Charitable remainder unitrusts and annuity trusts traditionally terminate at the end of the trust term—e.g., the death of the last surviving beneficiary. Some trust beneficiaries want to terminate their trusts early, before the end of the specified term. On an early termination, the then trust assets are distributed to the "income" beneficiary(ies) and the charitable remainder organization measured by their respective actual interests in the CRT. For the IRS to approve an early termination, a number of requirements must be met. A recent letter ruling spells out those requirements.
After reporting on the ruling, this article will explain: (1) how to argue (at the IRS or in court) that the IRS's low-valuation position on termination of existing net-income-with-makeup charitable remainder unitrusts (NIMCRUT) is wrong; and (2) how to draft a new NIMCRUT as a flip charitable remainder unitrust (FLIPCRUT) to avoid having the low-valuation issue raised by the IRS on an early termination.
