Reformation of NIMCRUTS and NICRUTS into FLIP CRUTS

The Internal Revenue Service has opened a window of opportunity to convert existing net income with make-up charitable remainder unitrusts (“NIMCRUTs”) and net income charitable remainder unitrusts (“NICRUTs”) into FLIP CRUTs — charitable remainder unitrusts (“CRUTs”) which are NIMCRUTs or NICRUTs for an initial period and later change to fixed percentage CRUTs. The same window has been opened to reform defective FLIP CRUTs into qualifying FLIP CRUTs. In order to qualify, legal proceedings to reform the trusts in question must begin by June 8, 1999. The authorization for such conversion and reformation comes from the final regulations governing charitable remainder trusts (the “Final Regulations”), which the Internal Revenue Service released on December 9, 1998, and which became effective as of December 10, 1998. This memorandum summarizes the requirements for the reformation of existing trusts and circumstances in which such reformation may be appropriate.

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