Charitable Remainder Trusts: Give Now, Income Later

"It is more blessed to give than to receive." — Acts 20:35 (KJV)

Quick Answer

A Charitable Remainder Trust (CRT) is a sophisticated giving vehicle: you donate appreciated assets, receive a tax deduction, get income for life (or years), and at death the remainder goes to charity. Ideal for wealthy retirees who want to generate retirement income, avoid capital gains on appreciated assets, and leave a charitable legacy.

The Mechanics

Structure:

You (age 65)
 |
 v
Donate appreciated stock ($500,000)
 |
 v
CRT established
 |
 |--You receive: 7% annual income ($35,000/year) for life
 |--Charity receives: Remainder value at your death
 |
 v
Tax deduction (value of remainder): $200,000
Capital gains avoided: $150,000

Example: Illustrating the Power

Sarah: Age 65, wants income and wants to give

She has:

• $500,000 in appreciated stock (cost: $200,000, gain: $300,000)
• Wants $35,000/year income
• Wants to leave money to charity

Without CRT:

• Sell stock: capital gains tax on $300,000 = $66,000
• Net proceeds: $434,000
• Invest at 8%: $34,720/year income
• At death: No charitable benefit (money goes to heirs)
• Cost: $66,000 in capital gains tax

With CRT:

• Fund CRT with stock: $500,000
• Capital gains tax: $0
• CRT distributes to Sarah: 7% = $35,000/year for life
• Tax deduction: ~$200,000 (value of remainder going to charity)
• Tax savings: $200,000 × 24% = $48,000
• At death: Remainder goes to her chosen charity
• Cost: $0 in capital gains; Gain: $48,000 deduction

Net difference: $114,000 better off ($66,000 tax avoided + $48,000 deduction).

Why Use a CRT?

Reason 1: Income from appreciated assets without capital gains tax

• You have $500,000 stock, don't want to trigger $66,000 capital gains tax
• CRT receives stock, sells it (no tax), generates income for you
• You get income tax-free (partially); no capital gains tax triggered

Reason 2: Significant charitable deduction

• Deduction value depends on age, payout rate, interest rates
• At 65, $500,000 CRT might net $150,000-$200,000 deduction
• Saves $36,000-$48,000 in federal taxes

Reason 3: Diversification without tax hit

• You have $500,000 in one concentrated stock
• Want to diversify into bonds, real estate, other assets
• Selling triggers capital gains; CRT avoids this
• CRT diversifies internally

Reason 4: Legacy and values alignment

• You want to support charity you love
• Rather than dying with a large estate (taxed), use CRT
• Charity receives meaningful gift; you've reduced estate taxes

The Costs and Complexity

Setup cost: $2,000-$5,000 with attorney

Annual management:

• CRT must file annual Form 5227 (IRS return) and K-1s (to you)
• ~$500-$1,500/year in tax prep

Restrictions:

• Once established, mostly irrevocable
• Can't get assets back
• Must follow IRS payout rules
• Charitable beneficiary can't be changed in some cases

This is complex enough to warrant expert help. Don't DIY a CRT.

Who Should Consider a CRT?

Good fit:

• Age 60+
• Have appreciated assets ($500,000+)
• Don't need the asset (willing to give it away)
• Want steady retirement income
• Want to support charity
• In high tax bracket

Poor fit:

• Young (life expectancy long; charity might get less than expected)
• Need liquidity (money is tied up in trust)
• Low income (deduction doesn't help much)
• Uncertain about charitable intent

CRT Variations

CRUT (Charitable Remainder Unitrust):

• You receive a percentage of trust value each year (e.g., 7%)
• If trust grows, your payments grow
• Better if you expect inflation

CRAT (Charitable Remainder Annuity Trust):

• You receive fixed payment regardless of trust performance (e.g., $35,000/year)
• Simpler, more predictable
• More common

Survivor CRT:

• Income goes to you and spouse (both lives)
• Remainder goes to charity after both die
• Slightly lower deduction but covers both

The Tax Mechanics

Deduction amount:

• Not the full amount donated
• Remainder value (discounted for your expected lifespan)
• Formula: Present value of future charitable gift
• Higher payout rate = lower deduction
• Older age = higher deduction (shorter life expectancy)

Example: $500,000 CRT, age 65, 7% payout, 5% discount rate:

• Annual payout to you: $35,000
• Life expectancy (IRS tables): ~21 years
• Remainder value: ~$200,000
• Deduction: ~$200,000
• Tax savings: $200,000 × 24% = $48,000

Spiritual Angle: Generosity in Retirement

A CRT embodies a biblical principle: You can give generously and still be cared for.

Matthew 19:29: "And every one that hath forsaken houses, or brethren, or sisters, or father, or mother, or wife, or children, or lands, for my name's sake, shall receive an hundredfold..."

A CRT gives the hundredfold back in a different form—income for life, knowing the remainder serves a cause you believe in.

For a wealthy retiree, a CRT says: "I'm trusting God for my income, but I'm also aligning my estate with my values."

Practical Considerations

Question 1: Should I use appreciated stock or cash?

• Appreciated stock: Best (avoids capital gains tax)
• Real estate: Good (if unencumbered)
• Cash: Works but less tax-efficient

Question 2: What percentage should I take as income?

• 5%: More goes to charity, smaller deduction, stable but lower income
• 7%: Balanced approach
• 10%: Higher income now, less charitable remainder

Question 3: How long does this take?

• Setup: 4-8 weeks with attorney
• Ongoing: Minimal (trustee manages, you receive income)

Question 4: What if I change my mind?

• CRT is mostly irrevocable
• You can't undo it
• Make sure before establishing

Comparing to Alternatives

Practical Steps

Step 1: Consult a CRT specialist

• Find attorney experienced in CRTs (ask bar association)
• Initial consultation: usually free

Step 2: Assess your situation

• Do you have appreciated assets you'd donate?
• Do you need income in retirement?
• Is your charitable intent stable?

Step 3: Model scenarios

• Age 65, $500,000 stock, 7% payout: What's the deduction? The income?
• Age 60, $1M stock, 5% payout: Different numbers?

Step 4: Draft CRT

• Attorney prepares trust document
• Names charitable beneficiary
• Sets payout rate
• Funds trust with appreciated asset

Step 5: Manage ongoing

• CRT trustee manages investments
• You receive payout (income tax implications)
• File annual return (Form 5227)
• At death, remainder distributed to charity

Sources

• CRT regulations — IRS Publication 561
• Charitable remainder trust overview — IRS Topic 417
• Acts 20:35 exegesis — Matthew Henry's Commentary
• CRT valuation — Treasury Regulations 1.664
• Wealth transfer planning — American College of Trust and Estate Counsel

A Charitable Remainder Trust is sophisticated giving—you give significantly, receive income for life, reduce taxes, and support causes you love. For wealthy retirees, it's elegant stewardship.