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§ 12.6 EARLY TERMINATIONS OF CHARITABLE REMAINDER TRUSTS§ 12.6 EARLY TERMINATIONS OF CHARITABLEREMAINDER TRUSTSA CRT may be terminated sooner than is provided in the trust instrument. Thereare several reasons for the premature termination of this type of a trust, such as adesire to transfer the trust assets earlier to the remainder interest beneficiary 361or an income beneficiary’s dissatisfaction with the level of income payments. 362The IRS tends to scrutinize proposed early terminations of CRTs. The principalconcern is that the early termination will result in greater allocation of thetrust assets to the income beneficiary, to the detriment of the charitable remainderinterest beneficiary, than would be the case if the termination insteadoccurred at the initially prescribed time. 363 Also, the self-dealing rules potentiallyapply to the transaction. 364Nonetheless, in appropriate circumstances, the IRS will permit an early terminationof a CRT. The elements the agency reviews are whether: (1) the trusteewill be distributing to the income and remainder beneficiaries lump sums equalto the present value of their respective interests as of the termination date; 365 (2)the income and remainder interests are vested; (3) all income beneficiaries are offull legal capacity; (4) all of the beneficiaries favor early termination; (5) any ofthe income beneficiaries have a medical condition that is expected to result in ashorter period of longevity for the beneficiary; 366 (6) the trust instrument prohibitsearly termination; and (7) state law (and/or state regulatory authorities)permits early termination.The self-dealing rules apply except with respect to “amounts payable underthe terms of such trust to income beneficiaries.” 367 The trust instrument may besilent on the point, but state law allowing early terminations of trusts may beconsidered implied terms of the instrument. Also, the early termination may notbe discretionary with the trustee. 368 The foregoing factors are taken into accountin the self-dealing context, with early termination of a CRT found not to beimpermissible self-dealing when the method of allocating assets of the trust onits termination was reasonable, the income beneficiaries had life expectanciesreflecting average longevity, state law allowed the early termination, and all thebeneficiaries favored the early termination. 369 The IRS, from time to time, issuesrulings as to early termination of CRTs. 370361 See, e.g., Priv. Ltr. Rul. 200304025.362 See, e.g., Priv. Ltr. Rul. 200208039.363 An early termination of a CRT would, if the terms of the transfers were not reasonable, deprive the charitableremainder beneficiary of the benefit to which it is entitled, inconsistent with the charitable contribution deductionallowed to the donor or donors.364 See § 12.9.365 The IRS usually expects the valuation to be in conformance with the rules stated at § 11.3.366 It is the policy of the IRS to secure an affidavit from a physician stating that the income beneficiary does nothave a medical condition that would unduly shorten the beneficiary’s life.367 IRC § 4947(a)(2)(A).368 Reg. § 53.4947-1(e).369 This, then, is one of the few instances in which the concept of reasonableness is factored into a self-dealinglaw analysis.370 See, e.g., Priv. Ltr. Rul. 200124010. In one instance, the income interest was also sold to the remainder interestbeneficiary. Priv. Ltr. Rul. 200310024. 463