Definition
A charitable remainder trust is an irrevocable trust that pays income to the donor or other beneficiaries for a period, then leaves the remainder to charity.
How It Works
The donor transfers appreciated assets into the trust, which can sell them without immediate capital gains tax, then pays the donor an income stream for life or a set term. The donor receives a partial charitable deduction up front, and the charity receives whatever remains at the end.
Example
A donor places a highly appreciated, low-yield asset into a CRT, which sells it tax-free, reinvests for income, and pays the donor for life, with the remainder going to charity.
When It Works Best
It works best for donors with highly appreciated assets who want income, a partial deduction, and a charitable legacy while diversifying out of a concentrated position tax-efficiently.
Who It Applies To
Charitably inclined high-net-worth individuals with appreciated assets.
Watch-Outs
The trust is irrevocable, the income payments are partly taxable, and the structure requires legal setup and ongoing administration.
