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§ 12.4 ISSUESthe noncharitable beneficiary must be accounted for to the extent that the trusteewould trigger that obligation if he sold the assets on the valuation date.” This isaccomplished as follows. In determining the fair market value of the assets onthe annual valuation date, the governing instrument must require the trustee totreat as a liability the amount of any deficiency for prior years. The amounttreated as a liability need not exceed the trust’s unrealized appreciation thatwould be trust income under the terms of the governing instrument and applicablelocal law if the trustee sold all the assets in the trust on the valuation date.The IRS wrote that this type of trust provision “will ensure that the timing of therealization of the gain by the trustee cannot be manipulated to the detriment ofthe charitable remainder interest.” In the case, the trust’s tax status was notadversely affected because its governing instrument provided that, for purposesof determining the unitrust amount each year, the fair market value of the assetsmust be reduced by the amount of any deficiency in unitrust payments fromprior years and that the reduction could not exceed the amount of the unrealizedgain in the trust’s assets as of the valuation date. Thus, in this particularinstance, the trust provision allocating capital gains to trust income did notadversely affect the tax status of the trust, because it was coupled with a provisiontreating a specific amount of any unitrust deficiency as a liability in valuingthe trust’s assets. 273(e) Death TaxesThe IRS ruled that certain provisions in the governing instrument of a CRT concerningthe payment of death taxes will not disturb the tax qualification of thetrust. 274 One article of the subject trust instrument provided that no death taxesof any character and irrespective of their name, including the federal estate tax(and any accompanying interest and penalties), could be allocated to or recoverablefrom the trust. It also provided that the grantor’s estate was obligated topay any such death taxes from sources other than the trust. In addition, the articleprovided that if for any reason the trust became liable for any such deathtaxes, the interest of an income interest beneficiary would continue or take effectonly if the beneficiary furnished the funds for payment of all such taxes attributableto the interest in trust received by the beneficiary. Finally, this article providedthat if a beneficiary failed to furnish all such funds, the beneficiary wouldbe deemed to have predeceased the donor. These provisions were held not toadversely affect the trust’s federal tax status, because they did not present anopportunity for interference with the charitable beneficiary’s remainder interest.(f) Valuation of Unmarketable AssetsIf unmarketable assets 275 are transferred to or held by a CRT, the trust will not bea trust with respect to which one or more charitable contribution deductions are273 There is a prohibition on the allocation of precontribution gain to trust income for an income-exception CRUT.Reg. § 1.664-3(a)(1)(i)(b)(4). As discussed, however, the governing instrument, if permitted under applicablelocal law, may allow the allocation of postcontribution capital gains to trust income.274 Priv. Ltr. Rul. 9512016.275 See § 12.3(a), text accompanied by note 162. 449