Quick Answer: A charitable remainder trust (CRT) is an irrevocable trust that lets you donate appreciated assets, avoid immediate capital gains tax on their sale, and receive an income stream for life or a set term, with whatever remains going to a charity you choose. Along the way, you also receive an upfront partial income tax deduction and reduce the size of your taxable estate.
If you're holding appreciated stock, real estate, or a business interest and selling it outright would trigger a large capital gains bill, a CRT is worth understanding before you sell.
What Is a Charitable Remainder Trust?
A CRT is an irrevocable trust you fund with appreciated assets. The trust pays you (or another beneficiary you name) income for life or for a fixed term of years, and whatever is left in the trust at the end goes to one or more charities you've designated.
There are two structures:
Charitable remainder annuity trusts (CRATs) pay a fixed dollar amount every year, set when the trust is created. The payout doesn't change even if the trust's investments do well or poorly.
Charitable remainder unitrusts (CRUTs) pay a fixed percentage of the trust's value, recalculated annually. If the trust grows, your payout grows with it, which offers some inflation protection that a CRAT doesn't.
Both structures let you claim an immediate partial income tax deduction, based on the present value of what the charity is projected to eventually receive.
Why Contribute Appreciated Assets Instead of Selling Them First
The core advantage of a CRT shows up most clearly with a concentrated, highly appreciated position.
Say you bought stock years ago for $100,000, and it's now worth $1 million. Sell it directly, and you'd owe capital gains tax on the $900,000 gain, likely over $200,000 depending on your rate, leaving you with less than $800,000 to reinvest.
Contribute that same stock to a CRT instead, and the trust can sell it without paying capital gains tax at the time of sale, since the trust itself is tax-exempt for this purpose. The full $1 million goes to work generating your income stream. At a 5% payout rate, that's meaningfully more annual income than you'd get investing the smaller, after-tax amount from a direct sale.
This doesn't make the gain disappear forever. As the trust distributes income to you over time, those distributions carry the character of the trust's underlying income, so you're still taxed as you receive it, just spread out and on a larger base than you'd have had otherwise. For a closer look at exactly how that income-versus-principal split works once distributions start flowing to a beneficiary, and what shows up on your K-1, see our companion guide: Are Distributions From an Irrevocable Trust Taxable to the Beneficiary?
The Tax Benefits, Taken Together
An upfront income tax deduction. The deduction is based on the present value of the charitable remainder, which depends on the payout rate, the trust's term, the beneficiaries' ages, and IRS discount rates at the time you fund the trust. Deductions for appreciated property are generally capped at 30% of adjusted gross income in the year of the gift, with any unused amount carrying forward up to five years.
Deferred capital gains exposure. Because the trust sells contributed assets without immediate capital gains tax, you preserve more capital for income generation than you would by selling first and donating the after-tax proceeds.
A smaller taxable estate. Once assets go into the CRT, they're out of your estate, which matters most for larger estates approaching federal or state estate tax thresholds.
When a CRT Is Worth Considering
A CRT tends to make the most sense in a few specific situations:
Before a liquidity event. Business sales, IPOs, or a sudden inheritance of appreciated assets are the best times to set one up. Once you've already sold the asset and paid the tax, the main benefit is gone.
Concentrated stock positions. If a large share of your net worth sits in one company's stock, often from years of equity compensation, a CRT offers a way to diversify without triggering a large gain all at once.
Appreciated real estate you no longer need. Property that's grown substantially in value but no longer fits your goals can go into a CRT rather than being sold outright.
Genuine charitable intent. A CRT is irrevocable, and the remainder ultimately goes to charity. This only makes sense if you're comfortable with that outcome as part of your plan.
Your age and income needs. Generally, older grantors receive higher payout rates and larger upfront deductions, so a CRT tends to suit people who want current income more than those who already have plenty from other sources.
Fitting a CRT Into a Broader Plan
A CRT rarely works well in isolation. The timing of when you fund it matters for your income tax bracket in that year. Its interaction with your estate plan matters, particularly if you're also using an irrevocable life insurance trust to replace the value passing to charity for the benefit of your heirs. And it should complement rather than compete with other charitable vehicles you're using, such as a donor-advised fund or private foundation.
Given the irrevocable nature of a CRT and the number of moving pieces, this isn't a strategy to set up without a CPA who can model it against your full financial picture first.
Frequently Asked Questions
How does a charitable remainder trust reduce capital gains tax?
The trust itself is exempt from capital gains tax when it sells assets you've contributed, so the full value of the asset, not the after-tax amount, is available to generate your income stream. You're still taxed on distributions as you receive them, based on the character of the trust's income.
Who should consider a CRT?
People with highly appreciated, low-income-producing assets, those facing a liquidity event, concentrated stockholders looking to diversify, and anyone with genuine charitable intent who also wants income for life or a term of years.
Can a CRT pay income for my whole life?
Yes. You can structure payouts for your lifetime, joint lifetimes with a spouse, or a fixed term of up to 20 years.
How does a CRT affect my estate plan?
Assets you contribute leave your taxable estate, which can meaningfully reduce estate tax exposure for larger estates. A CRT can also be paired with an irrevocable life insurance trust to replace the value passing to charity for your heirs.