If you have a sale coming up on appreciated real estate or business assets, you already know the capital gains tax bill can be substantial. Before you close, it’s worth asking whether a Charitable Remainder Trust (CRT) belongs in your plan.
The basic idea: instead of selling the asset yourself and paying capital gains tax on the proceeds, you contribute the asset to a CRT, which sells it tax-free. You receive income from the trust for life (or a set term), you get a partial charitable deduction in the year you fund it, and whatever remains at the end passes to a charity of your choosing. The government gets less. You get more.
CRTs are not the right fit for every situation, and they require careful planning to set up correctly. But if you are sitting on a highly appreciated asset and haven’t explored this option, it’s worth a conversation.
How a Charitable Remainder Trust Works
A CRT is a “split-interest” trust, meaning it serves two beneficiaries: a non-charitable beneficiary (you, your spouse, a child, or another individual) and a charitable beneficiary (a nonprofit or cause you designate).
Here is the basic structure:
When you fund the CRT with an appreciated asset, the trustee sells it. Because the CRT is a tax-exempt entity, the sale does not trigger capital gains tax at the time of sale. The full proceeds go to work inside the trust. The trustee then manages and invests those proceeds, and the non-charitable beneficiary receives income distributions on a schedule you set: annually, semiannually, quarterly, or monthly.
Income that is not distributed can accumulate in the trust without triggering income tax, allowing the principal to continue growing. At the end of the trust term, or upon the death of the income beneficiary, the remaining assets pass to the designated charity or charities.
You can serve as your own trustee, or you can name a third party. Given the trust’s legal and fiduciary responsibilities under both state and federal law, the trustee needs to be someone with actual experience managing trust assets. This is not a role to assign casually.
Assets commonly used to fund a CRT include:
- Publicly traded securities
- Certain types of closely held stock (note: CRTs cannot hold S-Corp stock)
- Real estate
- Certain other complex assets
The Two Main Types of CRTs
Charitable Remainder Annuity Trust (CRAT)
A CRAT pays the income beneficiary a fixed dollar amount each year, regardless of how the trust performs. The payment does not change whether the trust grows or shrinks. Additional contributions to a CRAT are not permitted after the initial funding.
Charitable Remainder Unitrust (CRUT)
A CRUT pays the income beneficiary a fixed percentage of the trust’s value, recalculated annually. Payments go up when the trust performs well and down when it does not. Unlike a CRAT, a CRUT allows additional contributions after the trust is established.
Which structure makes more sense depends on your income needs, risk tolerance, and planning goals.
Tax Benefits of a CRT in 2026
The tax advantages are the primary reason most people explore CRTs:
Capital gains tax deferral. The trust itself does not pay capital gains tax when it sells appreciated assets. That is the central benefit for sellers of real estate or business interests with a low cost basis.
Partial charitable income tax deduction. In the year you fund the CRT, you receive a partial charitable deduction based on the present value of the charitable remainder interest. The calculation accounts for the type of trust, the trust term, projected income payments, and the IRS discount rate in effect at the time. The deduction is capped at 30% of your adjusted gross income, but any excess can be carried forward for up to five years.
No estate tax on the charitable remainder. When the trust term ends and the remaining assets pass to charity, that transfer is not subject to estate tax.
Important to note: income distributions to the non-charitable beneficiary are taxable. Whether they are taxed as capital gains or ordinary income depends on the character of the income generated inside the trust. Distributions of principal are tax-free.
Is a CRT Right for You?
A CRT makes the most sense when:
- You have a highly appreciated asset with a low cost basis
- You are planning a sale that would otherwise generate a significant capital gains tax liability
- You have charitable intent
- You want a stream of income from the proceeds rather than a lump sum
It is not the right tool if you need full access to the proceeds immediately, if your estate is smaller, or if charitable giving is not part of your goals. Once assets go into a CRT, they do not come back out.
Work With an Attorney Who Knows This Area
CRTs come with specific requirements under the Internal Revenue Code, including rules about the minimum payout rate, the minimum charitable remainder, and the trust’s operational obligations. Getting this wrong can cost you the tax benefits entirely.
At Cochran Law Firm, P.L., we work with clients in Florida and Washington on estate planning strategies that address both tax efficiency and long-term goals. If you are approaching a sale of appreciated real estate or a business interest and want to understand whether a CRT belongs in your plan, contact our office to schedule a consultation FL – (407) 504-1020, WA – (425) 523-8200 or HERE.
IRS Publication 561 (determining the value of donated property) or the IRS CRT overview page for credibility.