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§ 12.4 ISSUESFor NICRUTs and NIMCRUTs, the law continues to be that, if the unitrustpays the unitrust amount within a reasonable time after the close of the trust’syear, the trust is not deemed to have engaged in an act of self-dealing, haveunrelated debt-financed income, have received an additional contribution, orhave failed to function exclusively as a CRT. 283(h) Determining Certain Gift AmountsThere are special rules for determining the amount of the gift when an individualmakes a transfer in trust to or for the benefit of a family member and theindividual or an applicable family member retains an interest in the trust. 284This body of law, until recently, did not—by reason of a provision in the gift taxregulations 285 —apply with respect to CRATs or CRUTs.The retained interest in these situations (that is, where these rules apply) generallyis valued at zero (namely, is ignored for this purpose) unless the interest isa qualified interest. 286 A qualified interest includes the right to receive fixed paymentsat least annually and the right to receive amounts at least annually that area fixed percentage of the annual fair market value of the property in the trust. 287This body of law was amended in 1996 to exclude a transfer, to the extent thatregulations provide that the transfer is not inconsistent with the purposes of thatrule. 288 This regulatory authority may be used to create an exception from theapplication of this body of law for a CRT that does not create an opportunity totransfer property to a family member free of transfer tax.Some individuals created NICRUTs or NIMCRUTs to take advantage of thisexclusion granted to CRTs in general. This was done in an attempt to use theexclusion and the income-exception feature of one of these CRUTs to pass substantialassets to family members with minimal transfer tax consequences.EXAMPLE 12.12A donor establishes a NIMCRUT to pay the lesser of trust income or a fixed percentage to thedonor for a term of 15 years or her life, whichever is shorter, and then to her daughter for thedaughter’s life. If the tables a are used to value the donor’s retained interest and the donor’s giftto the daughter, the amount of the gift to the daughter is relatively small compared to theamount the daughter may actually receive. The trustee may invest in assets that produce little orno trust income while the donor retains the unitrust interest, creating a substantial make-upamount. At the end of the donor’s interest, the trustee alters the NIMCRUT’s investments togenerate significant amounts of trust income. The trustee then uses the income to pay to thedonor’s daughter the current fixed percentage amount and the make-up amount, whichincludes the make-up amount accumulated while the donor was the unitrust recipient.aSee § 11.3.The use of a CRUT in this fashion would permit the shifting of a beneficialinterest in the trust from the donor to another family member and thus would283 Reg. § 1.664-3(a)(1)(i)(j).284 IRC § 2702.285 Former Reg. § 25.2702-1(c)(3).286 IRC § 2702(a).287 IRC § 2702(b).288 IRC § 2702(a)(3)(A)(iii). 451