Charitable Remainder Trusts: How They Work and Why You Might Want One

Ever heard of a charitable remainder trust (CRT) and thought it sounded too legal? It’s actually a straightforward way to keep some income for yourself, cut taxes, and leave money to a cause you care about. Think of it as a win‑win: you get cash now, the charity gets a future gift, and the tax man takes less.

Here’s the basic idea. You put assets—cash, stocks, real estate—into a trust. The trust pays you (or a partner) a set amount each year, either a fixed cash sum or a percentage of the trust’s value. After you (or your partner) pass away, whatever is left goes to the charity you chose. The IRS likes this because they see an immediate charitable donation, even though the charity gets the money later.

Benefits of a Charitable Remainder Trust

Tax break right away. When you fund a CRT, you can claim an income‑tax deduction based on the present value of the future charity gift. That can shave a big chunk off your taxable income the year you donate.

Avoid capital‑gains tax. If you move appreciated stocks or property into the trust, you don’t pay capital‑gains tax at the time of transfer. The trust sells the assets, pays you the income, and the gain is effectively deferred.

Steady income. Whether you pick a fixed amount (CRT‑Annuity) or a percentage of the trust’s assets (CRT‑Unitrust), you know what you’ll receive each year. It works well for retirees looking for reliable cash flow.

Leave a lasting legacy. When the trust ends, the remaining assets go straight to the charity you love. You can support a school, a hospital, an environmental group—whatever matches your values.

Steps to Set Up a Charitable Remainder Trust

1. Pick the charity. Choose a qualified nonprofit that aligns with your passion. You can even name more than one.

2. Decide the payout. Figure out whether you want a set dollar amount each year or a percentage of the trust’s value. The IRS requires the charity to receive at least 10% of the trust’s assets, so plan accordingly.

3. Gather assets. Most people use appreciated securities or real estate because they get the biggest tax boost. Cash works too, just with a smaller deduction.

4. Work with professionals. A qualified attorney, tax advisor, and possibly a financial planner will draft the trust document, calculate the deduction, and make sure everything follows IRS rules.

5. Fund the trust. Transfer the assets into the trust. The trust can then sell them, invest the proceeds, and start paying you.

6. Enjoy the income. You’ll receive your yearly payout, and the trust will file a simple tax return each year (Form 5227).

7. Watch the remainder go to charity. After the last payout date—usually the death of the income beneficiary—the remaining assets are sent to the nonprofit.

That’s the whole process in a nutshell. It sounds like a lot, but most people rely on a small team of experts to handle the paperwork while they focus on the benefits.

If you’re curious whether a CRT fits your financial picture, start by listing your charitable interests and the amount of income you’d like each year. Then talk to a tax pro; they can run the numbers and let you see the exact deduction you’d claim.

Bottom line: a charitable remainder trust lets you turn appreciated assets into a steady income stream, cut your tax bill, and make a meaningful donation that lives on after you’re gone. It’s a practical tool for anyone who wants to give back without giving up all the cash they need today.