A charitable remainder trust (CRT) lets you contribute an appreciated asset — stock, a business interest, or real estate — into an irrevocable trust, avoid capital gains tax on the sale of that asset inside the trust, take a partial charitable deduction up front, and collect an income stream for years before the remaining balance eventually goes to charity. It’s one of the few strategies that turns a single concentrated, low-basis position into diversified income without an immediate tax hit on the sale.
The Two Flavors: CRAT and CRUT
A charitable remainder annuity trust (CRAT) pays you a fixed dollar amount each year, set when the trust is created and never adjusted. A charitable remainder unitrust (CRUT) pays you a fixed percentage of the trust’s value, revalued annually, so your payment moves with the trust’s investment performance. Under IRC Section 664, the payout rate for either type must fall between 5% and 50% of trust value, and the trust term is limited to either a fixed period of up to 20 years or the life (or joint lives) of the named beneficiaries.
The 10% Remainder Test
The IRS requires that the present value of what’s projected to eventually pass to charity be at least 10% of the trust’s initial funding value, calculated using IRS actuarial tables at the time the trust is set up. Pick a payout rate too high, or a term too long relative to the beneficiaries’ ages, and the trust simply fails to qualify — this is a hard numerical test, not a guideline, so the payout rate and term have to be modeled against the actual asset value before the trust is drafted.
What You Actually Get on the Tax Return
You get an immediate income tax charitable deduction in the year you fund the trust, sized to the present value of the charitable remainder interest (not the full asset value) and subject to the usual AGI percentage limits for the type of asset donated. Selling the appreciated asset inside the trust triggers no capital gains tax to you directly — the trust itself is generally tax-exempt on that sale, though the character of income (ordinary, capital gain, tax-exempt, or return of principal) carries out to you as you receive distributions, under a four-tier ordering system that taxes the highest-taxed income first.
The Estate Planning Angle
Assets placed in a CRT are removed from your taxable estate, which matters more now that the federal estate tax exemption — while raised to $15 million per person under OBBBA for 2026 — still represents a cliff some high-net-worth households will eventually face again if future law reduces it. A CRT is irrevocable, though: once funded, you can’t change your mind and get the asset back, which is the real tradeoff against the tax and income benefits.
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Related reading: Spousal Lifetime Access Trust (SLAT) and Qualified Charitable Distributions.
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