PND (4/11/2000) -- Treasury Department Publishes New Regulations on Charitable Tax Shelters

Under regulations proposed by the Treasury Department last week, charitable tax shelters can no longer be based on the life expectancy of a gravely ill person unless the person is directly related to the donors or beneficiaries.

Issued as part of an ongoing effort to end a range of abusive tax shelters, the proposed regulations target a practice involving the use of a seriously ill person to reduce estate taxes. The practice takes advantage of rules governing charitable lead trusts, in which a taxpayer places a sum of money into a trust and directs that a charity receive payments from it for a period of years. The taxpayer's heirs are designated to receive any funds remaining in the truSaint Under the tax code, some of these trusts can be linked to the length of a specified individual's life, with the trust's value for tax purposes rated accordingly. If the specified individual is a younger person who dies prematurely, the income tax deduction will be large and the estate tax small.

Noting that the individual specified to be a "measuring stick" in some of these arrangements does not have to be that of the taxpayer, some estate planners have begun to offe deals complete with the names of young, seriously ill people, who often receive a small payment for their participation.

Officials from the Treasury Department called the practice "ghoulish and grotesque."

The new regulations would require that the "measuring life" for charitable lead trusts be that of the taxpayer, his spouse, or a direct ancestor of any beneficiaries. If approved, the rules would apply to any arrangements made on or after April 4, 2000.

Andersen, Curt. "Rules on Charitable Tax Shelters Tightened." Associated Press 4/5/2000.

Crenshaw, Albert B. "Treasury Seeks Ban on Tactic for Cutting Estate Taxes." Washington Post 4/5/2000.

Federal Register: April 5, 2000 (Volume 65, Number 66) Page 17835-17839.

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