Probate & Trust Law Section Conference Manual ... - Minnesota CLE

income exceeds the unitrust amount. IRC § 664(d)(3);
Treas. Reg. § 1.664-3(a)(1)(i)(b)(2).
iv.
Capital Gain NI-CRUT or NIM-CRUT. The trust
agreement defines trust income so as to include capital
gains on trust property that are attributable to appreciation
on the trust property after acquired by the trust. Treas. Reg.
§ 664-3-(a)(5)(i).
v. Flip CRUT. The trust begins as a NIM-CRUT or NI-
CRUT; however, it converts to a Standard CRUT in the
year following a predetermined “triggering event.” A
triggering event could include the sale of an unmarketable
asset, a specific date, or any other event outside the control
of the donor or another person, such as marriage, divorce,
death, and the birth of a child. Treas. Reg. § 1.664-
3(a)(1)(i)(c) and (d).
b. Annuity Amount. An “annuity amount” is equal to a fixed dollar
amount which must be at least 5% but not more than 50% of the
initial fair market value of the trust assets. A CRT that pays an
annuity amount is referred to a Charitable Remainder Annuity
Trust (a “CRAT”).
2. To satisfy the payment of the unitrust amount, the trustee of the CRT will
make payments from the trust principal to the extent that trust income is
insufficient (exempt with NI-CRUT or NIM-CRUT.
3. Generally, the trustee of a CRT must make the annual payments within the
trust’s taxable year. The Internal Revenue Service provides a grace period
for late payments in certain limited circumstances. Treas. Reg. §§ 1.664-
2(b), 1.664-3(h).
E. Recipients of Annual Payments.
1. The annual unitrust or annuity payments must be made to one or more
noncharitable beneficiaries. Permissible non-charitable beneficiaries
include individuals, and also include trusts and corporations so long as the
trust only lasts for a term of years. Priv. Ltr. Rul. 9340043.
2. Generally, individual beneficiaries must be alive when the donor creates
the trust. Treas. Reg. 1.664-2(a)(3).
3. Common income beneficiaries include the donor and the donor’s spouse,
sometimes for their joint lifetimes.
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