Philanthropy Puzzler

In a new regular feature for Give & Take, the “Philanthropy Puzzler” will feature gift questions fundraisers may encounter in the field, followed by solutions from our panel of experts. If you would like to send us your own “puzzler,” please email us at info@SHARPEnet.com with “Philanthropy Puzzler” in the subject line.

Philanthropy Puzzler

Virginia is in the process of reviewing her estate plan following the recent death of her husband. Her only child, Benjamin, is intellectually disabled. She would like to include a bequest to charity but wants to ensure that Benjamin receives financial support for the remainder of his lifetime. Virginia has considered a charitable remainder trust that would make lifetime payments to Benjamin, but she does not want payments to be made directly to him as he is incapable of handling his financial affairs. She has asked whether there is any other way to structure the trust payout.

Puzzler Solution

Normally, a charitable remainder trust must be payable to or for the use of one or more named “persons.” IRC Code §7701(a)(1) defines person to include a trust, although if a noncharitable trust is the beneficiary, the charitable remainder trust must normally be for a limited time period (not to exceed 20 years). However, where the life income beneficiary is not competent and the only function of the noncharitable trust is to receive and administer payments from the charitable remainder trust, the payments will be deemed as received directly by the beneficiary (rev. rul. 76-270) and the trust can last for the beneficiary’s lifetime. Virginia could therefore have payments from the remainder trust pass to a special needs trust established for Benjamin. ■

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