Charitable Remainder Trust (CRT) Guide 2026:
Tax Benefits, Types & How to Set One Up

Imagine selling a $1 million stock position — but instead of writing a check to the IRS for $200,000 in capital gains tax, you invest the full $1 million, collect income for life, take a significant charitable deduction today, and leave the remainder to a cause you care about.

That's the core proposition of a charitable remainder trust (CRT) — one of the most powerful tax planning tools available to high-net-worth individuals with highly appreciated assets.

CRTs aren't for everyone. They require a minimum of $100,000 in assets, cost $3,000–$10,000 in attorney fees to establish, and are irrevocable — once you create one, you can't take your assets back. But for the right person, a CRT can save hundreds of thousands of dollars in taxes while creating a meaningful charitable legacy.

What Is a Charitable Remainder Trust and How Does It Work?

A charitable remainder trust is an irrevocable trust established under IRS rules (IRC Section 664) with two types of beneficiaries:

1. Income beneficiaries — you (and/or your spouse, children, or others you name) receive an income stream from the trust for a period of time
2. Remainder beneficiary — one or more qualified charities receive whatever is left in the trust when the income period ends

Here's how the mechanics work step by step:

1. You create the trust — an estate planning attorney drafts a CRT document naming you as the income beneficiary and your chosen charity as the remainder beneficiary
2. You transfer appreciated assets — stocks, real estate, business interests, or other assets go into the trust
3. The trust sells the assets — because the trust is tax-exempt, it can sell the assets without paying capital gains tax immediately
4. You receive an income stream — the trust pays you a percentage (CRUT) or fixed dollar amount (CRAT) annually for your chosen term
5. You take a charitable deduction — you get an immediate income tax deduction in the year you fund the trust, based on the actuarial present value of the charity's remainder interest
6. The trust term ends — after the income period (either your death or the end of a fixed term), the remaining assets pass to the designated charity

CRUT vs. CRAT: The Two Types of Charitable Remainder Trusts

The two main types of CRTs differ in how they calculate your annual income payment:

CRUT — Charitable Remainder Unitrust

A CRUT pays you a fixed percentage of the trust's value, recalculated annually. For example, if you set a 5% CRUT with $1 million in assets:

• Year 1: Trust worth $1,000,000 → you receive $50,000
• Year 2: Trust worth $1,100,000 (after growth) → you receive $55,000
• Year 3: Trust worth $950,000 (after market decline) → you receive $47,500

CRUT advantages:

• Income grows with trust performance — inflation protection
• You can make additional contributions to a CRUT after formation
• More flexibility — variants include Net Income CRUT (NI-CRUT), Net Income with Makeup CRUT (NIMCRUT), and Flip CRUT

CRUT disadvantages:

• Income is variable — can decrease in bad years
• More complex administration (annual valuations required)
• Minimum payout rate: 5%. Maximum: 50%

CRAT — Charitable Remainder Annuity Trust

A CRAT pays a fixed dollar amount each year, regardless of trust performance. If you set a $50,000/year CRAT:

• Year 1: You receive $50,000 (regardless of trust value)
• Year 5: You receive $50,000 (same amount)
• Year 15: You still receive $50,000 (same amount)

CRAT advantages:

• Predictable, fixed income — easier to plan around
• Simpler administration — no annual revaluation needed

CRAT disadvantages:

• No inflation protection — fixed payments lose purchasing power over time
• Cannot accept additional contributions after formation
• If the trust runs out of money before the term ends, payments stop (though this is rare with proper planning)
• Minimum payout: 5%. Maximum: 50%

The Three Major Tax Benefits of a CRT

1. Capital Gains Tax Deferral (The Big Win)

This is why most people create CRTs. When you transfer appreciated assets to the trust and the trust sells them, the trust itself pays no capital gains tax — because it's a tax-exempt entity.

Instead, the capital gains are "trapped" in the trust and come out as part of your income distributions, taxed under the four-tier income ordering rules:

1. Ordinary income (taxed at your marginal rate)
2. Qualified dividends and long-term capital gains (taxed at capital gains rates)
3. Non-qualified dividends (taxed at ordinary rates)
4. Return of principal (tax-free)

The key benefit: instead of paying all the capital gains tax in Year 1, the gains are spread over the income distributions across many years — and in years where you're in a lower tax bracket, some of that gain may be taxed at lower rates.

2. Charitable Income Tax Deduction

When you fund a CRT, you receive an immediate charitable income tax deduction equal to the actuarial present value of what the charity will eventually receive. This is calculated using:

• The initial contribution amount
• The payout rate (higher payouts = less for charity = smaller deduction)
• The term of the trust (longer term = less for charity = smaller deduction)
• The IRS discount rate (the "7520 rate" published monthly — higher rates = larger charitable deduction)
• The age of the income beneficiary (older beneficiary = shorter expected term = more for charity = larger deduction)

The deduction is limited to 30% of your adjusted gross income (AGI) for appreciated property contributions, with a 5-year carryforward for amounts you can't use in Year 1.

3. Estate Tax Reduction

Assets transferred to a CRT are removed from your taxable estate. The charity receives the assets free of estate tax, and your estate is reduced by the full value of the contribution. For people with estates exceeding the federal exemption ($13.99 million per person in 2026), this can save significant estate taxes.

Worked Example: $1 Million Stock Position

CRUT Variants: NI-CRUT, NIMCRUT, and Flip CRUT

The standard CRUT has several specialized variants for specific situations:

Net Income CRUT (NI-CRUT)

Pays the lesser of (a) the stated percentage or (b) the trust's actual net income for the year. Useful when trust assets (e.g., real estate, illiquid investments) don't generate regular income. You only receive income when the trust actually earns it.

Net Income with Makeup CRUT (NIMCRUT)

Like NI-CRUT, but adds a "makeup" provision: in years where the trust pays less than the stated percentage (because income was insufficient), the shortfall is tracked, and in future high-income years, the trustee can pay the makeup amount in addition to the regular percentage. Excellent for retirement planning: fund now, accumulate, then receive higher payments in retirement when you need the income most.

Flip CRUT

Starts as a NI-CRUT and "flips" to a standard CRUT upon a triggering event (typically the sale of an illiquid asset like real estate or a business interest). Ideal for funding a CRT with real estate — the trust receives the property, waits until it's sold, then converts to a standard CRUT and starts paying the full percentage amount.

Qualified Charities: Who Can Be the Remainder Beneficiary?

The remainder beneficiary must be a qualified charity under IRC Section 170(c). This includes:

• Public charities — 501(c)(3) organizations (universities, hospitals, churches, community foundations)
• Private foundations
• Donor-advised funds (DAFs) — a popular option for flexibility; you can name a DAF as beneficiary and later decide which charities receive the grants
• Governmental entities (for public purposes)

You can name multiple charities, and you can retain the right to change the remainder charity during your lifetime (in a CRUT — CRATs typically don't allow this). The charity must be qualified at the time of distribution; if a named charity loses its 501(c)(3) status, the trust document should specify a backup charity.

Who Benefits Most from a Charitable Remainder Trust?

CRTs provide the greatest benefit for people who:

• Have highly appreciated assets — stocks, real estate, or business interests with a low cost basis (the capital gains deferral benefit is proportional to the embedded gain)
• Want retirement income — especially pre-retirees funding a NIMCRUT that accumulates during working years and pays out higher income in retirement
• Have genuine charitable intent — CRTs only make sense if you actually want to give to charity; if you don't, the assets "lost" to charity make the math unfavorable compared to simply selling and reinvesting
• Have estates likely to exceed the federal exemption — CRTs reduce the taxable estate while providing income
• Have high current income — the charitable deduction is worth more when you're in a high tax bracket (32%, 35%, or 37%)
• Want to diversify a concentrated stock position without a massive immediate tax bill

CRTs Are NOT a Good Fit If You:

• Don't have genuine charitable intent (the tax benefits rarely outweigh giving up the assets)
• Have assets under $100,000 (attorney fees and administration costs eat too much of the benefit)
• Need to access the principal (once assets are in an irrevocable CRT, you can't get them back)
• Have assets with little or no embedded capital gain (the main benefit disappears)
• Are in a lower tax bracket (smaller benefit from the deduction and capital gains deferral)

Minimum Asset Requirements and Costs

Minimum Assets

There is no legal minimum set by the IRS, but the practical minimum is:

• $100,000 — absolute minimum to make attorney costs and administration worthwhile
• $250,000–$500,000 — the practical sweet spot where tax benefits clearly outweigh all costs
• $1,000,000+ — ideal size where the full benefit of CRT planning is realized

Costs to Set Up a CRT

The Annual IRS Reporting Requirements

CRTs are not a set-it-and-forget-it structure. Ongoing requirements include:

• Form 5227 — filed annually with the IRS reporting trust income, deductions, distributions, and asset values
• Schedule K-1 — issued to each income beneficiary showing their share of income under the four-tier ordering rules
• Annual CRUT valuation — the trustee must determine the trust's fair market value each year (for CRUT payout calculation)
• State filings — many states require charitable trust registration and annual reporting (particularly California, which requires registration with the state Attorney General's office)

Most CRT trustees hire a professional trustee or CPA to handle these annual requirements, at a cost of $1,000–$3,000 per year.

How to Find a Charitable Remainder Trust Attorney

Setting up a CRT requires an attorney who specializes in estate planning and charitable giving — not just any attorney. Here's how to find the right one:

1. Look for ACTEC Fellows

The American College of Trust and Estate Counsel (ACTEC) is the gold standard for estate planning attorneys. Fellows must be nominated by peers, have at least 10 years of experience, and demonstrate exceptional knowledge of trust and estate law. Find an ACTEC fellow near you at actec.org.

2. Ask Your Financial Advisor

If you work with a wealth manager, private bank, or financial planner, they likely have estate planning attorneys they work with regularly on CRT structures. This coordination is valuable because the CRT's investment strategy needs to align with the payout obligations.

3. Consult Your Charity

Large charities (universities, major hospitals, community foundations) often have planned giving officers on staff who can recommend attorneys experienced in CRT structures. Some charities even offer to serve as trustee — which simplifies administration but may limit investment flexibility.

4. State Bar Referral Services

Your state bar association likely has a referral service for estate planning specialists. Ask specifically for attorneys with experience in charitable planned giving or irrevocable trust planning.

Questions to Ask a Prospective CRT Attorney

• How many CRTs have you drafted in the last 3 years?
• Do you work with a CPA to model the tax outcomes before we commit?
• Can you prepare the Form 5227 filings, or will you coordinate with a CPA for that?
• Have you worked with a Flip CRUT for real estate before?
• What is your flat fee or hourly rate for a CRUT/CRAT?

CRT vs. Other Charitable Giving Strategies

Frequently Asked Questions