A Charitable Remainder Trust allows you to convert a highly appreciated asset into a lifetime income stream — without paying capital gains tax on the sale. Here is how it works and when it makes sense.
A Charitable Remainder Trust (CRT) is an irrevocable trust that receives appreciated assets, sells them without paying capital gains tax, and invests the proceeds to provide an income stream to the donor (or other beneficiaries) for life or a fixed term. At the end of the trust term, the remaining assets pass to charity. The donor receives a partial charitable deduction in the year of the contribution.
You contribute appreciated assets — stock, real estate, a business interest — to the CRT. The CRT sells the assets without paying capital gains tax (because the trust is a tax-exempt entity). The proceeds are invested to generate an income stream.
You receive income from the trust for life or a fixed term (up to 20 years). At the end of the term, the remaining assets pass to a charity of your choice. You receive a charitable deduction in the year of the contribution for the present value of the charitable remainder.
Charitable Remainder Annuity Trust (CRAT): Pays a fixed dollar amount each year. The payment does not change regardless of the trust's investment performance. Best for donors who want predictable income.
Charitable Remainder Unitrust (CRUT): Pays a fixed percentage of the trust's value each year, recalculated annually. If the trust grows, the payment increases. If it shrinks, the payment decreases. Best for donors who want inflation protection.
The Math: You contribute $1 million in appreciated stock (cost basis: $100,000) to a CRUT. Without a CRT, you would pay capital gains tax on $900,000 of gain — potentially $180,000–$214,000. With the CRT, the trust sells the stock tax-free and invests the full $1 million.
A 5% CRUT pays you $50,000 per year. You also receive a charitable deduction of approximately $300,000–$400,000 (depending on your age and the applicable IRS rate).
When a CRT Makes Sense: A CRT is most appropriate for donors who have a large appreciated asset, want an income stream from the asset, are charitably inclined (the remainder must go to charity), and do not need to leave the asset to heirs.
The 'Wealth Replacement' Strategy: Many CRT donors use the income stream and the charitable deduction to fund a life insurance policy held in an ILIT. The death benefit replaces the wealth that will pass to charity — ensuring that heirs receive an inheritance equivalent to what they would have received if the CRT had not been established.
CRTs are underused because most donors do not know they exist. They are ideal for donors with large appreciated assets who want income, a charitable deduction, and a way to avoid capital gains taxes — but who do not want to give the asset away outright.
CRTs are irrevocable — once established, the terms cannot be changed and the assets cannot be returned to the donor.
The income stream from a CRT may be taxable — the character of the income depends on the trust's investment income and the order of distribution rules.
The charitable deduction is limited to the present value of the charitable remainder — which may be significantly less than the full value of the contributed assets.
If the trust's investment performance is poor, the income stream may decline significantly (for a CRUT) or the trust may be depleted before the term ends (for a CRAT).
A CRT is a powerful component of the Mini Family Office for donors with large appreciated assets who want income and a charitable legacy. It works best when combined with a wealth replacement strategy (life insurance in an ILIT) and a private foundation or donor-advised fund (to receive the charitable remainder).
A private foundation can be named as the charitable remainder beneficiary of a CRT — ensuring that the assets pass to the family's foundation rather than to an unrelated charity. This allows the family to maintain influence over the charitable use of the assets even after the CRT term ends.
Charitable Remainder Annuity Trust (CRAT) — fixed income stream
Charitable Remainder Unitrust (CRUT) — variable income stream tied to trust value
Net Income with Makeup CRUT (NIMCRUT) — flexible income timing
Irrevocable Life Insurance Trust (ILIT) — wealth replacement strategy
Private Foundation — charitable remainder beneficiary
Access our full research library for case law, IRS codes, and government sources supporting this topic.
View ResearchA Charitable Remainder Trust is one of the most powerful tools for donors with large appreciated assets. Our pro bono assessment evaluates whether a CRT is appropriate for your situation and how to structure it for maximum benefit.
A CRT is most appropriate for donors who are charitably inclined — the remainder must go to charity, so this strategy is not suitable for donors who want to leave all their assets to heirs.
Consider the wealth replacement strategy — use the income stream and the charitable deduction to fund a life insurance policy that replaces the wealth passing to charity.
Name your private foundation as the charitable remainder beneficiary — this maintains family influence over the charitable use of the assets.
Compare a CRT to a donor-advised fund — for donors who do not need an income stream, a DAF may be simpler and more flexible.
CRTs are ideal for clients with large appreciated assets who want income and a charitable legacy — identify these clients proactively.
The wealth replacement strategy (ILIT funded by the CRT income) is the most common CRT structure for clients with heirs — make sure the ILIT is established and the insurance is in place before the CRT is funded.
The charitable deduction calculation requires an IRS-approved actuarial calculation — coordinate with the client's CPA on the deduction amount.
Name the client's private foundation as the charitable remainder beneficiary — this gives the family maximum flexibility over the charitable use of the assets.
Estate Planning Hotline — c/o Estate Law Training Center / Law & Tax Foundation
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