Philanthropy Puzzler

The “Philanthropy Puzzler” features 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 with “Philanthropy Puzzler” in the subject line.

Philanthropy Puzzler

A donor owns 30% of a ranch in Texas and wants to use it to fund a CRUT. His two brothers also own 30% each, and a nephew owns 10%―only they don’t actually own it. They have retitled the ranch in a C corporation and own shares in the corporation. The individuals have retained the mineral rights for themselves. The C corporation owns the land only. The donor wants to give his portion of the ranch to the CRUT prior to selling. Will he still be able to get charitable gift credit if he funds the CRUT with shares but maintains the mineral rights under the personal ownership? Doesn’t owning shares in the corporation also mean they own the property because they control the shares?

Puzzler Solution

If the split interest was created some time ago for a valid business purpose, the deduction should be allowed. The partial interest rule says there is no deduction where the donor gives less than their entire interest in the property or an undivided interest in the property. In this case, even though the donor owns both the C corporation, which owns the land, and he owns the mineral rights, if he uses his C shares to fund the CRUT, he is giving his entire interest. He doesn’t even have to give all his C shares. For example, if he owns 100 shares, he could use 50 to fund the CRUT. However, if the split interest was created for the purpose of retaining the mineral rights and giving the land to the CRUT, that might be a different situation. In Revenue Rule 76-523, the IRS said, “if the taxpayer created the partial interest for a reason other than the avoidance of the partial interest rules,” a deduction is allowed.

Submitted by Richard Bennett, Director of Trusts, Estates and Gift Planning at The University of Texas MD Anderson Cancer Center, July 31, 2019.

Posted in .