§664 — Title 26 Internal Revenue Code | U.S. Code

§664 Charitable remainder trusts

Title 26 › Subtitle Subtitle A— - Income Taxes › Chapter CHAPTER 1— - NORMAL TAXES AND SURTAXES › Subchapter Subchapter J— - Estates, Trusts, Beneficiaries, and Decedents › Part PART I— - ESTATES, TRUSTS, AND BENEFICIARIES › Subpart Subpart C— - Estates and Trusts Which May Accumulate Income or Which Distribute Corpus › § 664

Last updated Apr 6, 2026|Official source

Summary

Lets people set up two special kinds of trusts that pay people now and give the rest to charity later. One kind pays a fixed dollar amount each year equal to at least 5% but no more than 50% of the trust’s initial value. The other pays a fixed percent of the trust’s value each year, again between 5% and 50%, with value figured each year. Payments can go to one or more people who are alive when the trust starts, and they can last for up to 20 years or for the life or lives of the people named. Only the required payments and certain allowed transfers may go to noncharities. After the payments stop, the remaining property must go to a qualified charity or be kept for a qualified charitable use. The charity’s remainder must be worth at least 10% of the trust value (measured by the special rules in section 7520). The trust itself is generally tax-exempt, but it must pay an excise tax equal to any unrelated business taxable income it has. When the trust pays a beneficiary, that money is treated in this order: first as ordinary income earned by the trust (not including capital gains), next as capital gains, then as other income, and last as a return of principal. The rules also let the trustee adjust payments in some years and treat certain contingencies as allowed for meeting the payout rules. For charitable gift value purposes, the remainder is figured assuming at least a 5% annual payout unless the trust requires a larger amount. Defined terms (one line each): charitable remainder annuity trust — trust that pays a fixed dollar amount each year; charitable remainder unitrust — trust that pays a fixed percentage of annual value; qualified gratuitous transfer — a narrow type of transfer of employer stock to an ESOP that meets many conditions; qualified employer securities — employer stock that meets the law’s limits; qualified contingency — a condition in the trust that may shorten payments but still counts as OK for meeting payout rules.

Title 26, §664

Internal Revenue Code — Source: USLM XML via OLRC

(a)Notwithstanding any other provision of this subchapter, the provisions of this section shall, in accordance with regulations prescribed by the Secretary, apply in the case of a charitable remainder annuity trust and a charitable remainder unitrust.

(b)Amounts distributed by a charitable remainder annuity trust or by a charitable remainder unitrust shall be considered as having the following characteristics in the hands of a beneficiary to whom is paid the annuity described in subsection (d)(1)(A) or the payment described in subsection (d)(2)(A):

(1)First, as amounts of income (other than gains, and amounts treated as gains, from the sale or other disposition of capital assets) includible in gross income to the extent of such income of the trust for the year and such undistributed income of the trust for prior years;

(2)Second, as a capital gain to the extent of the capital gain of the trust for the year and the undistributed capital gain of the trust for prior years;

(3)Third, as other income to the extent of such income of the trust for the year and such undistributed income of the trust for prior years; and

(4)Fourth, as a distribution of trust corpus.

(c)(1)A charitable remainder annuity trust and a charitable remainder unitrust shall, for any taxable year, not be subject to any tax imposed by this subtitle.

(2)(A)In the case of a charitable remainder annuity trust or a charitable remainder unitrust which has unrelated business taxable income (within the meaning of section 512, determined as if part III of subchapter F applied to such trust) for a taxable year, there is hereby imposed on such trust or unitrust an excise tax equal to the amount of such unrelated business taxable income.

(B)The tax imposed by subparagraph (A) shall be treated as imposed by chapter 42 for purposes of this title other than subchapter E of chapter 42.

(C)For purposes of this paragraph, the references in section 6212(c)(1) to section 4940 shall be deemed to include references to this paragraph.

(d)(1)For purposes of this section, a charitable remainder annuity trust is a trust—

(A)from which a sum certain (which is not less than 5 percent nor more than 50 percent of the initial net fair market value of all property placed in trust) is to be paid, not less often than annually, to one or more persons (at least one of which is not an organization described in section 170(c) and, in the case of individuals, only to an individual who is living at the time of the creation of the trust) for a term of years (not in excess of 20 years) or for the life or lives of such individual or individuals,

(B)from which no amount other than the payments described in subparagraph (A) and other than qualified gratuitous transfers described in subparagraph (C) may be paid to or for the use of any person other than an organization described in section 170(c),

(C)following the termination of the payments described in subparagraph (A), the remainder interest in the trust is to be transferred to, or for the use of, an organization described in section 170(c) or is to be retained by the trust for such a use or, to the extent the remainder interest is in qualified employer securities (as defined in subsection (g)(4)), all or part of such securities are to be transferred to an employee stock ownership plan (as defined in section 4975(e)(7)) in a qualified gratuitous transfer (as defined by subsection (g)), and

(D)the value (determined under section 7520) of such remainder interest is at least 10 percent of the initial net fair market value of all property placed in the trust.

(2)For purposes of this section, a charitable remainder unitrust is a trust—

(A)from which a fixed percentage (which is not less than 5 percent nor more than 50 percent) of the net fair market value of its assets, valued annually, is to be paid, not less often than annually, to one or more persons (at least one of which is not an organization described in section 170(c) and, in the case of individuals, only to an individual who is living at the time of the creation of the trust) for a term of years (not in excess of 20 years) or for the life or lives of such individual or individuals,

(D)with respect to each contribution of property to the trust, the value (determined under section 7520) of such remainder interest in such property is at least 10 percent of the net fair market value of such property as of the date such property is contributed to the trust.

(3)Notwithstanding the provisions of paragraphs (2)(A) and (B), the trust instrument may provide that the trustee shall pay the income beneficiary for any year—

(A)the amount of the trust income, if such amount is less than the amount required to be distributed under paragraph (2)(A), and

(B)any amount of the trust income which is in excess of the amount required to be distributed under paragraph (2)(A), to the extent that (by reason of subparagraph (A)) the aggregate of the amounts paid in prior years was less than the aggregate of such required amounts.

(4)If—

(A)any contribution is made to a trust which before the contribution is a charitable remainder unitrust, and

(B)such contribution would (but for this paragraph) result in such trust ceasing to be a charitable unitrust by reason of paragraph (2)(D),

(e)For purposes of determining the amount of any charitable contribution, the remainder interest of a charitable remainder annuity trust or charitable remainder unitrust shall be computed on the basis that an amount equal to 5 percent of the net fair market value of its assets (or a greater amount, if required under the terms of the trust instrument) is to be distributed each year. In the case of the early termination of a trust which is a charitable remainder unitrust by reason of subsection (d)(3), the valuation of interests in such trust for purposes of this section shall be made under rules similar to the rules of the preceding sentence.

(f)(1)If a trust would, but for a qualified contingency, meet the requirements of paragraph (1)(A) or (2)(A) of subsection (d), such trust shall be treated as meeting such requirements.

(2)For purposes of determining the amount of any charitable contribution (or the actuarial value of any interest), a qualified contingency shall not be taken into account.

(3)For purposes of this subsection, the term “qualified contingency” means any provision of a trust which provides that, upon the happening of a contingency, the payments described in paragraph (1)(A) or (2)(A) of subsection (d) (as the case may be) will terminate not later than such payments would otherwise terminate under the trust.

(g)(1)For purposes of this section, the term “qualified gratuitous transfer” means a transfer of qualified employer securities to an employee stock ownership plan (as defined in section 4975(e)(7)) but only to the extent that—

(A)the securities transferred previously passed from a decedent dying before January 1, 1999, to a trust described in paragraph (1) or (2) of subsection (d),

(B)no deduction under section 404 is allowable with respect to such transfer,

(C)such plan contains the provisions required by paragraph (3),

(D)such plan treats such securities as being attributable to employer contributions but without regard to the limitations otherwise applicable to such contributions under section 404, and

(E)the employer whose employees are covered by the plan described in this paragraph files with the Secretary a verified written statement consenting to the application of section 4978 and 4979A with respect to such employer.

(2)The term “qualified gratuitous transfer” shall not include a transfer of qualified employer securities to an employee stock ownership plan unless—

(A)such plan was in existence on August 1, 1996,

(B)at the time of the transfer, the decedent and members of the decedent’s family (within the meaning of section 2032A(e)(2)) own (directly or through the application of section 318(a)) no more than 10 percent of the value of the stock of the corporation referred to in paragraph (4), and

(C)immediately after the transfer, such plan owns (after the application of section 318(a)(4)) at least 60 percent of the value of the outstanding stock of the corporation.

(3)A plan contains the provisions required by this paragraph if such plan provides that—

(A)the qualified employer securities so transferred are allocated to plan participants in a manner consistent with section 401(a)(4),

(B)plan participants are entitled to direct the plan as to the manner in which such securities which are entitled to vote and are allocated to the account of such participant are to be voted,

(C)an independent trustee votes the securities so transferred which are not allocated to plan participants,

(D)each participant who is entitled to a distribution from the plan has the rights described in subparagraphs (A) and (B) of section 409(h)(1),

(E)such securities are held in a suspense account under the plan to be allocated each year, up to the applicable limitation under paragraph (7) (determined on the basis of fair market value of securities when allocated to participants), after first allocating all other annual additions for the limitation year, up to the limitation under section 415(c), and

(F)on termination of the plan, all securities so transferred which are not allocated to plan participants as of such termination are to be transferred to, or for the use of, an organization described in section 170(c).

(4)For purposes of this section, the term “qualified employer securities” means employer securities (as defined in section 409(l)) which are issued by a domestic corporation—

(A)which has no outstanding stock which is readily tradable on an established securities market, and

(B)which has only 1 class of stock.

(5)(A)If any portion of the assets of the plan attributable to securities acquired by the plan in a qualified gratuitous transfer are allocated to the account of—

(i)any person who is related to the decedent (within the meaning of section 267(b)) or a member of the decedent’s family (within the meaning of section 2032A(e)(2)), or

(ii)any person who, at the time of such allocation or at any time during the 1-year period ending on the date of the acquisition of qualified employer securities by the plan, is a 5-percent shareholder of the employer maintaining the plan,

(B)For purposes of subparagraph (A), the term “5-percent shareholder” means any person who owns (directly or through the application of section 318(a)) more than 5 percent of the outstanding stock of the corporation which issued such qualified employer securities or of any corporation which is a member of the same controlled group of corporations (within the meaning of section 409(l)(4)) as such corporation. For purposes of the preceding sentence, section 318(a) shall be applied without regard to the exception in paragraph (2)(B)(i) thereof.

(C)For excise tax on allocations described in subparagraph (A), see section 4979A.

(6)If the requirements of paragraph (3)(F) are not met with respect to any securities, there is hereby imposed a tax on the employer maintaining the plan in an amount equal to the sum of—

(A)the amount of the increase in the tax which would be imposed by chapter 11 if such securities were not transferred as described in paragraph (1), and

(B)interest on such amount at the underpayment rate under section 6621 (and compounded daily) from the due date for filing the return of the tax imposed by chapter 11.

(7)(A)For purposes of paragraph (3)(E), the applicable limitation under this paragraph with respect to a participant is an amount equal to the lesser of—

(i)$30,000, or

(ii)25 percent of the participant’s compensation (as defined in section 415(c)(3)).

(B)The Secretary shall adjust annually the $30,000 amount under subparagraph (A)(i) at the same time and in the same manner as under section 415(d), except that the base period shall be the calendar quarter beginning October 1, 1993, and any increase under this subparagraph which is not a multiple of $5,000 shall be rounded to the next lowest multiple of $5,000.

Notes & Related Subsidiaries

Inflation Adjusted Items for Certain YearsFor inflation adjustment of certain items in this section, see Internal Revenue Notices listed in a table under section 401 of this title.

Editorial Notes

Amendments

2018—Subsec. (g)(3)(E). Pub. L. 115–141 substituted “limitation under section 415(c)” for “limitations under section 415(c) and (e)”. 2015—Subsec. (e). Pub. L. 114–113 substituted “of interests” for “for purposes of charitable contribution” in heading and inserted at end of text “In the case of the early termination of a trust which is a charitable remainder unitrust by reason of subsection (d)(3), the valuation of interests in such trust for purposes of this section shall be made under rules similar to the rules of the preceding sentence.” 2006—Subsec. (c). Pub. L. 109–432 amended heading and text of subsec. (c) generally. Prior to amendment, text read as follows: “A charitable remainder annuity trust and a charitable remainder unitrust shall, for any taxable year, not be subject to any tax imposed by this subtitle, unless such trust, for such year, has unrelated business taxable income (within the meaning of section 512, determined as if part III of subchapter F applied to such trust).” Subsec. (g)(3)(E). Pub. L. 109–280 inserted “(determined on the basis of fair market value of securities when allocated to participants)” after “paragraph (7)”. 2001—Subsec. (g)(3)(E). Pub. L. 107–16, § 632(a)(3)(H)(i), substituted “applicable limitation under paragraph (7)” for “limitations under section 415(c)”. Subsec. (g)(7). Pub. L. 107–16, § 632(a)(3)(H)(ii), added par. (7). 2000—Subsec. (d)(1)(C), (2)(C). Pub. L. 106–554 struck out period after “(as defined by subsection (g))”. See 1997 Amendment notes below. 1998—Subsec. (d)(1)(C), (2)(C). Pub. L. 105–206 inserted “, and” at end. 1997—Subsec. (d)(1)(A). Pub. L. 105–34, § 1089(a)(1), inserted “nor more than 50 percent” after “not less than 5 percent”. Subsec. (d)(1)(B). Pub. L. 105–34, § 1530(c)(5), inserted “and other than qualified gratuitous transfers described in subparagraph (C)” after “subparagraph (A)”. Pub. L. 105–34, § 1089(b)(1), struck out “and” at end. Subsec. (d)(1)(C). Pub. L. 105–34, § 1530(a), which directed amendment of subpar. (C) by striking period at end and inserting “or, to the extent the remainder interest is in qualified employer securities (as defined in subsection (g)(4)), all or part of such securities are to be transferred to an employee stock ownership plan (as defined in section 4975(e)(7)) in a qualified gratuitous transfer (as defined by subsection (g)).”, was executed by making the insertion after “for such a use” to reflect the probable intent of Congress. Subpar. (C) did not contain a period after amendment by Pub. L. 105–34, § 1089(b)(1). See below. Pub. L. 105–34, § 1089(b)(1), struck out period after “for such a use”. Subsec. (d)(1)(D). Pub. L. 105–34, § 1089(b)(1), added subpar. (D). Subsec. (d)(2)(A). Pub. L. 105–34, § 1089(a)(1), inserted “nor more than 50 percent” after “not less than 5 percent”. Subsec. (d)(2)(B). Pub. L. 105–34, § 1530(c)(5), inserted “and other than qualified gratuitous transfers described in subparagraph (C)” after “subparagraph (A)”. Pub. L. 105–34, § 1089(b)(2), struck out “and” at end. Subsec. (d)(2)(C). Pub. L. 105–34, § 1530(a), which directed amendment of subpar. (C) by striking period at end and inserting “or, to the extent the remainder interest is in qualified employer securities (as defined in subsection (g)(4)), all or part of such securities are to be transferred to an employee stock ownership plan (as defined in section 4975(e)(7)) in a qualified gratuitous transfer (as defined by subsection (g)).”, was executed by making the insertion after “for such a use” to reflect the probable intent of Congress. Subpar. (C) did not contain a period after amendment by Pub. L. 105–34, § 1089(b)(2). See below. Pub. L. 105–34, § 1089(b)(2), struck out period after “for such a use”. Subsec. (d)(2)(D). Pub. L. 105–34, § 1089(b)(2), added subpar. (D). Subsec. (d)(4). Pub. L. 105–34, § 1089(b)(4), added par. (4). Subsec. (g). Pub. L. 105–34, § 1530(b), added subsec. (g). 1984—Subsec. (f). Pub. L. 98–369 added subsec. (f). 1976—Subsec. (a). Pub. L. 94–455 struck out “or his delegate” after “Secretary”.

Statutory Notes and Related Subsidiaries

Effective Date

of 2015 Amendment Pub. L. 114–113, div. Q, title III, § 344(b), Dec. 18, 2015, 129 Stat. 3115, provided that: “The amendment made by this section [amending this section] shall apply to terminations of trusts occurring after the date of the enactment of this Act [Dec. 18, 2015].”

Effective Date

of 2006 Amendment Pub. L. 109–432, div. A, title IV, § 424(b), Dec. 20, 2006, 120 Stat. 2974, provided that: “The amendment made by this section [amending this section] shall apply to taxable years beginning after December 31, 2006.” Pub. L. 109–280, title VIII, § 868(b), Aug. 17, 2006, 120 Stat. 1025, provided that: “The amendment made by this section [amending this section] shall take effect on the date of the enactment of this Act [Aug. 17, 2006].”

Effective Date

of 2001 AmendmentAmendment by Pub. L. 107–16 applicable to years beginning after Dec. 31, 2001, see section 632(a)(4) of Pub. L. 107–16, set out as a note under section 72 of this title.

Effective Date

of 1998 AmendmentAmendment by Pub. L. 105–206 effective, except as otherwise provided, as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 6024 of Pub. L. 105–206, set out as a note under section 1 of this title.

Effective Date

of 1997 Amendment Pub. L. 105–34, title X, § 1089(a)(2), Aug. 5, 1997, 111 Stat. 960, provided that: “The amendment made by paragraph (1) [amending this section] shall apply to transfers in trust after June 18, 1997.” Pub. L. 105–34, title X, § 1089(b)(6), Aug. 5, 1997, 111 Stat. 961, provided that: “(A) In general.—Except as otherwise provided in this paragraph, the

Amendments

made by this subsection [amending this section and section 2055 of this title] shall apply to transfers in trust after July 28, 1997. “(B) Special rule for certain decedents.—The

Amendments

made by this subsection shall not apply to transfers in trust under the terms of a will (or other testamentary instrument) executed on or before

July 28, 1997, if the decedent—“(i) dies before

January 1, 1999, without having republished the will (or amended such instrument) by codicil or otherwise, or “(ii) was on

July 28, 1997, under a mental disability to change the disposition of his property and did not regain his competence to dispose of such property before the date of his death.” Amendment by section 1530(a), (b), (c)(5) of Pub. L. 105–34 applicable to transfers made by trusts to, or for the use of, an employee stock ownership plan after Aug. 5, 1997, see section 1530(d) of Pub. L. 105–34, set out as a note under section 401 of this title.

Effective Date

of 1984 AmendmentAmendment by Pub. L. 98–369, applicable to transfers after Dec. 31, 1978, see section 1022(e)(2) of Pub. L. 98–369, set out as a note under section 2055 of this title.

Effective Date

Section applicable to transfers in trust made after July 31, 1969, see section 201(g)(5), set out as an

Effective Date

of 1969 Amendment note under section 170 of this title.

Savings Provision

For provisions that nothing in amendment by Pub. L. 115–141 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Mar. 23, 2018, for purposes of determining liability for tax for periods ending after Mar. 23, 2018, see section 401(e) of Pub. L. 115–141, set out as a note under section 23 of this title.

§664 Charitable remainder trusts

Summary

Title 26, §664

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