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A Charitable Remainder Trust (CRT) is a tax-exempt trust that pays income to you (or other beneficiaries you name) for a period of time. When that period ends, whatever is left in the trust goes to the charity of your choice. In return, you get an upfront charitable deduction and the ability to sell appreciated assets inside the trust without paying immediate capital gains tax.
CRTs are one of the most powerful tools in the charitable giving toolbox. They turn appreciated property into an income stream, reduce your tax bill, and support causes you care about — all at the same time.
How a CRT Works
- You transfer appreciated assets (stocks, real estate, a business) into the trust.
- The trust sells the assets. Because the trust is tax-exempt, it pays no capital gains tax on the sale.
- The trust invests the proceeds and pays you income (either a fixed dollar amount or a percentage of the trust value each year).
- You receive a charitable deduction equal to the present value of what the charity will eventually receive.
- When the trust ends (either after a set term or at your death), the remaining assets go to your chosen charity.
The income stream is not tax-free. The IRS uses a “tier” system to determine how distributions are taxed. Ordinary income comes out first, then capital gains, then tax-exempt income, then return of principal. Your tax advisor can walk you through the specific treatment for your situation.
Two Main Types of CRTs
Charitable Remainder Annuity Trust (CRAT)
A CRAT pays a fixed dollar amount each year. The amount never changes, regardless of how the trust performs. Once funded, you cannot add more assets to a CRAT. The fixed payout makes income predictable.
Charitable Remainder Unitrust (CRUT)
A CRUT pays a fixed percentage of the trust’s value each year. Because the trust is revalued annually, the actual dollar payment goes up or down with the trust’s performance. You can add assets to a CRUT over time. A CRUT with a “net income plus makeup” provision (NIMCRUT) can also defer payments to future years.
Most planners prefer CRUTs because they offer more flexibility and allow additional contributions.
The Charitable Deduction
When you fund a CRT, you receive a charitable deduction equal to the present value of the remainder interest (the amount the charity is projected to receive at the end). The IRS calculates this using the Section 7520 rate and actuarial tables.
As a general rule:
- Higher interest rates = larger charitable deduction (more valuable remainder)
- Older beneficiaries = larger deduction (shorter income stream = more left for charity)
- Shorter trust term = larger deduction
The deduction is limited to 30% of your adjusted gross income for contributions of appreciated property. Unused deductions can be carried forward for five years.
Capital Gains Tax Deferral
This is often the biggest benefit for donors with highly appreciated assets. Say you bought stock for $50,000 that is now worth $500,000. If you sell it directly, you owe capital gains tax on $450,000 of gain. At the 20% federal rate plus the 3.8% net investment income tax, that is roughly $107,100 in taxes — before state taxes.
Inside a CRT, the trust sells the stock tax-free. The full $500,000 is reinvested. The gains are not eliminated — they come out as you receive distributions — but you defer recognition and spread the gain over many years. Meanwhile, the full pre-tax amount generates income for you.
CRT vs. Direct Charitable Gift
| Feature | Direct Gift | CRT |
|---|---|---|
| You keep income stream | No | Yes |
| Capital gains tax on appreciated assets | No (deduction only) | Deferred, spread over term |
| Upfront deduction | Full fair market value | Partial (remainder value only) |
| Heirs receive assets | No | No (charity gets remainder) |
| Complexity | Simple | High |
Who Should Consider a CRT
A CRT makes the most sense if you:
- Have highly appreciated, low-basis assets (stock, real estate, a business)
- Want to convert an illiquid asset into an income stream
- Have charitable intent — the remainder must go to a qualified charity
- Are in a high tax bracket
- Do not need to leave the contributed assets to heirs (though you can replace them with life insurance in a separate “wealth replacement trust”)
CRTs are less useful if you have assets without significant appreciation, if you need to keep the assets accessible, or if you have no charitable intent.
The Wealth Replacement Trust Strategy
One common concern: assets that go into a CRT eventually go to charity — not to your heirs. Many estate planners address this with a “wealth replacement trust.” You use some of the income from the CRT to fund a life insurance policy held in an irrevocable life insurance trust (ILIT). The death benefit of the policy replaces the value of the donated assets for your heirs.
This combination — CRT plus ILIT — lets you:
- Get a deduction now
- Defer capital gains
- Generate income for life
- Still leave wealth to your heirs (via life insurance)
- Support charity
IRS Minimum Requirements
To qualify as a CRT under the tax code, the trust must meet several requirements:
- Annual payout to income beneficiaries must be at least 5% of the initial trust value (CRAT) or 5% of the annual trust value (CRUT)
- The payout rate cannot exceed 50%
- The present value of the charitable remainder must be at least 10% of the initial contribution
- The trust must be irrevocable
How to Set Up a CRT
You need an estate planning attorney to draft the trust document. The trust must be qualified under IRC Section 664. You will also need a trustee — often a bank trust department, a community foundation, or the charity itself serves as trustee.
Costs typically run $3,000–$10,000 for legal drafting. Many large charities and community foundations offer CRT administration services.
For more on estate planning tools that work alongside a CRT, see our guide to federal estate tax and how to minimize it and our explanation of how GRATs work.
FAQ
What is a Charitable Remainder Trust?
A CRT is a tax-exempt trust that pays income to you for a set period, then transfers the remaining assets to charity. You get a partial charitable deduction when you fund it.
What is the minimum payout rate for a CRT?
The IRS requires at least 5% per year — either as a fixed amount (CRAT) or a fixed percentage of the current trust value (CRUT).
Do you pay capital gains tax when you contribute appreciated assets?
Not immediately. The trust sells the assets tax-free and reinvests the full proceeds. You recognize the gains gradually as you receive income distributions.
What happens to a CRT when I die?
The remaining trust assets pass to the named charity. The trust bypasses probate.
What is the difference between a CRAT and a CRUT?
A CRAT pays a fixed dollar amount every year. A CRUT pays a fixed percentage of the trust’s current value, so the actual dollar amount rises or falls with trust performance. CRUTs allow additional contributions; CRATs do not.
Rates as of May 2026. IRS Section 7520 rates change monthly. Consult an estate planning attorney and CPA before setting up a CRT.
Related: Charitable Lead Trust (CLT): Give Now, Pass Wealth Later