CRT: Charitable Remainder Trusts
TL;DR: A CRT allows you to donate appreciated assets to a trust to receive an immediate tax deduction and a steady income stream for life. It’s the financial equivalent of doing well by doing good i.e. deferring capital gains taxes while securing your future and a charitable legacy.
What is a Charitable Remainder Trust?
A Charitable Remainder Trust (CRT) is a “split-interest” vehicle. This means the benefits are split: you (the donor) or your beneficiaries receive income for a specific period (either a set number of years or for life), and when that period ends, the “remainder” is distributed to one or more qualified charities.
It is particularly effective for those holding highly appreciated assets (like real estate or stocks) who want to sell without being hit by an immediate, massive capital gains tax bill.
Choosing Your Structure: CRAT vs. CRUT
Not all CRTs are created equal. Depending on your risk tolerance and income needs, you will choose one of two primary formats:
| Feature | Charitable Remainder Annuity Trust (CRAT) | Charitable Remainder Unitrust (CRUT) |
|---|---|---|
| Payment Type | Fixed dollar amount each year. | Fixed percentage of the trust’s value. |
| Inflation Protection | None; payment stays the same. | High; income grows if trust assets grow. |
| Additional Gifts | No additional contributions allowed. | You can add assets to the trust over time. |
| Risk Profile | Predictable, but loses purchasing power. | Variable, but offers higher growth potential. |
Practical Steps to Take
- Calculators: Use the Free CRT calculator tool.
- Review IRS website: Read up on IRS’s literature.
- Request free consultation: Does CRT make sense for your specific use case?.
FAQ
Can I change the charitable beneficiary??
Yes! In most CRT structures, you can retain the right to change the designated charity to another qualified 501(c)(3) organization at any time.
How much income can I take from the trust?
The IRS requires the annual payout to be at least 5% but no more than 50% of the trust’s value. However, the higher the payout, the harder it is to pass the “10% remainder” test mentioned above.
What happens to the money when I pass away?
Once the trust term ends (either at a specific date or upon the death of the last income beneficiary), the remaining assets are distributed to your chosen charity, fulfilling your philanthropic legacy.