Key takeaways

• A charitable remainder trust is an irrevocable trust that pays income to you or other beneficiaries, then leaves remaining assets to charity.
• A CRT pays income for life or up to 20 years; payments may be taxable, and donors may qualify for a partial deduction.
• Charitable remainder trusts may suit donors with appreciated assets who want ongoing income while making a lasting commitment to charity.

Charitable giving in the U.S. rose to $617 billion in 2025, with donations from wills and trusts rising 20% from 2024.¹ One way that these donations are made is through charitable remainder trusts (CRTs). A donor can potentially use a CRT to make partially deductible donations while still providing an income stream for themselves and other beneficiaries.

Explore what a charitable remainder trust is, how it works, and how it compares to other giving strategies.

What is a charitable remainder trust?

A charitable remainder trust (CRT) is an irrevocable trust that pays income to one or more living noncharitable beneficiaries for life or a term of up to 20 years. When that payment period ends, the remaining assets pass to one or more qualified charitable organizations.²

Those who create and fund trusts are called donors. Donors are responsible for funding the trust and for naming a trustee, income beneficiaries, and specific charities or organizations. Trustees manage the assets placed in the trust, making sure they are distributed properly to beneficiaries during the life of the trust. At least one income beneficiary must be named to receive payments during this period, including spouses, relatives, or other individuals. Once the donor dies or the trust period ends, the remaining assets held in the CRT are distributed to the donor's specified charitable organization(s).³

CRTs are irrevocable, meaning that they can't be easily modified. Unlike with revocable trusts, donors are unable to remove assets from the trust, change beneficiaries or trustees, or modify distribution terms unless the trust specifically allows it.⁴ Because of their strict rules, charitable remainder trusts are generally created to achieve specific tax, philanthropic, and estate planning goals.

Read more: Revocable vs. Irrevocable Trust: Key differences

How does a charitable remainder trust work?

Here is an outline of the general process in which charitable remainder trusts follow:

1. The donor(s) and their estate planning attorney select the terms of the trust and its distribution structure, trustee, at least 1 income beneficiary, and at least 1 eligible charitable organization.
2. The donor then transfers cash, property, or other approved assets to the irrevocable trust to be distributed.
3. The trustee manages the assets held in the trust throughout the donor’s lifetime or for a stated term of no more than 20 years. During this time, the trust pays distributions to its beneficiaries. For lifetime transfers, the trust generally receives the donor's carryover basis.
4. When the payment term ends or the donor dies, the remaining trust assets pass to the donor’s selected qualified charities. The value projected to remain for charity must generally be at least 10% of the initial value of the assets placed in the trust.

Throughout this process, the trustee is responsible for reporting income, distributions, deductions, and relevant transactions. Beneficiaries are responsible for reporting the income they receive when filing their personal income taxes. Assets held in the trust may not be used to pay personal expenses, make loans, or make payments beyond the permitted income interest.⁵

What types of assets can be placed in a CRT?

Common assets that can be placed in a CRT include:

• Cash
• Publicly traded securities
• Real estate
• Closely held business interest
• Certain other complex assets

Other assets may require professional review and may be unsuitable or prohibited. This can include:

• Encumbered property
• S-corporation stock
• Prearranged-sale situations
• Hard-to-value interests
• Assets that produce unrelated business taxable income⁶

An estate planning attorney can offer guidance on the types of assets that may be best suited for a charitable trust.

Read more: How to Set Up a Trust Fund

CRAT vs. CRUT: Types of charitable remainder trusts

There are two types of charitable remainder trusts: charitable remainder annuity trusts (CRATs) and charitable remainder unitrusts (CRUTs). Donors can pick either type of trust depending on their payment structure, valuation, and ability to make additional contributions.

• Charitable remainder annuity trust (CRAT): Pays a fixed dollar amount each year, between 5% and 50% of the initial value of the trust. Additional contributions generally cannot be made.
• Charitable remainder unitrust (CRUT): Pays a fixed percentage each year, between 5% and 50% of the fair market value of the trust assets, valued annually. Additional contributions may be permitted depending on the structure of the trust.⁷

CRATs may offer greater predictability in payouts as a fixed dollar amount is distributed annually to beneficiaries. However, if the value of the trust grows, due to investment returns or gains in property value, beneficiaries will not see increased payments. CRUT payments operate differently. Because payments are based on a specific percentage rather than a dollar amount, beneficiaries may see larger payments as the value of the trust grows. That said, if the market value of the trust assets decreases, then annual payments may also diminish.

Charitable remainder trust taxes and deductions

Charitable remainder trusts can offer several tax benefits, including:

• Investment growth and capital gains are tax-deferred: A CRT generally does not pay current income tax on any investment income or capital gains. However, those amounts may be taxable when distributed to noncharitable beneficiaries.
• Donors can claim partial charitable deductions: An upfront tax deduction may be claimed by donors based on the value of the assets projected to go to a qualified charity. This amount, referred to as the remainder interest, must be at least 10% of the initial value of the trust.
• CRTs can lower a donor's estate taxes: Assets placed into an irrevocable CRT may be removed from the donor's taxable estate, potentially lowering their overall estate taxes.⁸

Partial charitable deduction

When contributing to a CRT, donors may qualify for a partial charitable deduction. This deduction is based on the donor's adjusted gross income (AGI) and the value of assets in the trust projected to go to charity. Several factors go into this projection, including:

• Payout frequency and projected payments
• Value of any property held in the trust
• Trust term or beneficiary life expectancy
• Rate of growth of trust assets, using IRS interest rates⁹

Other IRC Section 170 limitations may also impact the amount that donors can deduct as charitable contributions. Due to the complexity of these projections, it's worth consulting an estate planning professional for additional guidance.¹⁰

Four-tier taxation of beneficiary payments

Charitable remainder trusts are exempt from taxes on investment growth and capital gains. However, noncharitable beneficiaries must pay taxes on the payments they receive from CRTs. These payments are taxed as distributions of the trust's income and gains in the following order:

1. Ordinary income: Beneficiaries pay ordinary income taxes on trust payments if the trust has enough ordinary income to cover the entire payment amount.
2. Capital gains: If beneficiary payments exceed the trust’s ordinary income, this excess amount is taxed as capital gains based on the sale or disposition of the trust's capital assets.
3. Other income: If all ordinary income and capital gains in the trust are fully distributed, then any additional payments are characterized as other income.
4. Corpus: After all trust income and gains are fully distributed, additional payments to beneficiaries are considered corpus or "principal" of the trust and are not subject to tax.¹¹

Income beneficiaries are also responsible for reporting the income they receive from charitable remainder trusts using Schedule K-1 (Form 1041).¹²

How does a CRT compare with other charitable-giving strategies?

There are alternative ways to donate assets to charity other than charitable remainder trusts. Your individual strategy will depend on several factors, including your specific tax, philanthropic, and estate planning goals.

Who might a CRT be a good fit for?

CRTs may be a good fit for donors who want to donate to charity while providing income for themselves or another beneficiary. They may be particularly useful for people with appreciated assets, such as stocks or real estate, who want to diversify investments within the trust and potentially qualify for a partial charitable deduction.

Because contributions are irrevocable, a CRT is generally better suited to donors who can permanently commit those assets without needing access beyond the trust’s scheduled payments. Donors should also be comfortable with ongoing trust administration and reporting requirements, and understand that payments to income beneficiaries may be taxable.