Foundation status of split-interest trusts that wind up

A split-interest trust will continue to be treated as a split-interest trust until the date final distribution of all the net assets is made, if all of the following conditions are met:

  1. All unexpired interests in the trust are charitable remainder interests.
  2. All charitable beneficiaries have become entitled to distributions of corpus in trust or free of trust.

If, however, after any intervening interests expire, the trust is considered terminated for federal income tax purposes, the trust will then be treated as a charitable trust rather than a split-interest trust between the date on which the trust is considered terminated and the date final distribution of all the net assets is made.  These provisions do not affect the determination of the tax liability of the beneficiaries of the trusts. 

Split-interest trusts that become charitable trusts.  A split-interest trust in which all of the unexpired interests are charitable remainder interests and in which charitable beneficiaries are not entitled to distributions of corpus will continue to be treated as a split-interest trust for a reasonable period of settlement after noncharitable interest expires.  A split-interest trust that under its terms is to continue to hold assets for charitable beneficiaries after the noncharitable interest expires rather than distributing them is allowed a reasonable period of time for settlement before being treated as a charitable trust.

 


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