The Times They are Not A-Changin': Reforming the Charitable Split Interest Rules (Again)

Abstract:     
The article reviews the history of the tax treatment of charitable split interest gifts, explains the inequities that Congress both cured and generated in its 1969 reforms, and proposes solutions that are consistent with the goals of the 1969 legislation. The article discusses variations in the 1969 definition of a charitable split interest, which, because of the enacted statutory language, applies in instances where there is no abuse potential. The inequity produced by that definition penalizes the donor and flouts the rationale behind the 1969 legislation. By contrast, the creation of some required statutory forms of charitable split interests in trust, enacted to prevent abuse, have themselves created new opportunities for donors to evade taxes in ways unanticipated by the 1969 Act. In the spirit of the 1969 law, the article makes several recommendations, including proposals: (1) to modify the statutory definition of charitable split interest to provide an exception from the statutory requirements where there is no statutory mandate to calculate value by means of the actuarial tables under section 7520 and no abuse potential; and (2) to eliminate, or to restrict the tax avoidance aspects of, some of the charitable split interest in trust devices created in the 1969 legislation.

Keywords: charitable deduction, split interest, charitable remainder trust, charitable lead trust, 1969 Tax Reform Act, philanthropy, estate tax, gift tax, income tax

JEL Classifications: H2, H24, H26, H29, K19, K34, L39

Accepted Paper Series