Contents

§ 12.1 DEFINITIONSA trust is not a CRT if the trust instrument includes a provision thatrestricts the trustee from investing the trust assets in a manner that couldresult in the annual realization of a reasonable amount of income or gain fromthe sale or disposition of trust assets. 32 It has been held that this rule does notpreclude a bank, in its capacity as a trustee of a CRT, from investing the assetsof the trust in common trust funds maintained by the bank. 33 Similarly, thisrule does not prevent the charitable remainder beneficiary, as trustee of charitableremainder trusts, from investing the assets of the trusts in its generalendowment fund. 34In contrast, the IRS ruled that a trust did not qualify as a CRT when thegrantor of the trust contributed to the trust a collection of antiques, in additionto income-producing assets, at the time of its creation. The governing instrumentof the trust provided that the grantor’s spouse, who was the sole income beneficiaryof the trust for her life, would have use of the antique collection for her life.At her death, the antique collection and all of the remaining assets in the trustwere to be distributed to a charitable organization. The IRS held that the retentionof the life estate in the antique collection for the grantor’s spouse restrictedthe trustee from investing all the trust assets in a manner that could result in theannual realization of a reasonable amount of income or gain from the sale or dispositionof trust assets; therefore, the trust did not qualify as a CRT. 35There is no statutory limitation on the number of income beneficiaries a CRTmay have. As a practical matter, however, the larger the income interest, thelesser the remainder interest, 36 so the extent of the charitable contribution deductionserves as a restraint on the number of these beneficiaries. Nonetheless, theIRS approved a CRUT that was to pay the unitrust amount in the followingsequence: to the grantor for her life, then on her death in equal shares to A and B,then on the death of either of them to their survivor, then on the death of this survivorto C and D in equal shares, and then, following the death of C or D, to theirsurvivor. 37For a trust to be a CRT, it must meet the definition of, and function exclusivelyas, a CRT from the creation of the trust. For this purpose, the trust will be deemedto be created at the earliest time that neither the grantor nor any other person istreated as the owner of the entire trust under the grantor trust rules, 38 but in noevent prior to the time property is first transferred to the trust. Neither the grantornor his or her spouse is treated as the owner of the trust merely because thegrantor or his or her spouse is named as an income interest beneficiary. 39For federal estate tax purposes, a CRT is deemed to be created on the date ofdeath of the decedent (even though the trust is not funded until the end of a reasonableperiod of administration or settlement) if the obligation to pay the annuity32 Reg. § 1.664-1(a)(3).33 Rev. Rul. 73-571, 1973-2 C.B. 213.34 Rev. Rul. 83-19, 1983-1 C.B. 115. The IRS ruled that a trustee could borrow from the assets of an insurancepolicy held by a charitable remainder trust without disqualifying the trust. Priv. Ltr. Rul. 8745013.35 Rev. Rul. 73-610, 1973-2 C.B. 213.36 See § 12.11.37 Priv. Ltr. Rul. 9652011.38 See § 3.7.39 Reg. § 1.664-1(a)(4). 411