NIMCRUTNet-Income with Make-Up Charitable Remainder Trust
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664(e) was ambiguous in describing how to value a remainder interest in a NIMCRUT where distributions are the lesser of a fixed percentage or net income.
This technique begins with a NIMCRUT, or a NICRUT (similar to a NIMCRUT but without the makeup provisions), that is converted to a standard CRUT upon the occurrence of an approved triggering event.
The Service has ruled that the purchase of deferred annuity contracts by the independent trustee of a NIMCRUT did not adversely affect the CRUT's tax-exempt status.
He has decided that he would like to fund a major planned gift and after reviewing several techniques with the charity's representative, the use of a deferred NIMCRUT (net income with makeup charitable remainder unitrust, see Chapter 16) seems to fit his planning objectives.
For this reason the NIMCRUT is perhaps the most popular type of charitable remainder trust, since it allows for the deferral of income to later years, much like a deferred-income retirement plan, and still allows the trustee to maximize the payout amount.
The NIMCRUT is more appropriate for donors who have no desire for immediate distributions.
So let's say you start a NIMCRUT at age 45 and deposit substantial sums into the trust every year.
Many advisors would legitimately question whether a donor who selects the NIMCRUT strategy is effectively diversifying from a small business.
The net income of a NIMCRUT is not determined under income tax or financial accounting principles, but rather is calculated under the terms of the trust agreement and applicable local law.
When funded with an annuity, says Hill, a NIMCRUT lets a trustee control the timing of distributions and, thus, maximize the tax-deferred build-up of trust assets.
The NIMCRUT pays the settlor the lesser of a fixed percentage of the trust assets or the net trust income.
A NIMCRUT resembles a NICRUT in that the unitrust beneficiary will receive the lesser of the fixed percentage of the trust's value or the net income earned by the trust However, a NIMCRUT differs from a NICRUT in that a "make-up" account accrues in those years when net income is less than the fixed percentage of the trust's value.