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CHARITABLE REMAINDER TRUSTSavailable, or will be treated as failing to function exclusively as a charitableremainder trust, unless, whenever the trust is required to value assets of thisnature, the valuation is performed exclusively by an independent trustee ordetermined by a current qualified appraisal 276 prepared by a qualifiedappraiser. 277An independent trustee is a person who is not the grantor of the trust, a noncharitablebeneficiary, or a related or subordinate party to the grantor, thegrantor’s spouse, or a noncharitable beneficiary. 278(g) Time for Paying Income AmountFor years, the law permitted the trustee of a CRT to pay the annuity amount orunitrust amount within a reasonable time following the close of the trust’s taxyear. 279 This was intended as an administrative convenience for trustees. The governmentcame to the view, however, that in certain instances CRTs were manipulatedin abuse of this rule, such as in the case of accelerated remainder trusts. 280As a consequence, the tax regulations were altered to provide that, for CRATs andSCRUTs, the annuity amount or unitrust amount may be paid within a reasonabletime after the close of the year for which that income interest payment is due,if the character of the entire annuity amount or unitrust amount in the hands ofthe recipient is income under the distribution characterization rules, 281 except tothe extent it is characterized as corpus under those rules because• the trust distributes property (other than money) that it owned as of theclose of the tax year to pay the annuity amount or unitrust amount, and• the trustee elects (on Form 5227) to treat any income generated by the distributionas occurring on the last day of the tax year for which the annuityamount or unitrust amount is due. 282EXAMPLE 12.11X is a CRAT. The prorated annuity amount payable from X for Year 1 is $100. The trustee of Xdoes not pay the annuity amount to the recipient by the close of Year 1. At the end of Year 1, Xhas $95 in the ordinary income category and no income in the capital gain or tax-exemptincome categories. By April 15 of Year 2, in addition to $95 in money, the trustee distributes tothe recipient of the annuity amount a capital asset with a $5 fair market value and a $2adjusted basis, to pay the $100 annuity amount for Year 1. The trust owned the asset at the endof Year 1. The distribution is treated as a sale by X, a resulting in recognition by X of a $3 capitalgain. The trustee elects to treat the capital gain as occurring on the last day of Year 1. Thecharacter of the annuity amount for Year 1 in the recipient’s hands is $95 of ordinary income,$3 of capital gain income, and $2 of trust corpus. For Year 1, X satisfied this rule. baReg. § 1.664-1(d)(5).bReg. § 1.664-2(a)(1)(i)(d). A similar example as to a SCRUT appears in Reg. § 1.664-3(a)(1)(i)(i)).276 See § 21.2(b).277 Reg. § 1.664-1(a)(7)(i). See § 21.2(d).278 Reg. § 1.664-1(a)(7)(iii).279 See § 12.2(a), note 62.280 See § 12.3(e).281 See § 12.5.282 Reg. §§ 1.664-2(a)(1)(i)(a), (b); 1.664-3(a)(1)(i)(g), (h). The proposed regulations were more stringent in thisregard; the IRS proposed a relaxed rule for 1997. Notice 97-68, 1997-2 C.B. 330. The final regulations closelyresemble the 1997 notice (which was rendered obsolete as of December 10, 1998). 450