What Is a Charitable Remainder Trust?

Published 2026-07-07 · Optimist Tax Advisors

A charitable remainder trust (CRT) is an irrevocable, tax-exempt trust created under Section 664 of the Internal Revenue Code. It splits an asset into two interests: an income stream paid to you (or people you choose) for a set period, and a remainder that passes to charity when the period ends.

The two types

• Charitable remainder unitrust (CRUT). Pays a fixed percentage of the trust's value, revalued each year. If the trust grows, the payment grows. This is the more common form, and the one flexible enough to accept additional contributions.
• Charitable remainder annuity trust (CRAT). Pays a fixed dollar amount set at funding, regardless of performance. No additional contributions are permitted.

The rules that shape every CRT

• The payout rate must be between 5% and 50% of trust value.
• The term is either a period of up to 20 years or the lifetime of the income beneficiaries.
• The remainder passing to charity must be worth at least 10% of the contribution, measured actuarially at funding.
• The trust itself pays no tax when it sells contributed assets. You are taxed on distributions as you receive them, under ordering rules that treat payouts as ordinary income first, then capital gain, then tax-exempt income, then principal.

The typical sequence

An appreciated asset (stock, a business interest, crypto, real estate) is contributed to the trust. The trust sells it, paying no tax at sale, and reinvests the full proceeds in a diversified portfolio. You receive the annual payout for the term, reporting each distribution on your return. You also receive an income tax deduction in the year of funding equal to the present value of the charity's remainder interest, usable against a portion of income that year with a five-year carryforward. At the end of the term, the remaining assets go to the charity or donor-advised fund you named, which you can generally change along the way.

Who tends to use one

Holders of low-basis assets facing a large gain, particularly people who already give to charity, want an income stream, and value diversification now over maximum liquidity now. Whether the numbers work in a specific situation depends on basis, state taxes, the payout design, and time horizon; the honest comparison is against simply selling and paying the tax.