A charitable remainder trust (CRT) can help when you hold a concentrated, highly appreciated asset, like a single stock position, a business interest, or real estate, and you want income without simply “selling and paying the tax bill first.” A CRT is an irrevocable trust that pays a stream of distributions to one or more noncharitable beneficiaries for life or a term of years, then transfers what remains to charity.
This post explains how CRTs work at a high level, what rules shape the payout, and the practical steps that keep the plan tight.
Federal tax rules allow two primary forms of charitable remainder trusts. An annuity trust provides the income beneficiary with the same dollar payout each year, while a unitrust calculates distributions as a set percentage based on the trust’s value as it is remeasured annually.
The payout rate must stay within federal limits, including a minimum percentage and a cap, and the trust must make payments at least annually. CRTs also come with reporting requirements, for example, Form 5227 filings for many CRTs.
A CRT often appears in planning conversations when a client wants to diversify without triggering the same immediate tax consequences that can follow a direct sale. The trust structure can allow the trustee to sell and reinvest inside the CRT, while the tax impact generally shows up as distributions go out to the income beneficiaries under IRS rules.
That means the details matter:
· The asset type and liquidity shape whether the CRT can support the payout schedule.
· The trust terms must match the IRS requirements, or the CRT can fail as a qualified CRT.
· The charitable remainder has to stay real, not symbolic, which affects drafting and funding decisions.
Schnauss Naugle Law helps clients with estate planning and trusts, including strategies that coordinate charitable goals with long-term family planning. If you want to explore whether a CRT fits an appreciated asset you hold, we can walk through the structure, flag common pitfalls, and coordinate next steps with your financial and tax professionals. Reach our office at 904-643-6342 or connect through our intake form.
