Quick answer: A charitable remainder trust (CRT) pays you income for life (or a fixed term up to 20 years), then passes the remaining assets to a named charity. You get an immediate partial tax deduction when you fund it, and the trust can sell highly appreciated assets — like farmland or stock — without paying capital gains. It's a win for your cash flow, your taxes, and your charitable heritage.
How the Income and Tax Benefits Work
You transfer appreciated assets into the CRT — say, land worth $1 million with a $200,000 cost basis. The trust sells the land tax-free and reinvests the full $1 million. You begin receiving an annual income stream (a minimum of 5% of trust value per year is required by IRS rules). You also receive an income tax deduction in the year of funding — the deduction equals the present value of what charity will eventually receive, typically 10–60% of the contributed amount depending on your age and payout rate.
Two Main Types: CRAT vs. CRUT
- CRAT (Charitable Remainder Annuity Trust) — pays a fixed dollar amount each year, regardless of trust performance. Simpler, but no additional contributions allowed after funding.
- CRUT (Charitable Remainder Unitrust) — pays a fixed percentage of the trust's value each year, which fluctuates with the portfolio. Allows additional contributions and offers more flexibility.
When a CRT Makes Sense
CRTs work best for people who have highly appreciated assets they want to sell without a large capital gains hit, need additional retirement income, and have charitable intentions. Ranch families selling land, business owners exiting a company, or retirees holding concentrated stock positions are ideal candidates. The main downside: you cannot change your mind — the trust is irrevocable and the charity will ultimately receive the remainder. Consult an estate attorney and CPA before proceeding.
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Kyle Ellison is a licensed financial professional in TX, CA, NV, MT, UT, NM helping families protect and pass on what they've built.