Contents

CHARITABLE REMAINDER TRUSTSA trust does not qualify as a CRUT if any person has the power to alter theamount to be paid to any named person, other than a charitable organization, ifthe power would cause any person to be treated as the owner of the trust, or aportion of it, under the grantor trust rules. 251 A grantor is treated as the owner ofany portion of a trust in respect of which the beneficial enjoyment of the corpusor income from it is subject to a power of disposition exercisable by the grantoror a nonadverse party, or both, without the approval or consent of any adverseparty. 252 This rule does not apply, however, to a power, regardless of who holdsit, to determine the beneficial enjoyment of the corpus or income from it if thecorpus or income is irrevocably payable for a charitable purpose. 253A power held by a grantor or a nonadverse party to choose between charitablebeneficiaries or to affect the manner of their enjoyment of a beneficial interestwill not cause the grantor to be treated as the owner of a portion of the trust. 254The IRS previously observed that a power retained by the grantor of an otherwisequalifying CRT to designate a substitute charitable organization as a remainderinterest beneficiary is not a power that disqualifies the trust as a CRT for federalincome tax purposes. 255In this case, however, the powers reserved by the grantors were more extensive:they could not only revise the list of charitable beneficiaries, but they couldalso change the proportion of the remainder that would pass to any particularcharitable organization. Inasmuch as these powers are embraced by the exceptionto the grantor trust rules, the IRS was enabled to then hold that the powersdid not adversely affect the trust’s qualification as a CRT.An otherwise qualifying CRT that authorizes the grantor to remove thetrustee for any reason and substitute any person, including himself or herself, isnot disqualified, as long as the trustee does not have the discretion to allocatethe specified distribution among the income beneficiaries. 256 In the case, the IRSruled that, because the trust instrument fixed the proportion of the unitrustamount distributable to each grantor, the trustees did not have the discretion toallocate this amount between the grantors. Thus, the authority of the grantors ortheir child under the trust agreement to serve as trustees was held not to causeeither grantor to be treated as an owner of any portion of the trust. That, in turn,enabled the IRS to rule that the service as trustees by the grantors or their childdid not adversely affect the qualification of the trust as a charitable remainderunitrust under the federal tax law—assuming it otherwise qualified. 257 Indeed, aCRT may be structured so that the grantor of the trust is initially the sole trusteeof it, without disqualifying the trust. 258251 See § 12.3(d), text accompanied by note 187.252 See § 3.7, text accompanied by note 522.253 Id., text accompanied by note 523.254 Id., text accompanied by note 524.255 See §§ 12.2, text accompanied by note 94, and § 12.3, text accompanied by note 200.256 See §§ 12.2, text accompanied by note 87; § 12.3, text accompanied by note 189.257 In one instance, the IRS ruled that a trust did not become disqualified as a CRT when its grantors exercisedtheir authority pursuant to the trust instrument to remove the initial institutional trustee and appoint themselvesas the trustees of the trust. Priv. Ltr. Rul. 200029031.258 See, e.g., Priv. Ltr. Rul. 200245058. 446