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Sunday, July 30, 2017

Conversion of Charitable Lead Trust from Nongrantor Trust to Grantor Trust Does Not Provide a Charitable Deduction to the Grantor

In PLR 201730012, a charitable lead trust was converted from a nongrantor trust to a grantor trust by adding a power of substitution to the trust provisions. The taxpayer sought a charitable deduction for the deemed distribution from the trust to the grantor and transfer from the grantor to the trust, under the recognized principal that a grantor transferring property a charitable lead trust that is a grantor trust can receive a charitable deduction for the transfer.

Treasury declined to allow the deduction because in its view the conversion of a trust from a nongrantor trust to a grantor trust is not a transfer of property held by the trust for income tax purposes. Although I have not researched the issue, I am not aware of any clear authority on this issue, one way or the other, so taxpayers will have to make their own judgment call as to the proper answer to this question. Another PLR that addresses conversion of a nongrantor trust to a grantor trust is PLR 200923024. 


PLR 201730012 (July 28, 2017)

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