Charitable Remainder Trust
A Charitable Remainder Trust (CRT) is an irrevocable split-interest trust that provides an income stream to one or more non-charitable beneficiaries for a fixed term or life, with the remaining assets passing to one or more qualified charities at the end of the trust term. Donors who contribute appreciated assets to a CRT receive an immediate partial charitable deduction and can defer capital gains on the transferred assets.
CRTs are governed by IRC Section 664 and come in two primary forms. A Charitable Remainder Annuity Trust (CRAT) pays a fixed dollar amount each year, calculated as a percentage of the initial contribution, regardless of how the trust's assets perform. A Charitable Remainder Unitrust (CRUT) pays a fixed percentage — between 5% and 50% under IRS rules — of the trust's assets as revalued annually, meaning the payment fluctuates with the portfolio value. The CRUT structure is generally preferred for long-term planning because it provides some inflation protection and allows additional contributions, which CRATs do not permit.
The primary tax advantage of a CRT involves contributing appreciated, low-basis assets — such as publicly traded securities, real estate, or closely held business interests — to the trust rather than selling them outright. When a donor sells appreciated stock directly, they recognize capital gain in the year of sale. By contributing the stock to a CRT, the trust (which is itself tax-exempt under IRC Section 664(c)) can sell the asset without triggering an immediate capital gain. The proceeds remain in trust and generate the annuity or unitrust income stream, which is distributed to the beneficiary over time and taxed using a tiered hierarchy: ordinary income first, then capital gains (long-term then short-term), then non-taxable return of basis, and finally tax-free corpus.
The charitable deduction available to the donor in the year of contribution equals the present value of the remainder interest that will eventually pass to charity, calculated using IRS actuarial tables (Section 7520 rate) and the payout rate and trust term. A higher 7520 rate (published monthly by the IRS) increases the calculated present value of the charitable remainder, while a higher payout rate or longer trust term reduces it. In 2025, with 7520 rates in the range of 5-6%, CRT charitable deductions are generally more favorable than in the low-rate environment of the early 2020s.
CRTs are often used as part of a broader charitable giving strategy alongside Donor-Advised Funds (DAFs), private foundations, and qualified charitable distributions (QCDs). A common technique involves funding a CRT with appreciated stock to generate a deduction and income stream, then using a portion of the annual distributions to fund a DAF, which in turn makes grants to operational charities over time. This combination allows the donor to consolidate giving decisions, manage capital gains, and generate current income while accomplishing philanthropic goals.
The trust must meet several additional requirements. The annuity or unitrust amount must be at least 5% and no more than 50% of initial trust value for a CRAT, or at least 5% and no more than 50% of annual value for a CRUT. The present value of the charitable remainder must be at least 10% of the initial net fair market value of all assets contributed to the trust, or the IRS will not recognize the charitable deduction. The trust term for a fixed-term CRT cannot exceed 20 years.