CRT Payout: Simple Guide to How Charitable Remainder Trust Distributions Work

Thinking about a charitable remainder trust (CRT) but not sure how the money actually gets paid out? You’re not alone. A CRT payout is the cash or income stream the trust sends to you (or your chosen beneficiaries) before the leftover goes to a charity. Let’s break it down in plain language so you know what to expect.

How CRT Payouts Are Calculated

There are two main types of CRTs: a charitable remainder annuity trust (CRAT) and a charitable remainder unitrust (CRUT). A CRAT pays a fixed dollar amount each year, while a CRUT pays a fixed percentage of the trust’s value, which can grow or shrink with the market. The IRS sets minimum payout rates—usually 5% for a CRUT and 6% for a CRAT—to keep the trust qualified.

When the trust is funded, the IRS runs a calculation called the "Section 7520" rate. This rate, based on current interest rates, determines the trust’s present value. That value, combined with the chosen payout method, tells you how much you’ll receive each year. If you pick a CRUT, the payout can rise when the trust’s investments do, giving you a bit of upside.

Key Steps to Manage Your CRT Payout

First, work with a qualified attorney or financial adviser to draft the trust document. The language must specify the payout type, the percentage or amount, and who the charitable beneficiaries are. Skipping this step can lead to tax trouble.

Second, fund the trust with assets that make sense—cash, appreciated securities, or real estate. Using appreciated assets can avoid capital gains tax at the time of transfer, which is one of the biggest tax benefits of a CRT.

Third, set up a schedule for distributions. Most trustees send payouts quarterly or annually. Keep good records because you’ll need to report the income on your tax return each year. The payout is taxed as ordinary income, but you’ll also get a charitable deduction for the remainder interest.

Fourth, stay in touch with the charity that will receive the leftover. Some donors like to name a specific project, while others let the charity decide. Clear communication helps avoid surprises when the trust ends.

Finally, review the trust periodically. If the market shifts dramatically, you might want to adjust the payout percentage (if you have a CRUT) or consider converting the trust type. Your adviser can run the numbers to see if a change makes sense.

Common pitfalls include setting a payout rate that’s too low, which can cause the trust to deplete faster than expected, or forgetting to file the required IRS Form 5227 each year. Both can jeopardize the trust’s tax‑exempt status.

In short, a CRT payout gives you an income stream, tax benefits, and the satisfaction of supporting a cause you care about. By understanding the calculation method, keeping good records, and staying proactive with your advisor, you can make the most of your charitable remainder trust.