Glossary term
Charitable Remainder Trust (CRT)
A charitable remainder trust is an irrevocable split-interest trust that pays income to noncharitable beneficiaries for a period of time and later transfers the remainder to charity.
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What Is a Charitable Remainder Trust?
A charitable remainder trust, or CRT, is an irrevocable split-interest trust that pays income to one or more noncharitable beneficiaries for a period of time and later transfers the remaining assets to charity.
CRTs are advanced planning tools. They can help coordinate charitable intent, appreciated assets, income planning, and taxes, but they require careful legal and tax design.
Key Takeaways
- A CRT pays income to noncharitable beneficiaries first and leaves the remainder to charity later.
- CRT assets are transferred to an irrevocable trust.
- The two main types are charitable remainder annuity trusts and charitable remainder unitrusts.
- CRTs can be useful with appreciated assets, but they are not simple tax shelters.
- Improper design or administration can create tax and compliance problems.
How a CRT Works
A donor transfers assets to the trust. The trust then pays an income stream to the donor or other noncharitable beneficiaries for life or a term of years, subject to the rules. After that period ends, the remaining trust assets go to one or more qualified charities.
The charitable deduction, income taxation, payout design, remainder value, and administrative requirements depend on the trust structure and tax rules.
CRAT Versus CRUT
Type | Basic payout structure |
|---|---|
Charitable remainder annuity trust | Pays a fixed dollar amount |
Charitable remainder unitrust | Pays a fixed percentage of trust value recalculated periodically |
Why People Use CRTs
People may use CRTs when they have charitable intent and own appreciated assets that would create tax friction if sold outright. A CRT may allow the assets to be sold inside the trust and converted into an income stream while eventually supporting charity.
The strategy should fit the donor's broader estate, tax, income, and family goals. A CRT is not a good fit if the donor needs full control or may need the assets back later.
The Bottom Line
A charitable remainder trust is an irrevocable trust that combines an income stream for noncharitable beneficiaries with a future charitable gift. It can be powerful, but it belongs in careful legal, tax, and charitable planning.