The short version
You irrevocably transfer an appreciated asset, often concentrated stock or real estate, into the CRT. The trust can sell that asset without paying capital gains tax at the time of sale, because it is a tax-exempt entity, so the full pre-tax value gets reinvested. The trust then pays you income for life or for a term of up to 20 years. When the trust ends, the remainder goes to the charity you named.
In exchange for the future gift to charity, you get a partial charitable deduction up front, based on the present value of what the charity is projected to eventually receive.
The three benefits working together
- Capital gains deferral. The trust sells the appreciated asset without an immediate capital gains bill, so more capital stays invested and working for you.
- An income stream. You receive payments for life or a set term, turning an asset that may produce little or no cash into reliable income.
- An upfront partial deduction. You get a charitable deduction now for the present value of the remainder interest the charity is expected to receive.
The two flavors
Charitable remainder annuity trust (CRAT): pays a fixed dollar amount each year, set when the trust is created. Predictable, but no inflation adjustment, and you cannot add more assets later.
Charitable remainder unitrust (CRUT): pays a fixed percentage of the trust's value, recalculated annually. Payments rise and fall with the portfolio, which offers some inflation protection, and you can usually make additional contributions over time.
The required minimums: a CRT must pay out at least 5% and no more than 50% of trust assets annually, and the charitable remainder must be projected to be at least 10% of the initial value. These IRS guardrails are why a CRT needs to be designed carefully rather than off a template.
How the income is taxed
The payments you receive are not tax-free. They carry out the trust's income under tiered rules: ordinary income first, then capital gains, then other income, then tax-free return of principal. So while you defer the big capital gains hit at sale, you do recognize gain gradually as you receive payments over the years.
Who it fits
A CRT tends to make sense for someone holding a large, highly appreciated, low-basis asset who wants three things at once: to diversify, to create an income stream, and to make a meaningful charitable gift. Founders sitting on concentrated stock and long-time owners of appreciated real estate are classic candidates.
It is less suitable if you might need the full principal back, since the transfer is irrevocable, or if your giving goal is modest enough that a donor-advised fund or QCD would accomplish it with far less complexity and cost.
Where this trips people up
Underestimating the complexity and cost
A CRT requires a trust document drafted by an attorney, ongoing administration, annual valuations for a CRUT, and a separate trust tax return. This is a coordinated effort across your attorney, advisor, and CPA, not a do-it-yourself project.
Forgetting it is irrevocable
Once funded, you cannot unwind a CRT to get the assets back. The income stream is yours, but the principal is committed.
Expecting the income to be tax-free
The deferral is real, but the payments are taxable as they come out under the tiered rules. The benefit is spreading and deferring the tax, not eliminating it.
Charitable remainder trust questions people ask
What does a charitable remainder trust do?
It lets you transfer an appreciated asset into a trust that can sell it without immediate capital gains tax, pay you income for life or a term, and leave the remainder to charity. You also get a partial upfront deduction.
What is the difference between a CRAT and a CRUT?
A CRAT pays a fixed dollar amount each year. A CRUT pays a fixed percentage of the trust's value, recalculated annually, which offers inflation protection and usually allows additional contributions.
Is the income I receive tax-free?
No. Payments are taxed under tiered rules: ordinary income first, then capital gains, then other income, then return of principal. The benefit is deferral and spreading, not elimination.
How big does the charitable gift have to be?
The charitable remainder must be projected to be at least 10% of the initial value, and the trust must pay out between 5% and 50% of assets each year.
Who is a CRT best for?
Someone with a large, low-basis appreciated asset who wants to diversify, generate income, and make a significant charitable gift. It is overkill for modest giving goals.
Keep reading
Qualified charitable distributions
A simpler giving tool, and the one-time option to seed a CRT from your IRA. →
Giving appreciated stock
The simplest way to give appreciated shares without a trust. →
Estate planning and the CPA
How a CRT fits alongside the rest of your plan, and who handles what. →
All resources
Browse every explainer in one place. →
Sitting on a concentrated, low-basis position?
A charitable remainder trust is one way to diversify, create income, and give, all at once, but it has to be designed with care. I focus on the tax side and coordinate with your attorney and advisor on the rest. Here is how to start a conversation.
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Andrew Sedlacek, CPA
Founder, OGCPA
Andrew is a Certified Public Accountant and the founder of OGCPA. He built his tax career at a local Bend firm and on Deloitte's tax team before founding the firm in 2019, and began professionally as a licensed financial advisor. He focuses on equity compensation, liquidity events, and the tax side of charitable giving and wealth distribution, and serves as the tax subject-matter expert for a venture-backed AI company. He works with clients across Bend, Oregon and the San Francisco Bay Area.
This article is general information, not tax or legal advice for your specific situation. Tax outcomes depend on your individual facts, and the rules change over time. Figures cited reflect 2025 and 2026 amounts and the changes made by the One Big Beautiful Bill Act. Talk to a qualified professional (I am happy to be that person) before acting on anything here. Reading this page does not create a client relationship.