SECTION 6. ALTERNATE — Internal Revenue Bulletin 2005-34

UNITRUST — TWO LIVES, CONCURRENT AND CONSECUTIVE INTERESTS

.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 an estate tax charitable deduction is 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 recipients and to the charitable organization described in §§ 170(c) and 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 1, 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 ] and [ permissible recipient ] (hereinafter “the Recipients”) in equal shares during their joint lives and, upon the death of one (hereinafter “the Predeceasing Recipient”), the Trustee shall pay that entire percentage of the unitrust amount to the survivor (hereinafter “the Survivor Recipient”). In each taxable year of the trust during the unitrust period, the Trustee shall pay [ the percentage of unitrust amount payable to the charitable recipient ] percent of the unitrust amount to [ an organization described in §§ 170(c) and 2055(a) of the Code ] (hereinafter “the Charitable Recipient”). The first day of the unitrust period shall be the date of my death and the last day of the unitrust period shall be the date of the Survivor Recipient’s death. If the Charitable Recipient is not an organization described in §§ 170(c) and 2055(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) and 2055(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 Predeceasing Recipient and/or the Survivor Recipient and the Charitable Recipient (in the case of an undervaluation) or receive from the Predeceasing Recipient and/or the Survivor 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 each reference to “the Predeceasing Recipient and/or Survivor Recipient” in paragraph 2, Deferral Provision, of

the sample trust with a reference to “the Predeceasing Recipient and/or Survivor Recipient and the Charitable Recipient.” (c) Replace the first parenthetical in paragraph 4, Distribution to Charity, of the sample trust with the following parenthetical:

(other than any amount due the Predeceasing Recipient and/or the Survivor Recipient and the Charitable Recipient under the terms of this trust) (d) Add the following sentence after the first and only sentence in paragraph 7, Prohibited Transactions, of the sample trust:

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 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 death of the survivor recipient. The amount of the charitable deduction, however, will be determined without regard to a qualified contingency. See § 664(f)(2).

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(2) Instructions for use . Replace the second sentence of paragraph 1, Payment of Unitrust Amount, of the sample trust with

the following sentence:

The first day of the unitrust period shall be the date of my death and the last day of the unitrust period shall be the date of the Survivor Recipient’s death or, if earlier, the date on which occurs the [ qualified contingency ].

.03 Last Unitrust Payment to the Recipients .

(1) Explanation . As an alternative to prorating the unitrust amount in the taxable year of the predeceasing recipient’s death,

the obligation to pay the predeceasing recipient’s share of the unitrust amount may terminate with the last regular payment preceding the predeceasing recipient’s death. Similarly, as an alternative to prorating the unitrust amount in the taxable year of the survivor recipient’s death, the obligation to pay the unitrust amount may terminate with the last regular payment preceding the survivor recipient’s death. However, the fact that a recipient may not receive a final prorated payment shall not be taken into account for purposes of determining the present value of the remainder interest. Section 1.664–3(a)(5)(i). Note that although the obligation to pay the unitrust amount or, in the case of the predeceasing recipient, a share of the unitrust amount to a recipient, may terminate with the last regular payment preceding that recipient’s death, the trustee must pay a recipient’s estate any amounts allocated to the payments payable before the recipient’s death that are due as a result of an adjustment to the unitrust amount payable for that year, as in the case of an undervaluation. (2) Instructions for use .

(a) To add an alternate provision to terminate the payment of the predeceasing recipient’s share of the unitrust amount with

the last regular payment preceding his or her death, 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 unitrust amount described in paragraph 1. Upon the death of the Predeceasing Recipient, the obligation of the Trustee to pay a share of the unitrust amount to the Predeceasing Recipient shall terminate with the last regular quarterly installment preceding the death of the Predeceasing Recipient, and the Predeceasing Recipient’s share of the unitrust amount shall thereafter be added to and paid as part of the share of the Survivor Recipient. (b) To add an alternate provision to terminate the payment of the unitrust amount with the last regular payment preceding

the termination of the unitrust period, replace paragraph 3, Proration of Unitrust Amount, of the sample trust with the following paragraph.

Proration of Unitrust Amount . For a short taxable year, the Trustee shall prorate on a daily basis the unitrust amount described in paragraph 1. Upon the death of the Predeceasing Recipient, the Trustee shall prorate on a daily basis the next regular unitrust payment due after the death of the Predeceasing Recipient between the estate of the Predeceasing Recipient and the Survivor Recipient. In the taxable year of the trust during which the unitrust period ends, the obligation of the Trustee to pay the unitrust amount shall terminate with the last regular quarterly installment preceding the death of the Survivor Recipient. (c) To add an alternate provision terminating the payment of the predeceasing recipient’s share of the unitrust amount with

the last regular payment preceding his or her death, and terminating the payment of the unitrust amount with the last regular payment preceding the termination of the unitrust period, replace paragraph 3, Proration of Unitrust Amount, of the sample trust with the following paragraph:

Proration of Unitrust Amount . For a short taxable year, the Trustee shall prorate on a daily basis the unitrust amount described in paragraph 1. Upon the death of the Predeceasing Recipient, the obligation of the Trustee to pay a share of the unitrust amount to the Predeceasing Recipient shall terminate with the last regular quarterly installment preceding the death of the Predeceasing Recipient, and the Predeceasing Recipient’s share of the unitrust amount shall thereafter be added to and paid as part of the share of the Survivor Recipient. In the taxable year of the trust during which the unitrust period ends, the obligation of the Trustee to pay the unitrust amount shall terminate with the last regular quarterly installment preceding the death of the Survivor Recipient.

.04 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 Predeceasing Recipient and/or the Survivor Recipient under the terms of this trust) to one or more charitable organizations described in §§ 170(c) and 2055(a) of the Code as [ one of the named permissible recipients ] shall appoint and direct by specific reference to this power of appointment by inter vivos or testamentary instrument. To the extent this power of appointment is not effectively exercised, the principal and

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income not effectively appointed shall be distributed to one or more organizations described in §§ 170(c) and 2055(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) and 2055(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) and 2055(a) of the Code as the Trustee shall select, and in the proportions as the Trustee shall decide, in the Trustee’s sole discretion.

.05 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 1 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 four sentences of paragraph 1, 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 ] and to

[ permissible recipient ] (hereinafter “the Recipients”) in equal shares during their joint lives, 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 1”) or (b) the trust income for the taxable year as defined in § 643(b) of the Code and the applicable regulations. Upon the death of one of the Recipients (hereinafter “the Predeceasing Recipient”), the Trustee shall pay the entire unitrust amount to the survivor (hereinafter “the Survivor Recipient”). The valuation date is the first day of each taxable year of the trust. The first day of the unitrust period shall be the date of my death and the last day of the unitrust period shall be the date of the Survivor Recipient’s death. 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 1. In such a year, this prorated fixed percentage amount shall be used in place of the fixed percentage amount described in (a) of paragraph 1 to determine the unitrust amount payable for that year. Upon the death of the Predeceasing Recipient, the Trustee shall prorate on a daily basis the next regular unitrust payment due after the death of the Predeceasing Recipient between the estate of the Predeceasing Recipient and the Survivor Recipient.

.06 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 1 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 6.05 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 recipients in prior years was less than the amounts that would have been paid to the recipients if the unitrust amount

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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 6.05(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 four sentences of paragraph 1, 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 ] and to

[ permissible recipient ] (hereinafter “the Recipients”) in equal shares during their joint lives, 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 1”) 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 Recipients in prior years was less than the aggregate of the amounts determined for all prior years under (a) of this paragraph. Upon the death of one of the Recipients (hereinafter “the Predeceasing Recipient”), the Trustee shall pay the entire unitrust amount to the survivor (hereinafter “the Survivor Recipient”). The valuation date is the first day of each taxable year of the trust. The first day of the unitrust period shall be the date of my death and the last day of the unitrust period shall be the date of the Survivor Recipient’s death. 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:

.07 Combination of Methods for Calculating the Unitrust Amount .

(1) Explanation . The net income method (described in section 6.05 of this revenue procedure) or the net income with make-up

method (described in section 6.06 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 predeceasing recipient and/or the survivor 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 predeceasing recipient and/or the survivor 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 1, 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 ] and to [ permissible recipient ] (hereinafter “the Recipients”) in equal shares during their joint lives, a unitrust amount equal to the lesser of (a) a fixed percentage amount equal to [ a number

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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 1(i)”) or (b) the trust income for the taxable year as defined in § 643(b) of the Code and the applicable regulations. Upon the death of one of the Recipients (hereinafter “the Predeceasing Recipient”), the Trustee shall pay the entire unitrust amount to the survivor (hereinafter “the Survivor Recipient”). 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 1(i), upon the

occurrence of [ permissible triggering event as described in § 1.664–3(a)(1)(i)(c) and (d) of the Income Tax Regula- tions ] (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”), in each remaining taxable year of the trust during the unitrust period, the Trustee shall pay to the Recipients in equal shares during their joint lives a unitrust amount equal to [ same percentage used in (a) of paragraph 1(i) ] percent of the net fair market value of the trust assets as of the valuation date, and, upon the death of the Predeceasing Recipient, the Trustee shall pay the entire unitrust amount to the Survivor Recipient. 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 1(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 first day of the unitrust period shall be the date of my death and the last day of the unitrust period

shall be the date of the Survivor Recipient’s death. 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 Predeceasing Recipient and/or the Survivor Recipient (in the case of an undervaluation) or receive from the Predeceasing Recipient and/or the Survivor 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 1(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 1(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 1(ii). (iii) Proration of unitrust amount between Predeceasing Recipient and Survivor Recipient . Upon the death of the Prede ceasing Recipient, the Trustee shall prorate on a daily basis the next regular unitrust payment due after the death of the Predeceasing Recipient between the estate of the Predeceasing Recipient and the Survivor Recipient. (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 1, 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 ] and to [ permissible recipient ] (hereinafter “the Recipients”) in equal shares during their joint lives, 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 1(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 1(i) for the year ], but only to the extent that the aggregate of the amounts paid to the Recipients in prior years was less than the aggregate of the amounts determined for all prior years under (a) of paragraph 1(i). Upon the death of one of the Recipients (herein “the Predeceasing Recipient”), the Trustee shall pay the entire unitrust amount to the survivor (herein “the Survivor Recipient”). 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.

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(ii) Conversion to fixed percentage method of determining unitrust amount . Notwithstanding paragraph 1(i), upon the

occurrence of [ permissible triggering event as described in § 1.664–3(a)(1)(i)(c) and (d) of the Income Tax Regula- tions ] (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”), in each remaining taxable year of the trust during the unitrust period, the Trustee shall pay to the Recipients in equal shares during their joint lives a unitrust amount equal to [ same percentage used in (a) of paragraph 1(i) ] percent of the net fair market value of the trust assets as of the valuation date and, upon the death of the Predeceasing Recipient, the Trustee shall pay the entire unitrust amount to the Survivor Recipient. 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 1(i) and shall not pay any amount of trust income described in the second sentence of paragraph 1(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 first day of the unitrust period shall be the date of my death and the last day of the unitrust period