SECTION 6. ALTERNATE — Internal Revenue Bulletin 2005-34

UNITRUST — TERM OF YEARS

.01 Payment of Part of the Unitrust Amount to an Organization Described in § 170(c) .

(1) Explanation . An organization described in § 170(c) may receive part, but not all, of any unitrust amount. Section 664(d)(2)(A). If a gift tax charitable deduction and, if needed, an estate tax charitable deduction are sought for the present value of the unitrust interest passing to a charitable organization, the trust instrument must contain additional provisions. First, the trust instrument must specify the portion of each unitrust payment that is payable to the noncharitable recipient and to the charitable organization described in §§ 170(c), 2522(a), and, if needed, § 2055(a). Second, the trust instrument must contain a means for selecting an alternative qualified charitable organization if the designated organization is not a qualified organization at the time when any unitrust amount is to be paid to it. Third, the trust instrument must contain prohibitions against investments that jeopardize the exempt purpose of the trust within the meaning of § 4944, as modified by § 4947(a)(2)(A), and against retaining any excess business holdings within the meaning of § 4943, as modified by § 4947(a)(2)(A). (2) Instructions for use .

(a) Replace paragraph 2, Payment of Unitrust Amount, of the sample trust with the following paragraph:

Payment of Unitrust Amount . The unitrust amount is equal to [ a number no less than 5 and no more than 50 ] percent of the net fair market value of the assets of the trust valued as of the first day of each taxable year of the trust (hereinafter “the valuation date”). In each taxable year of the trust during the unitrust period, the Trustee shall pay [ the percentage of the unitrust amount payable to the noncharitable recipient ] percent of the unitrust amount to [ permissible recipient ] (hereinafter “the Recipient”) and [ the percentage of the unitrust amount payable to the charitable recipient ] percent of the unitrust amount to [ an organization described in §§ 170(c), 2055(a), and 2522(a) of the Code ] (hereinafter “the Charitable Recipient”). The unitrust period shall be a period of [ a number not more than 20 ] years. The first day of the unitrust period shall be the date property is first transferred to the trust and the last day of the unitrust period shall be the day preceding the [ ordinal number corresponding to the length of the unitrust period ] anniversary of that date. If the Charitable Recipient is not an organization described in §§ 170(c), 2055(a), and 2522(a) of the Code at the time when any unitrust payment is to be distributed to it, then the Trustee shall distribute that unitrust payment to one or more organizations described in §§ 170(c), 2055(a), and 2522(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee’s sole discretion. The unitrust amount shall be paid in equal quarterly installments at the end of each calendar quarter from income and, to the extent income is not sufficient, from principal. Any income of the trust for a taxable year in excess of the unitrust amount shall be added to principal. If, for any year, the net fair market value of the trust assets is incorrectly determined, then within a reasonable period after the correct value is finally determined, the Trustee shall pay to the Recipient and the Charitable Recipient (in the case of an undervaluation) or receive from the Recipient and the Charitable Recipient (in the case of an overvaluation) an amount equal to the difference between the unitrust amount(s) properly payable and the unitrust amount(s) actually paid. (b) Replace the first parenthetical in paragraph 4, Distribution to Charity, of the sample trust with the following parenthetical:

(other than any amount due the Recipient and the Charitable Recipient under the terms of this trust) (c) Replace each reference to “the Recipient” in paragraph 6 of the sample trust, Deferral of the Unitrust Payment Allocable

to Testamentary Transfer, with a reference to “the Recipient and the Charitable Recipient.” (d) Add the following sentence after the first and only sentence in paragraph 8, Prohibited Transactions, of the sample trust:

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The Trustee shall not make any investments that jeopardize the exempt purpose of the trust within the meaning of § 4944 of the Code, as modified by § 4947(a)(2)(A) of the Code, or retain any excess business holdings within the meaning of § 4943 of the Code, as modified by § 4947(a)(2)(A) of the Code.

.02 Apportionment of the Unitrust Amount Among Members of a Named Class in the Discretion of the Trustee .

(1) Explanation . A trust is not a CRUT if any person has the power to alter the amount to be paid to any named person other

than an organization described in § 170(c) if the power would cause any person to be treated as the owner of the trust, or any portion thereof, if subpart E were applicable to the trust. Section 1.664–3(a)(3)(ii). See Rev. Rul. 77–73, 1977–1 C.B. 175. For example, the donor would not be treated as the owner of any portion of a trust if the power is exercisable solely by an independent trustee or trustees, provided no person has the power to add beneficiaries to the class except to provide for after-born or after-adopted children. Section 674(c). Trustees are independent for purposes of § 674(c) if none of them is the donor or the donor’s spouse and if no more than half of them are related or subordinate parties who are subservient to the wishes of the donor. However, an independent trustee’s discretionary power, exercisable solely by that trustee, to allocate the unitrust amount among the members of a class would cause the trustee to be treated as the owner of all or a portion of the trust under § 678(a) if the trustee is a member of the class, if the trustee may apply trust income or corpus to satisfy the trustee’s own legal obligation, or if the trustee actually exercises the power to satisfy a support obligation owed by the trustee. Therefore, if any trustee is given the discretionary power exercisable solely by that trustee to allocate the unitrust amount among members of a class, the trust instrument must provide that such trustee must be: (i) independent; (ii) not a member of the recipient class; and (iii) prohibited from applying any part of the unitrust payment in satisfaction of the trustee’s own legal obligation. (2) Instructions for use .

(a) Add the following sentence to the sample trust:

Any trustee who is authorized in the trustee’s sole discretion to allocate the unitrust amount among members of a Recipient class must be independent within the meaning of § 674(c) of the Code and must not be a member of the Recipient class. (b) Replace the first sentence of paragraph 2, Payment of Unitrust Amount, of the sample trust with the following three

sentences:

In each taxable year of the trust during the unitrust period, the Trustee shall pay to a member or members of a class of persons comprised of [ designated members of class ] (hereinafter collectively “the Recipient”) a unitrust amount equal to [ a number no less than 5 and no more than 50 ] percent of the net fair market value of the assets of the trust valued as of the first day of each taxable year of the trust (hereinafter “the valuation date”). The Trustee may pay the unitrust amount to one or more members of the class, in equal or unequal shares, as the Trustee, in the Trustee’s sole discretion, from time to time may deem advisable. The Trustee may not, however, apply any payment for the Trustee’s own benefit, or in satisfaction of any support or other legal obligation of the Trustee.

.03 Qualified Contingency .

(1) Explanation . Under § 664(f), payment of the unitrust amount may terminate upon the earlier of the occurrence of a qualified

contingency (as defined in § 664(f)(3)) or the expiration of the term of years unitrust period. The amount of the charitable deduction, however, will be determined without regard to a qualified contingency. See § 664(f)(2). (2) Instructions for use . Replace the second and third sentences of paragraph 2, Payment of Unitrust Amount, of the sample

trust with the following two sentences:

The unitrust period is a period of [ not more than 20 ] years, unless earlier terminated by the occurrence of [ qualified contingency ]. The first day of the unitrust period shall be the date property is first transferred to the trust and the last day of the unitrust period shall be the day preceding the [ ordinal number corresponding to the length of the unitrust period ] anniversary of that date or, if earlier, the date on which occurs the [ qualified contingency ].

.04 Restricting the Charitable Remainderman to a Public Charity .

(1) Explanation . The amount of the donor’s charitable contribution deduction for income tax purposes may be limited by

the percentage of income limitations described in § 170(b). In general, a larger charitable contribution deduction may be available for income tax purposes for a contribution to a charitable organization described in § 170(b)(1)(A) than for a contribution to a private foundation (other than a private foundation described in § 170(b)(1)(E)). See § 170(b) and Rev. Rul. 79–368, 1979–2 C.B. 109. To take advantage of the larger charitable contribution deduction for income tax purposes, a donor of an inter vivos CRUT may wish to restrict the charitable remainderman to an organization that is described in § 170(b)(1)(A) as well as §§ 170(c), 2055(a), and 2522(a) (referred to herein as a “public charity”).

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(2) Instructions for use . To restrict the charitable remainderman to a public charity, each and every time the phrase “an organi zation described in §§ 170(c), 2055(a), and 2522(a) of the Code” appears in the sample trust, replace it with the phrase “an organization described in §§ 170(b)(1)(A), 170(c), 2055(a), and 2522(a) of the Code.”

.05 Retaining the Right to Substitute the Charitable Remainderman .

(1) Explanation . The donor may retain the right to substitute another charitable remainderman for the charitable remainderman

named in the trust instrument. See Rev. Rul. 76–8, 1976–1 C.B. 179. Note, however, that the retention of this right will cause the gift of the remainder interest to be incomplete for gift tax purposes. See § 25.2511–2(c) and Rev. Rul. 77–275, 1977–2 C.B. 346. (2) Instructions for use . Insert the following sentence between the first and last sentences of paragraph 4, Distribution to Char ity, of the sample trust:

The Donor reserves the right to designate, at any time and from time to time, in lieu of the Charitable Organization identified above, one or more organizations described in §§ 170(c), 2055(a), and 2522(a) of the Code as the charitable remainderman and shall make any such designation by giving written notice to the Trustee.

.06 Power of Appointment to Designate the Charitable Remainderman .

(1) Explanation . The trust instrument may grant a recipient a power of appointment to designate the charitable remainderman.

See Rev. Rul. 76–7, 1976–1 C.B. 179. (2) Instructions for use . Replace paragraph 4, Distribution to Charity, of the sample trust with the following paragraph:

Distribution to Charity . At the termination of the unitrust period, the Trustee shall distribute all of the then principal and income of the trust (other than any amount due the Recipient under the terms of this trust) to one or more charitable organizations described in §§ 170(c), 2055(a), and 2522(a) of the Code as the Recipient shall appoint and direct by specific reference to this power of appointment by inter vivos or testamentary instrument. To the extent the Recipient fails to effectively exercise the power of appointment, the principal and income not effectively appointed shall be distributed to one or more organizations described in §§ 170(c), 2055(a), and 2522(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee’s sole discretion. If an organization fails to qualify as an organization described in §§ 170(c), 2055(a), and 2522(a) of the Code at the time when any principal or income of the trust is to be distributed to it, then the Trustee shall distribute the then principal and income to one or more organizations described in §§ 170(c), 2055(a), and 2522(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee’s sole discretion.

.07 Net Income Method of Calculating the Unitrust Amount .

(1) Explanation . As an alternative to using the fixed percentage method of calculating the unitrust amount in paragraph 2 of the

sample trust, a CRUT may use the net income method for calculating the unitrust amount. Under the net income method, the unitrust amount is the lesser of a fixed percentage of the net fair market value of the trust assets valued annually or the amount of trust income for that year. Section 664(d)(3)(A) and § 1.664–3(a)(1)(i)( b )( 1 ). For purposes of determining the amount of the charitable contribution, the remainder interest is computed on the basis that an amount equal to the fixed percentage unitrust amount is to be distributed each year, without regard to the possibility that a smaller amount of trust income may be the amount distributed. Section 664(e). (2) Definition of trust income . For purposes of the methods described in § 664(d)(3), trust income generally means income

as defined under § 643(b) and the applicable regulations. Section 1.664–3(a)(1)(i)( b )( 3 ). Even if permitted by applicable state law, however, trust income of a CRUT that uses the net income method, the net income with make-up method, or a combination of methods of determining the unitrust amount may not be determined by reference to a fixed percentage of the net fair market value of the trust property. In addition, although certain proceeds from the sale or exchange of assets must be allocated to principal and not to trust income, other such proceeds may be allocated to trust income pursuant to the terms of the governing instrument, if not prohibited by applicable local law. A discretionary power to make this allocation may be granted to the trustee under the terms of the governing instrument, but only to the extent that the applicable state statute permits the trustee to make adjustments between income and principal to treat beneficiaries impartially. Section 1.664–3(a)(1)(i)( b )( 3 ). A definition of trust income that is consistent with these requirements may, but need not, be included in the trust instrument. (3) Instructions for use .

(a) Each and every time a reference to “§ 664(d)(2)” appears in the sample trust, replace it with a reference to “§ 664(d)(2)

and (d)(3).” (b) Replace the first five sentences of paragraph 2, Payment of Unitrust Amount, of the sample trust with the following:

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than 5 and no more than 50 ] percent of the net fair market value of the assets of the trust valued as of the valuation date (hereinafter “the fixed percentage amount described in (a) of paragraph 2”) or (b) the trust income for the taxable year as defined in § 643(b) of the Code and the applicable regulations. The valuation date is the first day of each taxable year of the trust. The unitrust period shall be a period of [ a number not more than 20 ] years. The first day of the unitrust period shall be the date property is first transferred to the trust and the last day of the unitrust period shall be the day preceding the [ ordinal number corresponding to the length of the unitrust period ] anniversary of that date. The unitrust amount shall be paid in equal quarterly installments at the end of each calendar quarter from income. Any income of the trust for a taxable year in excess of the unitrust amount shall be added to principal. (c) Replace paragraph 3, Proration of Unitrust Amount, of the sample trust with the following paragraph:

Proration of Unitrust Amount . For a short taxable year and for the taxable year during which the unitrust period ends, the Trustee shall prorate on a daily basis the fixed percentage amount described in (a) of paragraph 2, or, if an additional contribution is made to the trust, the fixed percentage amount described in (a) of paragraph 5. In such a year, this prorated fixed percentage amount shall be used in place of the fixed percentage amount described in (a) of paragraph 2 or in (a) of paragraph 5 to determine the unitrust amount payable for that year. (d) Replace paragraph 5, Additional Contributions, of the sample trust with the following paragraph:

Additional Contributions . Notwithstanding paragraph 2, if any additional contributions are made to the trust after the initial contribution, the unitrust amount for the year in which any additional contribution is made shall be equal to the lesser of (a) a fixed percentage amount equal to [ same percentage used in (a) of paragraph 2 ] percent of the sum of (1) the net fair market value of the trust assets as of the valuation date (excluding the assets so added and any post-contribution income from, and appreciation on, such assets during that year) and (2) for each additional contribution during the year, the fair market value of the assets so added as of the valuation date (including any post-contribution income from, and appreciation on, such assets through the valuation date) multiplied by a fraction the numerator of which is the number of days in the period that begins with the date of contribution and ends with the earlier of the last day of the taxable year or the last day of the unitrust period and the denominator of which is the number of days in the period that begins with the first day of such taxable year and ends with the earlier of the last day in such taxable year or the last day of the unitrust period (hereinafter “the fixed percentage amount described in (a) of paragraph 5”) or (b) the trust income for the taxable year as defined in § 643(b) of the Code and the applicable regulations. In a taxable year in which an additional contribution is made on or after the valuation date, the assets so added shall be valued as of the date of contribution, without regard to any post-contribution income or appreciation, rather than as of the valuation date.

.08 Net Income with Make-up Method of Calculating the Unitrust Amount .

(1) Explanation . As an alternative to using the fixed percentage method of calculating the unitrust amount in paragraph 2 of

the sample trust, a CRUT may use the net income with make-up method for calculating the unitrust amount. Under the net income with make-up method, the unitrust amount consists of two components: (i) the amount determined under the net income method (as described in section 6.07 of this revenue procedure); and (ii) the amount of trust income that is in excess of the fixed percentage amount for that year, but only to the extent that the aggregate of the unitrust amounts paid to the recipient in prior years was less than the amounts that would have been paid to the recipient if the unitrust amount had been computed using the fixed percentage method. Section 664(d)(3)(B) and § 1.664–3(a)(1)(i)( b )( 2 ). For purposes of determining the amount of the charitable contribution, the remainder interest is computed on the basis that an amount equal to the fixed percentage unitrust amount is to be distributed each year, without regard to the possibility that a smaller or larger amount of trust income may be the amount distributed. Section 664(e). See section 6.07(2) of this revenue procedure for rules relating to the definition of trust income. (2) Instructions for use .

(a) Each and every time a reference to “§ 664(d)(2)” appears in the sample trust, replace it with a reference to “§ 664(d)(2)

and (d)(3).” (b) Replace the first five sentences of paragraph 2, Payment of Unitrust Amount, of the sample trust with the following:

In each taxable year of the trust during the unitrust period, the Trustee shall pay to [ permissible recipient ] (hereinafter “the Recipient”) a unitrust amount equal to the lesser of (a) a fixed percentage amount equal to [ a number no less than 5 and no more than 50 ] percent of the net fair market value of the assets of the trust valued as of the valuation date (hereinafter “the fixed percentage amount described in (a) of paragraph 2”) or (b) the trust income for the taxable year as defined in § 643(b) of the Code and the applicable regulations. The unitrust amount for a taxable year shall also include any amount of trust income for the year that is in excess of [ the fixed percentage amount determined under (a) of this paragraph for the year ], but only to the extent that the aggregate of the amounts paid to the Recipient in prior years was less than the aggregate of the amounts determined for all prior years under (a) of this paragraph and (a) of paragraph 5. The valuation date is the first day of each taxable year of the trust. The unitrust period shall be a period of [ a number not more than 20 ] years. The first day of the unitrust period shall be the date property

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is first transferred to the trust and the last day of the unitrust period shall be the day preceding the [ ordinal number corresponding to the length of the unitrust period ] anniversary of that date. The unitrust amount shall be paid in equal quarterly installments at the end of each calendar quarter from income. Any income of the trust for a taxable year in excess of the unitrust amount shall be added to principal. (c) Replace paragraph 3, Proration of Unitrust Amount, of the sample trust with the following paragraph:

Additional Contributions . Notwithstanding paragraph 2, if any additional contributions are made to the trust after the initial contribution, the unitrust amount for the year in which any additional contribution is made shall be equal to the lesser of (a) a fixed percentage amount equal to [ same percentage used in (a) of paragraph 2 ] percent of the sum of (1) the net fair market value of the trust assets as of the valuation date (excluding the assets so added and any postcontribution income from, and appreciation on, such assets during that year) and (2) for each additional contribution during the year, the fair market value of the assets so added as of the valuation date (including any post-contribution income from, and appreciation on, such assets through the valuation date) multiplied by a fraction the numerator of which is the number of days in the period that begins with the date of contribution and ends with the earlier of the last day of the taxable year or the last day of the unitrust period and the denominator of which is the number of days in the period that begins with the first day of such taxable year and ends with the earlier of the last day in such taxable year or the last day of the unitrust period (hereinafter “the fixed percentage amount described in (a) of paragraph 5”) or (b) the trust income for the taxable year as defined in § 643(b) of the Code and the applicable regulations. The unitrust amount for that year shall also include any amount of trust income for the year that is in excess of [ the fixed percentage amount determined under (a) of this paragraph for the year ], but only to the extent that the aggregate of the amounts paid to the Recipient in prior years was less than the aggregate of the amounts determined for all prior years under (a) of paragraph 2 and (a) of this paragraph. In a taxable year in which an additional contribution is made on or after the valuation date, the assets so added shall be valued as of the date of contribution, without regard to any post-contribution income or appreciation, rather than as of the valuation date.

.09 Combination of Methods for Calculating the Unitrust Amount .

(1) Explanation . The net income method (described in section 6.07 of this revenue procedure) or the net income with make-up

method (described in section 6.08 of this revenue procedure) may be combined with the fixed percentage method for calculating the unitrust amount. Section 1.664–3(a)(1)(i)( c ). More specifically, the governing instrument may provide for payment of the unitrust amount not less often than annually using the net income or the net income with make-up method of calculation, and then, in the years following a permissible triggering event (as described in § 1.664–3(a)(1)(i)( c ) and ( d )), for payment of the unitrust amount using the fixed percentage method of calculation. To provide for a one-time conversion from the net income or the net income with make-up method to the fixed percentage method of calculation, the governing instrument must provide that: (i) the change in method is triggered on a specific date or by a single event whose occurrence is not discretionary with, or within the control of, the trustees or any other persons; (ii) the change in method occurs at the beginning of the taxable year that immediately follows the taxable year during which the permissible triggering event occurs; and (iii) following the trust’s conversion to the fixed percentage method, the trust will pay at least annually to the recipient the amount described in § 1.664–3(a)(1)(i)( a ) and no amount described in § 1.664–3(a)(1)(i)( b ). Section 1.664–3(a)(1)(i)( c ). Thus, any make-up amount described in § 1.664–3(a)(1)(i)( b )( 2 ) that is not paid by the beginning of the taxable year immediately following the taxable year during which the permissible triggering event occurs shall be forfeited by the recipient and added to principal. (2) Instructions for use to combine the net income and fixed percentage methods . To convert from the net income method for

calculating the unitrust amount to the fixed percentage method after a permissible triggering event: (a) Each and every time a reference to “§ 664(d)(2)” appears in the sample trust, replace it with a reference to “§ 664(d)(2)

and (d)(3).” (b) Replace paragraph 2, Payment of Unitrust Amount, of the sample trust with the following paragraph:

Payment of Unitrust Amount . (i) Unitrust amount determined by net income method . In each taxable year of the trust during the unitrust period, the Trustee shall pay to [ permissible recipient ] (hereinafter “the Recipient”) a unitrust amount equal to the lesser of (a) a fixed percentage amount equal to [ a number no less than 5 and no more than 50 ] percent of the net fair market value of the assets of the trust valued as of the valuation date (hereinafter “the fixed percentage amount described in (a) of paragraph 2(i)”) or (b) the trust income for the taxable year as defined in § 643(b) of the Code

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and the applicable regulations. The unitrust amount shall be paid in equal quarterly installments at the end of each calendar quarter from income. Any income of the trust for a taxable year in excess of the unitrust amount shall be added to principal. (ii) Conversion to fixed percentage method of determining unitrust amount . Notwithstanding paragraph 2(i), upon the

occurrence of [ permissible triggering event as described in § 1.664–3(a)(1)(i)(c) and (d) of the Income Tax Reg- ulations ] (hereinafter “the triggering event”) and effective as of the first day of the taxable year that immediately follows the triggering event (hereinafter “the effective date of the triggering event”), the Trustee shall pay to the Recipient in each remaining taxable year of the trust during the unitrust period a unitrust amount equal to [ same percentage used in (a) of paragraph 2(i) ] percent of the net fair market value of the trust assets as of the valuation date. Beginning on the effective date of the triggering event, the Trustee shall no longer pay the amount equal to the lesser of (a) or (b) in paragraph 2(i). The unitrust amount shall be paid in equal quarterly installments at the end of each calendar quarter from income and, to the extent income is not sufficient, from principal. Any income of the trust for a taxable year in excess of the unitrust amount shall be added to principal. (iii) In general . The unitrust period shall be a period of [ a number not more than 20 ] years. The first day of the unitrust

period shall be the date property is first transferred to the trust and the last day of the unitrust period shall be the day preceding the [ ordinal number corresponding to the length of the unitrust period] anniversary of that date. The valuation date is the first day of each taxable year of the trust. If, for any year, the net fair market value of the trust assets is incorrectly determined, then within a reasonable period after the correct value is finally determined, the Trustee shall pay to the Recipient (in the case of an undervaluation) or receive from the Recipient (in the case of an overvaluation) an amount equal to the difference between the unitrust amount(s) properly payable and the unitrust amount(s) actually paid. (c) Replace paragraph 3, Proration of Unitrust Amount, of the sample trust with the following paragraph:

Proration of Unitrust Amount . (i) Proration in years preceding the effective date of triggering event . For a short taxable year before the effective date of the triggering event, which may include the taxable year during which the unitrust period ends, the Trustee shall prorate on a daily basis the fixed percentage amount described in (a) of paragraph 2(i) or, if an additional contribution is made to the trust, the fixed percentage amount described in (a) of paragraph 5(i). In such a year, this prorated fixed percentage amount shall be used in place of the fixed percentage amount described in (a) of paragraph 2(i) or in (a) of paragraph 5(i) to determine the unitrust amount payable for that year. (ii) Proration on and after effective date of triggering event . For a short taxable year beginning on or after the effective

date of the triggering event, which may include the taxable year during which the unitrust period ends, the Trustee shall prorate on a daily basis the unitrust amount described in paragraph 2(ii) or, if an additional contribution is made to the trust, the unitrust amount described in paragraph 5(ii). (d) Replace paragraph 5, Additional Contributions, of the sample trust with the following paragraph:

Additional Contributions . (i) Additional contributions made before effective date of triggering event . Notwithstanding paragraph 2(i), if any additional contributions are made to the trust after the initial contribution and before the effective date of the triggering event, the unitrust amount for the year in which the additional contribution is made shall be equal to the lesser of: (a) a fixed percentage amount equal to [ same percentage used in (a) of paragraph 2(i) ] percent of the sum of:

(1) the net fair market value of the trust assets as of the valuation date (excluding the assets so added and any

post-contribution income from, and appreciation on, such assets during that year); and (2) for each additional contribution during the year, the fair market value of the assets so added as of the valuation

In a taxable year in which an additional contribution is made on or after the valuation date, the assets so added shall be valued as of the date of contribution, without regard to any post-contribution income or appreciation, rather than as of the valuation date. (ii) Additional contributions made on or after effective date of triggering event . Notwithstanding paragraph 2(ii), if any

additional contributions are made to the trust after the initial contribution and on or after the effective date of the triggering event, the unitrust amount described in paragraph 2(ii) for the year in which the additional contribution is made shall be [ same percentage used in (a) of paragraph 2(i) ] percent of the sum of:

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(a) the net fair market value of the trust assets as of the valuation date (excluding the assets so added and any

post-contribution income from, and appreciation on, such assets during that year); and (b) for each additional contribution during the year, the fair market value of the assets so added as of the valuation

date (including any post-contribution income from, and appreciation on, such assets through the valuation date) multiplied by a fraction the numerator of which is the number of days in the period that begins with the date of contribution and ends with the earlier of the last day of the taxable year or the last day of the unitrust period and the denominator of which is the number of days in the period that begins with the first day of such taxable year and ends with the earlier of the last day in such taxable year or the last day of the unitrust period. In a taxable year in which an additional contribution is made on or after the valuation date, the assets so added shall be valued as of the date of contribution, without regard to any post-contribution income or appreciation, rather than as of the valuation date. Beginning on the effective date of the triggering event, the trustee shall no longer pay the amount equal to the lesser of (a) or (b) in paragraph 5(i). (3) Instructions for use to combine the net income with make-up and fixed percentage methods . To convert from the net income

with make-up method for calculating the unitrust amount to the fixed percentage method after a permissible triggering event: (a) Each and every time a reference to “§ 664(d)(2)” appears in the sample trust, replace it with a reference to “§ 664(d)(2)

and (d)(3).” (b) Replace paragraph 2, Payment of Unitrust Amount, of the sample trust with the following paragraph:

Payment of Unitrust Amount . (i) Unitrust amount determined by net income with make-up method . In each taxable year of the trust during the unitrust period, the Trustee shall pay to [ permissible recipient ] (hereinafter “the Recipient”) a unitrust amount equal to the lesser of (a) a fixed percentage amount equal to [ a number no less than 5 and no more than 50 ] percent of the net fair market value of the assets of the trust valued as of the valuation date (hereinafter “the fixed percentage amount described in (a) of paragraph 2(i)”) or (b) the trust income for the taxable year as defined in § 643(b) of the Code and the applicable regulations. The unitrust amount for a taxable year shall also include any amount of trust income for the year that is in excess of [ the fixed percentage amount determined under (a) of paragraph 2(i) for the year ], but only to the extent that the aggregate of the amounts paid to the Recipient in prior years was less than the aggregate of the amounts determined for all prior years under (a) of paragraph 2(i) and (a) of paragraph 5(i). The unitrust amount shall be paid in equal quarterly installments at the end of each calendar quarter from income. Any income of the trust for a taxable year in excess of the unitrust amount shall be added to principal. (ii) Conversion to fixed percentage method of determining unitrust amount . Notwithstanding paragraph 2(i), upon the

occurrence of [ permissible triggering event as described in § 1.664–3(a)(1)(i)(c) and (d) of the Income Tax Reg- ulations ] (hereinafter “the triggering event”) and effective as of the first day of the taxable year that immediately follows the triggering event (hereinafter “the effective date of the triggering event”), the Trustee shall pay to the Recipient in each remaining taxable year of the trust during the unitrust period a unitrust amount equal to [ same percentage used in (a) of paragraph 2(i) ] percent of the net fair market value of the trust assets as of the valuation date. Beginning on the effective date of the triggering event, the Trustee shall no longer pay the amount equal to the lesser of (a) or (b) in paragraph 2(i) and shall not pay any amount of trust income described in the second sentence of paragraph 2(i). The unitrust amount shall be paid in equal quarterly installments at the end of each calendar quarter from income and, to the extent income is not sufficient, from principal. Any income of the trust for a taxable year in excess of the unitrust amount shall be added to principal. (iii) In general . The unitrust period shall be a period of [ a number not more than 20 ] years. The first day of the unitrust

August 22, 2005 351 2005–34 I.R.B.

(ii) Proration on and after effective date of triggering event . For a short taxable year beginning on or after the effective

(1) the net fair market value of the trust assets as of the valuation date (excluding the assets so added and any

The unitrust amount for that year shall also include any amount of trust income for the year that is in excess of

[ the fixed percentage amount determined under (a) of paragraph 5(i) for the year ], but only to the extent that the aggregate of the amounts paid to the Recipient in prior years was less than the aggregate of the amounts determined for all prior years under (a) of paragraph 2(i) and (a) of this paragraph 5(i). In a taxable year in which an additional contribution is made on or after the valuation date, the assets so added shall be valued as of the date of contribution, without regard to any post-contribution income or appreciation, rather than as of the valuation date. (ii) Additional contributions made on or after effective date of triggering event . Notwithstanding paragraph 2(ii), if any

post-contribution income from, and appreciation on, such assets during that year); and (b) or each additional contribution during the year, the fair market value of the assets so added as of the valuation

date (including any post-contribution income from, and appreciation on, such assets through the valuation date) multiplied by a fraction the numerator of which is the number of days in the period that begins with the date of contribution and ends with the earlier of the last day of the taxable year or the last day of the unitrust period and the denominator of which is the number of days in the period that begins with the first day of such taxable year and ends with the earlier of the last day in such taxable year or the last day of the unitrust period. In a taxable year in which an additional contribution is made on or after the valuation date, the assets so added shall be valued as of the date of contribution, without regard to any post-contribution income or appreciation, rather than as of the valuation date. Beginning on the effective date of the triggering event, the Trustee shall no longer pay the amount equal to the lesser of (a) or (b) in paragraph 5(i) and shall not pay any amount of trust income described in the second sentence of paragraph 5(i).

DRAFTING INFORMATION

The principal authors of this revenue procedure are Karlene M. Lesho and Stephanie N. Bland of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue procedure, contact Karlene M. Lesho or Stephanie N. Bland at (202) 622–7830 (not a toll-free call).

2005–34 I.R.B. 352 August 22, 2005

26 CFR 601.201: Rulings and determination letters. (Also Part I, §§ 170, 664, 2055, 2522; 1.170A–6, 1.664–1, 1.664–3, 1.664–4, 20.2055–2, 25.2522(c)–3.)

Rev. Proc. 2005–54