
election.
.03 The safe harbor procedure provided
by this revenue procedure is not available
to a CRAT or CRUT if S exercises the right
of election.
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

April 18, 2005

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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.04 The Service believes that, in the interest of sound tax administration and to
reduce the burden on taxpayers, it is appropriate to provide a safe harbor procedure that, if followed, will cause the right
of election to be disregarded for purposes
of determining whether a CRAT or CRUT
that is within the scope of this revenue procedure meets the requirements of § 664(d)
continuously from the date the trust is created. This procedure generally requires
that S irrevocably waive the right of election with regard to the assets of the CRAT
or CRUT to ensure that no part of the trust
will be used to satisfy the elective share.
.05 No waiver of the right of election is
required if the applicable state law does not
provide S with a right of election, exercisable at the time of G’s death, to receive an
elective share of G’s estate. For example,
in community property jurisdictions, elective share provisions are generally unnecessary because S typically has vested ownership in one-half of the community property. Additionally, no waiver is required
if, under applicable state law, S’s elective
share of G’s estate may not include any
assets of the CRAT or CRUT (other than
the annuity or unitrust interest payable to S
as the named recipient). For example, no
waiver is required if, under applicable state
law, the trust’s property is excluded from
the base for computing the elective share
by reason of G’s receipt of adequate and
full consideration for the transfer or the
written consent to or joinder in the transfer by S and, in fact, the consideration is
paid or the consent or joinder is given.
SECTION 3. APPLICATION OF SAFE
HARBOR
.01 In General. With respect to any
CRAT or CRUT within the scope of this
revenue procedure, S’s right of election
to receive an elective share of G’s estate,
if the share could include any assets of a
CRAT or CRUT created or funded by G,
will be disregarded for purposes of determining whether the CRAT or CRUT has
met the requirements of § 664(d)(1)(B) or
(d)(2)(B) continuously since its creation
if all of the requirements of section 3 of
this revenue procedure are satisfied. For
CRATs and CRUTs within the scope of this
revenue procedure created by G on or after June 28, 2005, the failure of S to waive
the right of election in accordance with

2005–16 I.R.B.

the requirements of this revenue procedure
will result in the CRAT or CRUT failing to
qualify under § 664(d) continuously since
its creation, whether or not S exercises the
right of election. For CRATs and CRUTs
within the scope of this revenue procedure
created by G before June 28, 2005, the failure of S to waive the right of election, combined with S’s exercise of that right of election, will result in the CRAT or CRUT failing to qualify under § 664(d) continuously
since its creation. Thus, for all CRATs
and CRUTs, regardless of when they were
created, a waiver under this revenue procedure of S’s right of election will provide certainty that the right of election will
not cause the trust to fail to qualify under
§ 664(d) continuously since its creation.
.02 Waiver Effective Under State Law.
S must irrevocably waive the right of election to whatever extent necessary to ensure that no part of the trust (other than
the annuity or unitrust interest of which S
is the named recipient under the terms of
the trust) may be used to satisfy the elective share. A valid waiver of the elective
share or right of election will satisfy the
requirements of the preceding sentence if
the waiver is valid under applicable state
law, in writing, and signed and dated by S.
This revenue procedure does not require a
waiver of S’s right as the named recipient
to receive the annuity or unitrust payment
from the CRAT or CRUT.
.03 Timing of Waiver. For CRATs or
CRUTs created by G on or after June 28,
2005, section 3.02 of this revenue procedure must be satisfied on or before the date
that is 6 months after the due date (excluding extensions of time to file actually
granted) of Form 5227, Split-Interest Trust
Information Return, for the year in which
the later of the following occurs:
(1) the creation of the trust;
(2) the date of G’s marriage to S;
(3) the date G first becomes domiciled
or resident in a jurisdiction whose law provides a right of election that could be satisfied from assets of the trust; or
(4) the effective date of applicable state
law creating a right of election.
.04 Trustee To Retain Copy. A copy
of the signed waiver must be provided to
the trustee of the CRAT or CRUT. The
trustee must retain the copy in the official
records of the trust so long as the contents
thereof may become material in the administration of any internal revenue law. See

2005–16 I.R.B.

§ 1.6001–1(e) of the Income Tax Regulations.
SECTION 4. EXAMPLES
In each of the following examples, G
created a CRAT that provides an annuity to
G for G’s life. Upon G’s death, the remainder of the trust will pass to an organization
that meets the requirements of § 170(c). In
each example (except Example 3), at the
time the CRAT is created, applicable state
law provides S a right of election to receive an elective share of G’s estate and
the share would include (and could be satisfied from) assets of the trust.
.01 Example 1. G creates the trust in
2007 while married to S. On or before the
date that is 6 months after the due date (excluding extensions of time to file actually
granted) of the Form 5227 for the trust for
calendar year 2007, S irrevocably waives
S’s right of election to receive an elective
share with regard to the assets in the trust
(but does not waive the right of election
with regard to G’s probate estate).
.02 Example 2. G creates the trust in
2006, and is unmarried on the date the trust
is created. On May 1, 2007, G marries
S. On or before the date that is 6 months
after the due date (excluding extensions of
time to file actually granted) of the Form
5227 for the trust for calendar year 2007, S
irrevocably waives the right of election to
receive an elective share with regard to the
assets in the trust (but does not waive the
right of election with regard to G’s probate
estate).
.03 Example 3. G creates the trust in
2008 while married to S. Under applicable state law in effect on the date that G
creates the trust, the elective share does
not include the assets in the trust. Effective on March 1, 2009, applicable state law
is amended to give S the right of election
to receive an elective share of the “augmented estate,” which, by definition, includes the assets of the trust. On or before the date that is 6 months after the due
date (excluding extensions of time to file
actually granted) of the Form 5227 for the
trust for calendar year 2009, S irrevocably
waives the right of election to receive an
elective share with regard to the assets in
the trust (but does not waive the right of
election with regard to G’s probate estate).
In each of Examples 1 through 3, assuming that S’s timely waiver of the right

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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).
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective as
of March 30, 2005.

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SECTION 6. PAPERWORK
REDUCTION ACT
The collection of information contained in this revenue procedure has been
reviewed and approved by the Office
of Management and Budget in accordance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number
1545–1936.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
OMB control number.
The collection of information in this
revenue procedure is in section 3. This
information is required to be collected
and retained in order to ensure that a trust

April 18, 2005

meets the requirements of § 664(d)(1) or
(d)(2). This information will be used to
determine whether the eligibility requirements under those statutes for treatment
as a CRAT or CRUT have been met. The
collection of information is required to
obtain a benefit. The likely respondents
are individuals.
The estimated total annual reporting
burden is 150,000 hours.
The estimated annual burden per respondent varies from 1 hour to 2 hours, depending on individual circumstances, with
an estimated average burden of 11/2 hours
to complete the statements required under this revenue procedure. The estimated
number of respondents is 100,000.
The estimated annual frequency of responses is on occasion.

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Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any Internal Revenue
law. Generally, tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.
SECTION 7. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Susan H. Levy. For further information regarding this revenue
procedure, contact Susan H. Levy at
(202) 622–3090 (not a toll-free call) or
Bradford R. Poston at (202) 622–3060
(neither a toll-free call).

2005–16 I.R.B.