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§ 12.3 CHARITABLE REMAINDER UNITRUST RULESthat the assets are used for the individual’s benefit is the only circumstance inwhich the IRS will permit a trust to be an income interest beneficiary of a CRUTfor the duration of an individual’s life. 185 The IRS subsequently formalized thisposition in a revenue ruling. 186A trust is not a charitable remainder unitrust if any person has the power toalter the amount to be paid to any named person, other than a charitable organization,if that power would cause any person to be treated as the owner of thetrust or any portion of it. For example, in general, the governing instrument ofthe trust may not grant the trustee the power to allocate the fixed percentageamong members of a class. 187 (The grantor may, however, retain a testamentarypower to revoke or terminate the interest of an income beneficiary other than acharitable organization. 188 ) In contrast, this rule is not violated when the grantorreserves the right to remove the trustee for any reason and substitute any otherperson (including the grantor) as trustee. 189The IRS considered the following situation involving the qualification oftwo trusts as CRUTs. 190 The unitrust amount in one of these trusts was payableto the grantor for life, then to A for life, then to B for life. In the trust instrument,the grantor reserved the testamentary power to revoke the interests of A and B.The trust was to terminate following the death of the final survivor among thethree recipients or upon the earlier termination of the trust pursuant to itsinstrument. The trust was to terminate on the death of the grantor if any federalestate taxes or state death taxes for which the trust was determined to be liableupon the death of the grantor were not paid out of the estate of the grantor(other than the assets of the trust) or, if the estate failed to do so, by A or B.The trust instrument provided that A had the power, exercisable by his will orby written instrument delivered to the trustees of the trust during his life, to designatethe specific charitable organizations that would receive the remainder interest.If A failed to make this designation, then B had that right, and if B failed tomake the designation, then the grantor had that right. The grantor, A, and B weretrustees of the trust. The grantor had the right to remove any trustee and appoint asuccessor trustee. The second trust was identical to the first one, except for theorder in which A and B were entitled to receive the unitrust payments and to designatethe charitable organizations that would receive the remainder interest.The threshold issue, as to the qualification of these trusts, concerned the creationrequirement. 191 A related issue concerned application of the grantor trustrules. 192 As noted, the grantor could remove and replace the other trustees. Thetrust instrument, however, fixed the unitrust amount payable to the noncharitable185 See, e.g., Priv. Ltr. Rul. 9839024. A charitable remainder unitrust may, however, pay income amounts to asecond trust for a term of 20 years or less.186 Rev. Rul. 2002-20, 2007-17 I.R.B. 794.187 Reg. § 1.664-3(a)(3)(ii). In one instance, the IRS ruled that a trust would be disqualified as a CRUT if the trustdocument was amended to change the order in which the life income beneficiaries would receive payment.Priv. Ltr. Rul. 9143030.188 See § 12.3(e), note 199.189 Rev. Rul. 77-285, 1977-2 C.B. 213.190 Priv. Ltr. Rul. 9252023.191 See § 12.1(a) and (b), notes 17–53.192 These rules are the subject of § 3.7. 435