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Instead, it looked at the factors originally used to allocate the expenses of a trust to the account of a remainderperson (the capital beneficiary) as opposed to those allocated to the account of a life beneficiary (the income beneficiary).
Under IRC Section 2702, the grantor is treated as though he transferred the entire property to the remainderperson at the time of the creation of the GRIT since his retained income interest is valued at zero (except with respect to the personal residence exception or unless the remainderperson is not a member of the transferor's family).
Treasury regulations permit the transfer of trust principal or excess income to the charitable remainderperson prior to the conclusion of the measuring term of the trust.
The IRS has privately ruled that the donor/unitrust recipient of a CRUT could donate his entire unitrust interest in an existing CRUT to the charitable remainderperson in consideration for a gift annuity that would be payable to him.
the value of the property is discounted for the fact that it will not be available to the remainderperson for many years).
Because there will be a larger value from which to determine the individual's unitrust payments in retirement, and because additional distributions can be recouped from the NIMCRUT's make-up account, supplemental income from the NIMCRUT can be maximized without an adverse impact on the amount ultimately passing to the charitable remainderperson.
In the ruling, the IRS stated, "[u]nder this provision, a grantor will not make an additional gift to a remainderperson in situations in which a grantor is treated as the owner of a trust under [Sec.
4) Qualified tangible property is tangible property (1) for which a depreciation or depletion allowance would not be allowable if the property were used in a trade or business or held for the production of income, and (2) as to which the nonexercise of any rights under the term interest would not affect the value of the property passing to the remainderperson.
The gift tax cost is exactly the same as if the grantor had made a direct gift of the property to the remainderpersons.
Under the Revised Uniform Principal and Income Act, the trustee could then allocate some of that appreciation to income to make up for the smaller yield, subject to the trustee's fiduciary duty to treat the income beneficiary and the remainderpersons fairly.
The trustees had only those powers that the trust instrument expressly granted, which were typically few, since the trustees' job was simply to hold and then to convey to the remainderpersons.
If the holder of a right to make a current withdrawal from the trust allows the amount the holder could take to instead stay inside the trust, the holder is really making a gift to those who will eventually receive those amounts, the trust's remainderpersons.