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ESTATES, TRUSTS & GIFTS

Late allocation to CRUT allowed
In IRS Letter Ruling 202134005 The IRS has opined that the division
released Aug. 27, 2021, the taxpayer
requested an extension of time to al- or severance of a trust — at least, if
locate GST exemption to a charitable accomplished during the same tax year —
remainder unitrust (CRUT).
The donor created and funded the is a continuation of the old trust.
CRUT sometime after Sept. 24, 1985,
and before July 29, 1997. The CRUT tax professional employed by the tax- of a trust. While the IRS has ruled many
instrument provided for the annual payer, and the tax professional failed times on the tax consequences of this
payment of a unitrust amount for life to make, or advise the taxpayer to issue, this ruling addresses what happens
to the taxpayer’s grandchild. At the make, a regulatory election.¹ to the tax attributes of the original trust
grandchild’s death, the remainder of Based on the facts submitted and upon division.
the CRUT would be paid to a char- the representations made by the tax- The grantors created a trust for the
ity. The donor and the donor’s spouse payer, the IRS concluded that the re- benefit of their descendants. At the
elected to split gifts in the year the quirements of Regs. Sec. 301.9100-3 time of the proposed division, the trust
CRUT was created and hired an ac- were satisfied. As a result, the donor’s held limited liability company (LLC)
counting firm to prepare their gift tax executor and spouse were granted an member interests and limited partner
returns for that year. The accounting extension of 120 days from the date interests in entities that owned passive
firm failed to allocate GST exemption of the ruling to allocate their available investments and nonoperating oil and
to the CRUT. GST exemption to the transfer to gas working interests and related roy-
The donor died, and the executor the CRUT. alty interests.
of the donor’s estate and the donor’s This CRUT was created before The trust provided that the trustees
spouse were made aware of the GST the automatic allocation rules for had the discretion to make distributions
tax consequences of the unitrust pay- GST trusts came into existence in of income and principal for the benefi-
ments from the CRUT as the donor’s 2001;² otherwise, the taxpayers would ciaries’ support, maintenance, health, and
estate tax return was being prepared. not have had to make these requests, education. In addition, an independent
Upon realization of the error, the ex- as GST exemption would have been trustee could distribute to the beneficia-
ecutor of the taxpayer’s estate and the automatically allocated to the CRUT. ries so much of the income and principal
donor’s spouse requested an extension The transfer to the CRUT is not as the trustee determined. Upon the
of time pursuant to Sec. 2642(g) and a direct skip because the charity is death of the last of the grantors to die,
Regs. Sec. 301.9100-3 to allocate the always considered a nonskip person. the trustee was to divide the trust into
donor’s and his spouse’s GST exemp- Had the IRS not granted the taxpay- separate trusts, one for the benefit of
tion to the transfers to the CRUT and ers an extension of time to allocate each of the grantors’ children and that
requested that the GST exemption GST exemption to the CRUT, the child’s descendants.
allocated to the transfer would be ef- unitrust payments to the grandchild Upon the death of the first grantor,
fective on the date of the transfers. would have been taxable distribu- the second grantor and the children
Requests for relief under Regs. Sec. tions, which would have required the petitioned the court to have the trust
301.9100-3 will be granted when the grandchild to pay GST tax from the divided pro rata into separate trusts for
taxpayer provides evidence to estab- distribution he or she received from each of the children and their descen-
lish to the IRS’s satisfaction that the the CRUT. dants prior to the date provided in the
taxpayer acted reasonably and in good trust instrument, which did not prohibit
faith and that granting relief will not Trusts the early division of the trust.
prejudice the interests of the govern- Trust division preserves assets’ The ruling request requested the fol-
ment. A taxpayer is considered to have basis, other tax attributes lowing rulings, which were granted by
acted reasonably and in good faith if In IRS Letter Ruling 202133005 the IRS:
the taxpayer reasonably relied on a released Aug. 20, 2021, the IRS ruled 1. The pro rata transfer of assets from
qualified tax professional, including a on the tax consequences of the division the original trust to the newly created

1. Regs. Sec. 301.9100-3(b)(1)(v). 2. With Sec. 2632(c), enacted by the Economic Growth and Tax Relief Recon-
ciliation Act of 2001, P.L. 107-16.

26 January 2023 The Tax Adviser