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IRS extension helps charitable remainder trusts – now

Under the laws of most states, a surviving spouse has a right of election to renounce a deceased spouse’s Will and take his or her statutory share of his or her deceased spouse’s estate. Even if the deceased spouse died without a Will, the surviving spouse is still entitled to take his or her statutory share of the estate. This right of election produced unexpected results if the deceased spouse had created a charitable remainder trust (CRT) during his or her lifetime, at least in those states where such trusts are subject to the surviving spouse’s statutory share rights.

In those states, a surviving spouse could claim a statutory share of the CRT at the donor’s death, preventing its assets from passing to charity.

Thus, the deceased spouse’s estate is disqualified from receiving a charitable deduction for the CRT assets passing to charity at death, simply because of the surviving spouse’s statutory share rights.

To address this issue, in March 2005, the Internal Revenue Service issued a Revenue Procedure requiring the donor’s spouse to waive the statutory share of the CRT in order to preserve the charitable deduction. In February 2006, the IRS backtracked on this highly unpopular requirement. The safe harbor now postpones the effective date of the waiver requirement until the IRS issues further guidance. If a spouse actually exercises a statutory share right against a CRT, it still will likely be disqualified.



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