What is a charitable remainder trust?

A charitable remainder trust (CRT) is an IRS-approved trust that lets you sell a highly appreciated asset, such as stock, real estate, or a business interest, without paying capital gains tax on the sale. You transfer the asset to the trust, the trust sells it without paying tax on the sale and invests the full proceeds, and the trust pays you income for life or for up to 20 years.

You receive an income-tax deduction in the year of the gift for the present value of what the charity is expected to receive, and whatever remains in the trust at the end goes to the charity you choose. Our free calculator shows the whole picture: the tax you avoid today, your deduction and how much of it you can actually use, your yearly income and how the IRS taxes it, and what is left for charity and for your family compared with simply selling.

CRUT vs. CRAT: what is the difference?

A charitable remainder unitrust (CRUT) pays you a fixed percentage of the trust's value, re-measured every year, so your income rises when the investments grow and falls when they drop. A charitable remainder annuity trust (CRAT) pays a fixed dollar amount set on the day the trust is funded and never changes.

Both must pay between 5% and 50% a year, both must leave at least 10% of the gift to charity by IRS math, and a CRAT must also pass the IRS "5% test" that the trust is unlikely to run out of money. Use the calculator to compare both with your own numbers, payout rate, and investment assumptions.

How your trust payments are taxed

The trust itself is generally not subject to income tax, but the gain does not disappear. Under the IRS four-tier rule, every payment you receive is taxed first as ordinary income the trust earned, then as capital gain (including the gain on the asset you gave), then as tax-exempt income, and only then as tax-free return of principal. The calculator applies this rule year by year so you can see the real after-tax income, not just the headline payout.

Get personal advice

A charitable remainder trust must be drafted by an estate planning attorney and coordinated with your tax plan. Book a free consultation with Abotteen & Co. to review your numbers and the next steps.