§ 36C-4B-6. Administrative provisions applicable to charitable remainder unitrusts only. - North Carolina Statutes

§ 36C‑4B‑6. Administrative provisions applicable to charitable remainder unitrusts only.

(a)        Creation ofUnitrust Amount for a Period of Years or Life. – The trustee shall pay to thebeneficiaries named in the trust investment in each taxable year of the trustduring their lives or, if the governing instrument so provides, for a periodnot exceeding 20 years, a unitrust amount equal to a fixed percentage, asstated in the governing instrument of the trust, of the net fair market valueof the trust assets valued annually on the date or by the method designated inthe governing instrument of the trust or, if no date or method is specified, onthe date or by the method selected by the trustee in the trustee's discretion,so long as the same valuation date or dates or valuation methods are used eachyear. The unitrust amount is paid annually or in more frequent equal or unequalinstallments if the governing instrument so provides. The unitrust amount ispaid from income and, to the extent that income is not sufficient, fromprincipal. Any income of the trust for a taxable year in excess of the unitrustamount is added to principal. The fixed percentage to be paid at least annuallyto all beneficiaries cannot be less than five percent (5%).

(b)        Unitrust Amount Expressedas the Lesser of Income or a Fixed Percentage. – If the governing instrument ofthe trust provides that the trustee shall pay, instead of a regular unitrustamount (the fixed percentage of the net fair market value of the trust assets,determined annually), the amount of trust income for the taxable year to theextent that this amount is not greater than the amount required to bedistributed as a regular unitrust amount for that taxable year or the amount ofthe trust income for the taxable year that exceeds the regular unitrust amountfor that taxable year to the extent that the aggregate of the amounts paid inprior years is less than the aggregate of the regular unitrust amount for thoseprior years, then the trustee must pay to the beneficiaries in each taxableyear of the trust during their lives, or for a period not exceeding 20 years ifthe trust agreement so provides, an amount equal to the lesser of (i) the trustincome for the taxable year, as defined in section 643(b) of the Internal RevenueCode and the regulations under that section, and (ii) the percentage, as statedin the governing instrument, of the net fair market value of the trust assetsvalued as of the taxable year decreased as elsewhere provided if the taxableyear is a short taxable year or is the taxable year in which the noncharitableinterest terminates by death or otherwise, and increased as elsewhere providedif additional contributions are made in the taxable year.

If the governing instrument ofthe trust so provides and if the trust income for any taxable year exceeds theamount determined under (ii) above, the payment to beneficiaries also mustinclude the excess income to the extent that the aggregate of the amounts paidto beneficiaries in prior years is less than the percentage of the aggregatenet fair market value of the trust assets, which percentage is defined in thegoverning instrument of the trust, for these years. Payments to beneficiariesmust be made annually or in more frequent equal or unequal installments if thegoverning instrument so provides. Any income of the trust in excess of thesepayments must be added to principal.

(c)        Adjustment forIncorrect Valuation. – If the fiduciary incorrectly determines the net fairmarket value of the trust assets for any taxable year, the trustee must, withina reasonable period after the final determination of the correct value, pay tothe beneficiaries, in the case of an undervaluation, or receive from thebeneficiaries, in the case of an overvaluation, an amount equal to thedifference between the unitrust amount properly payable and the unitrust amountactually paid.

(d)        Computation ofUnitrust Amount in Short and Final Taxable Years. – For a short taxable yearand for the taxable year in which the noncharitable beneficiary's interestterminates by death or otherwise, the trustee shall prorate the unitrust amounton a daily basis. If a trust provides for a valuation date other than the firstday of the taxable year, and the valuation date does not occur in a taxableyear of the trust because the taxable year is either a short taxable year or isthe taxable year in which the noncharitable interests terminate, the trustassets must be valued as of the last day of the short taxable year or the dayon which the noncharitable interests terminate, as appropriate.

(e)        AdditionalContributions. – If the governing instrument does not prohibit additionalcontributions and additional contributions are made to the trust after theinitial contribution in the trust, the unitrust amount for the taxable year inwhich the additional contributions are made must be a fixed percentage, asstated in the governing instrument of the trust, of the sum of (i) the net fairmarket value of trust assets, excluding the additional contributions and any incomefrom or appreciation of these contributions and (ii) that proportion of thevalue of the additional contributions excluded under (i) which the number ofdays in the period beginning with the date of contribution and ending with theearlier of the last day of the taxable year or the day the noncharitablebeneficiary's interest terminated bears to the number of days in the periodbeginning on the first day of the taxable year and ending with the earlier ofthe last day in the taxable year or the day the noncharitable beneficiary'sinterest terminated. If no valuation date occurs after the contributions aremade, the assets so added are valued as of the time of contribution.

(f)         Deferral ofUnitrust Amount During Period of Administration or Settlement. – When propertypasses to the trust at the death of the settlor, the obligation to pay theunitrust amount commences with the date of the settlor's death, but payment ofthe unitrust amount may be deferred from the date of the settlor's death to theend of the taxable year of the trust in which complete funding of the trustoccurs. Within a reasonable time after the end of the taxable year in which thecomplete funding of the trust occurs, the trustee must pay to the beneficiary,in the case of an underpayment, or must receive from the beneficiary, in thecase of an overpayment, the difference between:

(1)        Any unitrust amountsactually paid, plus interest on those amounts computed at ten percent (10%) ayear, compounded annually; and

(2)        The unitrust amountspayable, determined under the method described in section 1.664‑1(a)(5)of the federal income tax regulations, plus interest on those amounts computedat ten percent (10%) a year, compounded annually.

Notwithstanding the foregoingsentence, in computing any underpayment or overpayment of the unitrust amounts,if the governing instrument was executed or last amended before August 9, 1984,and if the governing instrument does not specify that a ten percent (10%) rateof interest shall be used, the underpayment or overpayment of the unitrustamounts shall be computed using an interest rate of six percent (6%) a year,compounded annually.

(g)        Unitrust Amount MayBe Allocated Among Class of Noncharitable Beneficiaries in Discretion ofTrustee. – If the governing instrument of the trust provides that the unitrustamount may be allocated to a class of noncharitable beneficiaries in thediscretion of the trustee, then the trustee must pay, in each taxable year ofthe trust, the unitrust amount to the member or members of the class ofnoncharitable beneficiaries in amounts and proportions as the trustee in thetrustee's absolute discretion shall from time to time determine until the lastof the noncharitable beneficiaries dies. The trustee may pay the unitrustamount to any one member of the class or may apportion it among the variousmembers in a manner that the trustee shall from time to time consider advisableas long as the power to allocate does not cause any person to be treated as theowner of any part of the trust under the rules of section 671 through section678 of the Internal Revenue Code. If the class provided for in the governinginstrument is open, the distribution must be for a period not exceeding 20years, notwithstanding a provision to the contrary in the trust instrument. Ifthe class provided for in the governing instrument is closed at the creation ofthe trust, and all members of the class are ascertainable, the distribution maybe for the lives of the members of the class or for a period not exceeding 20years. The trustee shall pay the entire unitrust amount for each taxable yearannually and may not delay payment of the unitrust amount.

(h)        Reduction ofUnitrust Amount if Part of Corpus Is Paid to Charity at Expiration of Term ofYears or on Death of a Recipient. – If the governing instrument of the trustprovides for the reduction of the unitrust amount if part of the corpus is paidto charity at the expiration of a term of years or upon the death of arecipient, then during the term of years or during the joint lives of thenoncharitable beneficiaries the trustee shall, in each taxable year of thetrust, pay the total unitrust amount equal to a percentage of the net fairmarket value of the trust assets valued annually, which shall not be less than fivepercent (5%). Upon expiration of the term of years or the death of a recipient,the trustee shall distribute an amount or percentage of the trust assets, asprovided in the governing instrument of the trust, to the charity named in thegoverning instrument, and thereafter the trustee shall pay to the survivors fortheir lives a unitrust amount in each taxable year of the trust equal to atleast five percent (5%)(the actual percentage being defined in the trustinstrument) of the net fair market value of the remaining trust assets valuedannually.

(i)         Termination ofUnitrust Amount on Payment Date Preceding Termination of NoncharitableInterests. – If the governing instrument of the trust provides that payment ofthe unitrust amount may terminate with the regular payment preceding thetermination of all noncharitable interests, then the trustee must pay theunitrust amount to the noncharitable beneficiary in each taxable year of thetrust during the term of the noncharitable interest. The obligation of thetrustee to pay the unitrust amount terminates with the payment preceding thetermination of the noncharitable interest by death or otherwise. The fivepercent (5%) requirement provided in subsection (a) of this section shall bemet until the termination of all payments of the unitrust amount.

(j)         Retention ofTestamentary Power to Revoke Noncharitable Interest. – If the governinginstrument of the trust provides that the settlor of the trust shall retain thepower, exercisable only by will, to revoke or terminate the interest of anyrecipient other than an organization described in section 170(c) of theInternal Revenue Code, then the trustee must pay the unitrust amount to thesettlor during the settlor's life and, upon the death of the settlor, shall paythe unitrust amount to the noncharitable beneficiary during the charitablebeneficiary's life, provided the noncharitable beneficiary survives thesettlor. The settlor shall have the power, exercisable only by will, to revokeand terminate the interest of the noncharitable beneficiary under the trust.Upon the first to occur of (i) the death of the survivor of the settlor and thenoncharitable beneficiary; or (ii) the death of the settlor if the settloreffectively exercised the testamentary power to revoke and terminate theinterest of the noncharitable beneficiary, the trustee shall distribute all ofthe then principal and income of the trust, other than any amount due thenoncharitable beneficiaries, to the charity named in the trust document or, ifthe governing instrument so provides, the trustee shall continue to hold theprincipal and income in trust for the charity or for the charitable purposesspecified in the trust. No other retained power to terminate an interest in thetrust is effective. (1981 (Reg. Sess., 1982), c. 1252, s. 1; 1985, c. 406, s. 7; 2005‑192,s. 2.)