Judges: GREG ABBOTT, Attorney General of Texas
Filed Date: 3/12/2004
Status: Precedential
Modified Date: 7/6/2016
Mr. Benton Cocanougher Interim Chancellor The Texas A M University System A M System Building, Suite 2043 200 Technology Way College Station, Texas 77845
Re: Whether The Texas A M University System is authorized to administer charitable remainder trusts (RQ-0110-GA)
Dear Mr. Cocanougher:
You ask whether The Texas A M University System (the "A M System") is authorized to administer charitable remainder trusts.
You inform us that the A M System is considering administering charitable remainder trusts established to comply with section 664 of the Internal Revenue Code and Internal Revenue Service regulations.1 As we understand these trusts, a donor irrevocably transfers assets to a charitable trust that is administered by a trustee. The donor may be eligible to take a charitable income tax deduction for the gift.2 The trust pays income to the donor and/or other beneficiaries, at least one of which is not a charitable entity, for the lifetime of the noncharitable income beneficiaries or for a specific term. Upon termination of the trust (either upon the death of the noncharitable income beneficiaries or at the end of a term of years), the trustee distributes the amount remaining in the trust to one or more charitable entities or uses the trust for a charitable purpose.See Request Letter, supra note 1, at 1; I.R.C. § 664; seegenerally 34 Am. Jur.2d Federal Taxation (2003) ¶¶ 19206-07. Section 664 of the Internal Revenue Code provides for two types of charitable remainder trusts: Charitable Remainder Annuity Trusts (CRATS), for which the income payment is a fixed amount that does not change from year to year,3 and Charitable Remainder Unitrusts (CRUTS), for which the income payment is a fixed percentage of the trust assets' annual fair market value and thus changes each year depending on the trust's market value.4
You explain that the A M System's duties in administering a charitable remainder trust would include "calculating the interest of the . . . donor" and making "ongoing calculations . . . to determine the annual payment to the beneficiary of CRUTS as well as the tax classification of the distributions to any non-charitable beneficiary." Request Letter, supra note 1, at 1. You state that although "once in place these vehicles are fairly straightforward, more complex versions would call for fairly sophisticated decision-making by the fiduciary." Id.
In support of the A M System's position that it is authorized to administer charitable remainder trusts, The University of Texas System (the "UT System") has submitted a brief describing its charitable remainder trust program.5 The UT System informs us that it has administered CRATS and CRUTS for over 30 years and that it currently administers over 40 charitable remainder trusts with a combined value of over $32 million. See UT System Brief, supra note 5, at 2, 4. The UT System contracts with The University of Texas Investment Management Company (UTIMCO)6 to manage such trusts "[t]o insure invested trust assets result in a reasonable amount of income or gain from the sale or disposition of the assets."Id. at 3. "In addition to managing and investing the funds . . ., UTIMCO satisfies all federal filing requirements and provides annual accountings to the noncharitable beneficiaries." Id. at 4. The UT System informs us that its board of regents' rules require that in order for that system to administer a charitable remainder trust, "[a] minimum of $50,000 in principal is needed" and the system or one of its component institutions must receive at least 50 percent of the remainder interest. See id. at 3. The UT System asserts that these charitable remainder trusts "will provide much needed future support for the component institutions of the U.T. System." Id. at 4.
In addition to the administrative duties described by the A M and UT Systems, a trustee also has certain legal duties and obligations imposed by the Texas Trust Code.7 See Tex. Prop. Code Ann. §§
We address the A M System's general authority under the Education Code and other law to accept and administer charitable remainder trusts and to act as trustee for such trusts. You do not specify whether the A M System's work in connection with these trusts would include business activities that might be regulated by other law, and we do not consider whether the A M System must comply with any other such law in engaging in such activities.8 Furthermore, in answering your query, we assume that the A M System would pay charitable remainder trust beneficiaries income payments from trust assets, as opposed to public funds, and that the A M System would receive adequate compensation for administering a trust. Thus, we do not consider any issues that might arise with respect to the A M System expending public funds in connection with administering a charitable remainder trust.9 Finally, we also assume that the A M System or one of its component institutions would receive the remainder (or a substantial portion of the remainder) of any charitable remainder trust administered by the A M System and that the A M System would ultimately benefit from any such trust.
You specifically ask about the A M System's authority under section
(a) Donations of property may be made and accepted by the board for the purpose of establishing or assisting in the establishment of a professorship, chair, or scholarship in the university system or any of its component institutions or for creating in the university system or any of its component institutions any trust for any lawful, educational, or charitable purpose, either temporarily or permanently, and the donations or trusts thereby created will be governed by the rules prescribed by this section.
(b) The legal title to the property shall be vested in the board acting as an entity, or the State of Texas, to be held in trust for the purpose under any directions, limitations, and provisions that may be declared in the donation or trust agreement, not inconsistent with the objectives and proper management of the system or its component institutions.
(c) The donor may declare and direct the manner in which the title to the property shall thereafter be transmitted from the trustee in continued succession, to be held for and appropriated to the declared purposes.
(d) The donor may declare and direct the person or class of persons who shall receive the benefit of the donation and the manner of their selection.
(e) The declarations, directions, and limitations shall not be inconsistent with the objects and proper management of the system or its institutions.
(f) The title to the property donated shall be received, and the trust conferred in the donation shall be assumed, subject to laws that may be passed and carried into effect from time to time which may be necessary to prevent the loss of or damage to the property donated or an abuse or neglect of the trust so as to defeat, materially change, or prevent the objects of the donation.
(g) Copies of the donation shall be filed with the board.
Tex. Educ. Code Ann. §
Section 85.30(a) authorizes the board of regents to accept property donations "for the purpose of establishing . . . a professorship, chair, or scholarship in the university system or any of its component institutions or for creating in theuniversity system or any of its component institutions any trust for any lawful, educational, or charitable purpose." Id. § 85.30(a) (emphasis added). It is not clear to us that a charitable remainder trust, which will have at least one noncharitable income beneficiary and will not be distributed to the A M System until the death of the income beneficiaries or at the end of a specific term, is a trust "creat[ed] in the university system" as contemplated by this provision. See id. (emphasis added); see also id. § 85.30(b)-(c), (f). Furthermore, section 85.31 broadly authorizes the board to "charge administrative fees for services rendered in the management and administration of any trust estate," but does not itself authorize the A M System to act as trustee. Thus, in order to answer your question, we look beyond sections 85.30 and 85.31.
The A M System is governed by a board of regents, to which chapter 85 of the Education Code grants broad authority. See id.
§ 85.11 (government of the A M System "is vested in a board of nine regents"); see also id. § 85.01(2) (for chapter 85 purposes "board" means "the board of regents of The Texas A M University System"). Section
More specifically, chapter 85 expressly authorizes the A M System to accept and administer gifts. Section 85.21(b) provides that the board of regents "is specifically authorized, upon terms and conditions acceptable to it, to accept and administer gifts, donations, grants, and endowments, from any source, for use by the system or any of the components of the system." Tex. Educ. Code Ann. §
In addition, other laws recognize the authority of state institutions of higher education to hold property in trust. Subchapter A of chapter 51 of the Education Code, which governs funds of institutions of higher education, including the A M System, generally recognizes governing boards' authority to hold and invest donations and gifts, including trust funds. See Tex. Educ. Code Ann. §
Finally, chapter 182 of the Finance Code regulates state trust companies, which include entities that act as trustee under a written agreement or that receive money and other property in a trustee capacity to invest. See Tex. Fin. Code Ann. §
Taken together, these provisions clearly recognize the authority of a state institution of higher education to act as a trustee and to hold property in trust. While it is not clear whether section
Very truly yours,
GREG ABBOTT Attorney General of Texas
BARRY McBEE First Assistant Attorney General
DON R. WILLETT Deputy Attorney General for Legal Counsel
NANCY S. FULLER Chair, Opinion Committee
Mary R. Crouter Assistant Attorney General, Opinion Committee
(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.
Id. § 664(d)(1).
(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,
(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) 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.
Id. § 664(d)(2).