Understanding Charitable Remainder Trusts (CRTs)

Important Note

This information is for educational purposes only. Our firm does not provide legal, tax, or accounting advice. This guide should not be considered legal, tax, or accounting advice. Please consult with qualified professionals about your specific situation before implementing any charitable planning strategies.

What Is a CRT?

A Charitable Remainder Trust (CRT) is a tax-exempt irrevocable trust that provides income to you (or other beneficiaries) for life or a term of years, with the remainder going to charity. It’s like having your cake and eating it too—you get income now, an immediate tax deduction, avoid capital gains tax on appreciated assets, and support your favorite charity.

Think of a CRT as a win-win-win strategy: you win with income and tax benefits, your chosen charity wins with a future gift, and society wins through charitable support. It’s one of the few strategies where doing good for others also does good for your wallet.

How CRTs Work

The basic process:

  1. Transfer assets to an irrevocable trust
  2. Receive immediate tax deduction for charity’s remainder interest
  3. Trust sells assets without paying capital gains tax
  4. Receive income for life or term (up to 20 years)
  5. Remainder goes to charity at the end
  6. Everyone benefits from the arrangement

The Magic: No Capital Gains Tax

Here’s the powerful part:

Two Types of CRTs

Charitable Remainder Annuity Trust (CRAT)

Example: 5% CRAT on $1 million = $50,000 every year

Charitable Remainder Unitrust (CRUT)

Example: 5% CRUT on $1 million = $50,000 first year, but if trust grows to $1.2 million, next year = $60,000

The Tax Benefits Triple Play

1. Immediate Income Tax Deduction

2. Capital Gains Tax Avoidance

3. Estate Tax Reduction

Who Should Consider a CRT?

Ideal Candidates

CRTs work best for:

Less Suitable For

Think twice if:

Funding Your CRT

Best Assets to Use

Highly Appreciated Stock

Real Estate

Business Interests

Other Assets

Poor Assets to Use

Cash

Tax-Deferred Accounts

Income Stream Options

Standard Payout

Regular distributions per trust terms:

Net Income Makeup CRUT (NIMCRUT)

Pays lesser of:

Flip CRUT

Starts as NIMCRUT, then “flips” to standard CRUT:

Net Income CRUT

Pays lesser of percentage or income:

The 10% Remainder Rule

IRS requirement for all CRTs:

The Rule

Charity must receive at least 10% of initial value:

What This Means

Setting Payout Rates

Critical decision with long-term impact:

Higher Payout Rate (8-10%)

Pros:

Cons:

Lower Payout Rate (5-6%)

Pros:

Cons:

Sweet Spot

Most choose 5-7%:

CRT as Retirement Strategy

Popular retirement planning tool:

The Strategy

  1. Fund CRT with appreciated stock before retirement
  2. Use NIMCRUT to defer income
  3. Flip to standard CRUT at retirement
  4. Receive lifetime income stream
  5. Replace Social Security and pensions

Benefits

Example

Wealth Replacement Strategy

Common addition to CRTs:

The Problem

CRT remainder goes to charity, not heirs

The Solution

Use tax savings to buy life insurance:

Example Math

Choosing Charities

Public Charities

Most common recipients:

Private Foundations

Can name your own:

Donor Advised Funds

Increasingly popular:

Changing Beneficiaries

Some CRTs allow changes:

CRT Investment Management

Trust as Tax-Exempt Entity

Investment Strategies

For CRAT (fixed payment):

For CRUT (variable payment):

Trustee Options

Common Mistakes to Avoid

Payout Rate Too High

Wrong Asset Timing

Poor Charity Selection

Inadequate Income Planning

Family Discord

CRT vs. Other Strategies

CRT vs. Outright Sale

CRT: No immediate capital gains, income stream, tax deduction Sale: Full proceeds now, capital gains due, complete control

CRT vs. Gift Annuity

CRT: More complex, higher payments possible, you control Annuity: Simpler, charity manages, fixed payments only

CRT vs. Private Foundation

CRT: Income to you, remainder to charity, tax-exempt Foundation: You control giving, no personal benefit, operating rules

CRT vs. DAF

CRT: Income stream, capital gains benefit, complex DAF: Immediate giving vehicle, no income, simpler

Real-World Examples

Example 1: The Tech Executive

Example 2: The Real Estate Investor

Example 3: The Business Owner

Special CRT Variations

Term CRT

Instead of lifetime:

Multiple Beneficiary CRT

Income to multiple people:

Testamentary CRT

Created at death:

Making the Decision

Key Questions

Running the Numbers

Work with advisors to calculate:

Family Discussion

Important conversations:

The Bottom Line

Charitable Remainder Trusts offer a rare combination of personal financial benefits and charitable giving. By avoiding capital gains tax, generating lifetime income, receiving immediate tax deductions, and supporting charity, CRTs create multiple wins from a single strategy.

For those with highly appreciated assets and charitable inclinations, CRTs can solve multiple problems: converting assets to income without tax, reducing estate taxes, and creating a lasting charitable legacy. The ability to turn a concentrated position into diversified lifetime income while supporting charity is powerful.

However, CRTs are irrevocable and complex, requiring you to give up principal access. Success requires careful planning, appropriate payout rates, and often wealth replacement strategies for heirs.

For the right person—someone with appreciated assets, charitable intent, and income needs—CRTs provide unmatched benefits. It’s one of the few strategies where tax law actually encourages and rewards charitable behavior with substantial personal benefits.

Remember: CRTs aren’t just about tax savings. They’re about creating income, supporting causes you care about, and leaving a lasting legacy. When structured properly, everyone wins.

This guide provides general educational information about Charitable Remainder Trusts. CRTs involve complex tax, legal, and charitable considerations. Always consult with qualified tax, legal, and financial professionals before implementing a CRT strategy.