Jan 1, 2006 12:00 PM, By Charles A. Redd, partner, Sonnenschein Nath & Rosenthal LLP, St. Louis

By: By Charles A. Redd, partner, Sonnenschein Nath & Rosenthal LLP, St. Louis

Revenue Procedure 2005-24¹ — published April 18, 2005 and effective as of March 30, 2005 — is among the most controversial rulings promulgated by the Internal Revenue Service in recent memory. It has been roundly criticized by estate planners and their organizations for characterizing an innocuous fact pattern as problematic, for introducing new problems where none previously existed and for prescribing an inadequate and unworkable procedure to avoid potentially draconian tax consequences.² It is ironic that Rev. Proc. 2005-24 has generated such upheaval, given that the IRS crafted it in an apparently genuine effort to apprise the public of what the Service viewed as an insidious trap for the unwary and to facilitate avoidance of that trap.³

The facts upon which Rev. Proc. 2005-24 is based are simple. An individual, referred to as the grantor (G), creates and funds an inter vivos trust intended to qualify as a charitable remainder trust (CRT) under Internal Revenue Code Section 664(d). G dies survived by a spouse (S). At death, G resides in a state whose law provides that S has a right of election to receive a statutory share of G's estate.⁴ Under that state's law, G's estate, for purposes of determining the extent of property from which S may exercise his right of election, includes not only the assets composing G's probate estate but also assets that were the subject of certain inter vivos transfers by G, including the transfer by G that funded the trust.⁵

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