Charitable Remainder Unitrust (CRUT) Declaration

DECLARATION OF CHARITABLE REMAINDER UNITRUST

I. PREAMBLE AND PARTIES

This Declaration of Charitable Remainder Unitrust ("Trust") is made and entered into effective [__/__/____] ("Effective Date"), by and between:

The Grantor hereby declares that [she/he/they] holds and shall hold the property described in Schedule A, attached hereto and incorporated herein by reference, in trust upon the terms and conditions hereinafter set forth.

II. TRUST PROPERTY AND INITIAL FUNDING

The Grantor irrevocably transfers and delivers to the Trustee the property described in Schedule A, which shall constitute the initial corpus of the Trust. The Trustee acknowledges receipt of such property and shall hold, manage, invest, and reinvest the same upon the terms of this Declaration of Trust.

Schedule A: Initial Trust Property

Description: [________________________________]

Fair Market Value on Valuation Date: $[_______________]

Valuation Date: [__/__/____]

III. DESIGNATION OF TRUST TYPE

The Grantor and Trustee designate this Trust as a Charitable Remainder Unitrust under IRC § 664(d)(3) of the following type:

☐ Standard Unitrust – Fixed percentage payout regardless of trust income

☐ Net Income Makeup Charitable Remainder Unitrust (NIMCRUT) – Lesser of unitrust amount or trust income, with makeup provision in subsequent years

☐ Net Income Charitable Remainder Unitrust (NICRUT) – Lesser of unitrust amount or trust income, with no makeup provision

☐ FLIP-CRUT – Converts from one type (NICRUT or NIMCRUT) to standard unitrust upon a triggering event

IV. UNITRUST PAYMENTS TO NON-CHARITABLE BENEFICIARIES

A. Unitrust Amount and Percentage

For a term of [______] years [or for the life/lives of _______________], the Trustee shall distribute to the non-charitable beneficiaries named in Section V a unitrust amount calculated as follows:

Unitrust Percentage: [_____]% (Must be between 5% and 50%; whole percentage only)

Unitrust Amount = Unitrust Percentage × Fair Market Value of Trust Assets (determined annually as of [__/__] or other valuation date)

The Unitrust Amount shall be divided among the non-charitable beneficiaries in the percentages set forth in Section V.

B. Payment Schedule

Unitrust payments shall be made:

☐ Quarterly (on [________], [________], [________], [________])
☐ Semi-annually (on [________], [________])
☐ Annually (on [________])

The first payment shall be made on [__/__/____].

All payments shall be made from income and corpus of the Trust in such proportions as the Trustee determines. If Trust income is insufficient, the Trustee shall pay from principal.

C. Special Rules for NIMCRUT

If this Trust is designated as a NIMCRUT:

The Trustee shall distribute the lesser of (1) the Unitrust Amount or (2) the Trust Net Income for the taxable year.

In any year when Trust Net Income exceeds the Unitrust Amount, the excess shall be accumulated and carried forward as a "makeup amount." In subsequent years when Trust Net Income is less than the Unitrust Amount, the Trustee shall distribute the Unitrust Amount plus all available accumulated makeup amounts, to the extent Trust income and corpus permit.

Makeup provisions cease upon:

• ☐ Conversion to standard unitrust (if FLIP-CRUT)
• ☐ Death of the survivor of [_______________]
• ☐ End of the trust term

D. Special Rules for NICRUT

If this Trust is designated as a NICRUT:

The Trustee shall distribute the lesser of (1) the Unitrust Amount or (2) the Trust Net Income for the taxable year.

No makeup provision applies. All accumulated shortfalls are permanently forgone.

E. Special Rules for FLIP-CRUT

If this Trust is designated as a FLIP-CRUT:

Initial Status: This Trust shall commence as a [NICRUT / NIMCRUT].

Trigger Event(s) for Conversion to Standard Unitrust:

☐ Sale or disposition of [describe specific non-liquid asset: _______________]
☐ Death of [_______________]
☐ Receipt of insurance proceeds in excess of $[_______________]
☐ [Date certain: __/__/____]
☐ [Other: _______________]

Upon occurrence of the trigger event, the Trustee shall immediately convert this Trust to a Standard Unitrust as described in Section IV.A, and the Trustee shall thereafter distribute the full Unitrust Amount regardless of Trust income.

V. NON-CHARITABLE BENEFICIARIES

A. Income Beneficiaries

During the term of this Trust, the Trustee shall distribute the Unitrust Amount to the following non-charitable beneficiaries:

Total: 100%

B. Contingent Income Beneficiaries

Upon the death of [_______________], [his/her/their] share of the Unitrust Amount shall pass to:

[________________________________]

C. Termination of Income Interest

Upon the expiration of the trust term or the death of the last income beneficiary, the Unitrust payments shall cease.

VI. CHARITABLE REMAINDER BENEFICIARY

A. Charitable Organization

Upon termination of the income interest, the Trustee shall distribute the remaining net income and principal to:

Charitable Organization Name: [QUALIFIED CHARITABLE ORGANIZATION NAME]

EIN: [_______________]

Address: [________________________________]

The charitable organization must be a qualified organization described in IRC § 170(c) and must have tax-exempt status under IRC § 501(c)(3) at the time of distribution.

B. Successor Charitable Beneficiary

If the named charitable organization is unable or unwilling to accept the remainder at the time of distribution, the Trustee shall distribute the remainder to such other qualified organization as the Trustee (or court, if necessary) designates, preferring organizations with similar charitable purposes.

VII. VALUATION OF TRUST ASSETS

A. Annual Valuation

The Trustee shall determine the fair market value ("FMV") of the Trust's assets as of [__/__] each year [or: as of the valuation date closest to the date the Unitrust Amount is to be paid] (the "Valuation Date").

For publicly traded securities, FMV is the mean of the high and low trading prices on the Valuation Date.

For non-publicly traded assets, FMV shall be determined by:
☐ Independent appraisal by a qualified appraiser
☐ [Other method: _______________]

B. Method of Calculation

The Unitrust Amount for the taxable year shall be calculated as:

Unitrust Amount = Unitrust Percentage × FMV of Trust Assets as of Valuation Date

The Unitrust Amount shall be rounded to the nearest dollar.

C. Section 7520 Valuation

For purposes of determining the present value of the charitable remainder interest (to establish the charitable income tax deduction and to satisfy the 10% minimum remainder test), the Trustee shall use the Section 7520 rate applicable to the month of the contribution or, if allowed by IRS guidance, the rate applicable within 60 days before or after the contribution date.

VIII. 10% MINIMUM REMAINDER REQUIREMENT

The Grantor and Trustee acknowledge and certify that at the time of this contribution, the present value of the charitable remainder interest, calculated using the applicable Section 7520 discount rate, shall be not less than 10% of the fair market value of the property contributed to the Trust.

If subsequent gifts are made to this Trust, the Trustee shall verify that the 10% remainder test is satisfied for each contribution.

IX. UNRELATED BUSINESS TAXABLE INCOME AND DIVERSIFICATION

A. UBTI Restrictions

The Trustee shall not invest Trust assets in ways that generate unrelated business taxable income (UBTI) that would result in the Trust (or the charitable remainder interest) being subject to tax under IRC § 511.

Prohibited investments include:

• Debt-financed property (with limited exceptions)
• Rental real estate with debt financing
• Pass-through entities (partnerships, S corporations, LLCs) with significant unrelated business operations
• [Other restricted investments: _______________]

B. Initial Diversification

If this Trust holds a single non-diversified asset (e.g., a closely held business interest, real estate, or concentrated stock position), the Trustee shall consider diversifying within a reasonable period (typically 2–3 years post-contribution) to reduce concentration risk and UBTI exposure.

C. Annual Reporting

The Trustee shall complete Form 5227 (Split-Interest Trust Information Return) annually, disclosing:

• Trust composition and asset valuations
• Unitrust payments made
• Any UBTI or excise taxes owed
• Trust income and deductions

X. INCOME, ESTATE, AND GIFT TAX TREATMENT

A. Charitable Income Tax Deduction

The Grantor is entitled to an income tax charitable deduction for the present value of the charitable remainder interest, computed under IRC § 170(c) as of the valuation date and determined using the Section 7520 rate for the month of contribution.

Claimed Deduction Amount: $[_______________] (to be verified by qualified appraiser/actuary)

B. Grantor-Trust Election (Optional)

☐ The Grantor elects to be treated as the owner of this Trust for income tax purposes under IRC § 671 et seq.

If this box is checked: All Trust income shall be taxable to the Grantor directly (not the Trust). The Grantor (or the Grantor's estate) shall be responsible for all income tax liability. However, the Grantor is entitled to deduct Trust expenses as an itemized deduction (subject to AGI limitations) and to deduct the charitable contribution of the remainder interest in the year of contribution (subject to percentage limitations).

☐ The Grantor does NOT elect grantor-trust treatment. This Trust shall be a separate taxable entity, filing Form 1041 (U.S. Trust Income Tax Return) annually.

C. Estate Tax Treatment

The value of the remainder interest passing to the charitable beneficiary shall be excludable from the Grantor's gross estate under IRC § 2055 (estate tax charitable deduction), provided the Trust satisfies all CRUT requirements at the Grantor's death.

Unitrust payments made to non-charitable beneficiaries during the Grantor's lifetime are not included in the Grantor's gross estate (assuming the CRUT is irrevocable and properly drafted).

D. Gift Tax Treatment

The transfer of appreciated property to this irrevocable Trust constitutes a gift of the remainder interest to the charitable beneficiary and, if there are non-charitable income beneficiaries, a gift of the income interest to those beneficiaries.

Charitable Portion (Remainder): No gift tax, as it qualifies under IRC § 2522 (charitable deduction).

Non-Charitable Portion (Income Interest): Present value of income interest is a taxable gift (unless covered by the Grantor's unified credit or annual exclusion amounts). Annual exclusion gifts to income beneficiaries may be possible with proper trust language (Crummey withdrawal rights).

XI. TRUSTEE POWERS AND DUTIES

A. Appointment and Successor Trustees

The Grantor designates:

• Initial Trustee: [TRUSTEE NAME, TITLE, ADDRESS]
• First Successor Trustee: [NAME, ADDRESS]
• Second Successor Trustee: [NAME, ADDRESS]

If any Trustee resigns, is unable or unwilling to serve, or becomes incapacitated, the next named successor shall serve automatically.

B. Trustee Investment Powers

The Trustee shall have full power to invest and reinvest the Trust estate in stocks, bonds, mutual funds, real estate, and other property, with no requirement that investments produce annual income, and shall have the power to retain any property initially transferred to the Trust, even if unmarketable or non-income-producing.

For NIMCRUT and NICRUT trusts, the Trustee's investment strategy should consider whether income-producing assets are appropriate to ensure the Trust generates sufficient net income to meet beneficiary needs.

C. Trustee Fees and Expenses

The Trustee shall be entitled to reasonable compensation for services rendered, including:

• Annual trust administration fee: [_____]% of Trust value or $[_______________] annually
• Fees for additional services (sale of real estate, appraisal, legal review): at cost plus reasonable markup
• Travel and out-of-pocket expenses: reimbursed

All such fees and expenses shall be deducted from Trust income and corpus in the Trustee's discretion.

D. Prohibited Transactions

The Trustee shall not:

• Engage in transactions with the Grantor or income beneficiaries that violate IRC § 4947 (private foundation rules)
• Invest in the Grantor's securities or property (self-dealing)
• Retain more than a reasonable reserve for expenses
• Make distributions to anyone other than the designated beneficiaries

XII. ACCOUNTING AND REPORTING

A. Annual Statements

Within 60 days of the end of each taxable year, the Trustee shall provide to all beneficiaries a detailed accounting showing:

• Beginning and ending values of Trust assets
• All investments and sales made during the year
• Income received (dividends, interest, capital gains)
• Expenses paid
• Unitrust Amount distributed to each beneficiary
• Charitable remainder contribution
• Form 5227 information (or a copy of Form 5227)

B. Tax Reporting

The Trustee shall:

• File Form 5227 annually with the IRS
• Issue Form K-1 to income beneficiaries (if the Trust is a grantor trust, Form K-1 is not required; instead, the Grantor reports all income and deductions)
• File Form 1041 if the Trust is taxable to beneficiaries
• Report any UBTI on Form 990-T

C. Charitable Remainder Interest Reporting

The Trustee shall maintain records documenting:

• Valuation of the remainder interest as of the contribution date
• Annual valuations of Trust assets
• Actuarial calculations demonstrating compliance with the 10% minimum remainder test
• Form 8854 calculations (for charitable deduction substantiation)

XIII. AMENDMENT AND TERMINATION

A. Amendment

This Trust may not be amended in any manner that would disqualify it as a CRUT under IRC § 664. Prohibited amendments include:

• Changes to the charitable remainder beneficiary (if disallowed)
• Reduction of the remainder interest below 10%
• Extension of the trust term beyond lives in being plus 21 years (or a term of years)
• Changes to the unitrust percentage or payment mechanics that violate IRC § 664(d)(3)

All other amendments require written consent of the Grantor (during the Grantor's lifetime) and the charitable beneficiary.

B. Decanting Authority

The Trustee may, with the consent of all beneficiaries and the charitable organization, decant Trust assets to another qualified CRUT with similar or more restrictive terms, provided such action preserves the Trust's status as a CRUT.

C. Early Termination

This Trust may be terminated before the expiration of the stated term only with the consent of the Grantor (if living), all beneficiaries, and the charitable beneficiary, provided the charitable remainder interest is preserved.

XIV. GOVERNING LAW AND JURISDICTION

This Trust shall be governed by and construed according to the laws of [STATE], without regard to conflicts of law principles, except that matters relating to CRUT tax qualification shall be governed by federal law (Internal Revenue Code).

Any dispute arising from this Trust shall be resolved in the courts of [COUNTY], [STATE], and all parties consent to the jurisdiction thereof.

XV. ACCEPTANCE AND ACKNOWLEDGMENT

The Trustee hereby acknowledges:

1. Receipt of the Trust corpus as described in Schedule A
2. Understanding of the CRUT structure and tax implications
3. Agreement to comply with all IRC § 664 requirements
4. Responsibility for annual valuations, Form 5227 reporting, and distribution to beneficiaries
5. Obligation to preserve the charitable remainder interest

IN WITNESS WHEREOF, the Grantor and Trustee have executed this Declaration of Charitable Remainder Unitrust as of the Effective Date.

SIGNATURES

GRANTOR:

Signature: _____________________________ Date: [__/__/____]

Printed Name: _________________________________

Address: _________________________________

INITIAL TRUSTEE:

Signature: _____________________________ Date: [__/__/____]

Printed Name: _________________________________

Title/Address: _________________________________

[If Corporate Trustee]

By: _____________________________ Date: [__/__/____]

Title: _________________________________

SCHEDULE A: INITIAL TRUST PROPERTY

Description of Assets Transferred:

[Detailed description of property, including title information, legal description if real property, securities descriptions, etc.]

Fair Market Value: $[_______________]

Valuation Date: [__/__/____]

Method of Valuation:
☐ Appraisal by [appraiser name, credentials]
☐ Broker valuation
☐ [Other: _______________]

Sources and References

• Internal Revenue Service — Charitable Remainder Trusts
• IRC Section 664 — Charitable Remainder Trusts
• 26 CFR § 1.664-3 — Charitable Remainder Unitrust
• Form 5227 — Split-Interest Trust Information Return
• Instructions for Form 5227 (2025)
• Rev. Proc. 2005-52 through 2005-59 — Sample CRUT Forms (Inter Vivos and Testamentary)
• IRS Publication 1457 — Actuarial Valuations (Life Estate, Remainder Interests, and Annuities)
• IRS Publication 526 — Charitable Contributions