Charitable Remainder Trust (CRT) for High-Net-Worth Individuals

A charitable remainder trust lets you donate appreciated assets — stock, real estate, business interests — into a tax-exempt structure that sells them without triggering capital gains. The trust pays you (or your spouse) an income stream for a fixed term. At termination, remaining assets pass to charity. You receive a partial charitable deduction upfront. For a $2M position with $300K cost basis, the federal capital gains permanently avoided: approximately $404,600 at the combined 23.8% LTCG + NIIT rate. Here's how the 2026 mechanics work.

How a charitable remainder trust works

You transfer appreciated property irrevocably to the CRT. The trust is a tax-exempt entity under IRC § 664(c).¹ It sells the asset without recognizing capital gains, invests the full pre-tax proceeds, and pays you a periodic income stream — either a fixed percentage of annually revalued assets (CRUT) or a fixed dollar amount (CRAT). When the trust terminates at the end of a fixed term (maximum 20 years for a term-certain trust) or at the death of the income beneficiaries, the remaining assets pass to one or more qualified charities you named at funding.

Three things happen simultaneously when you fund a CRT:

• Capital gains bypass. The trust's tax-exempt status means it owes no federal tax when it sells the contributed asset. The gain that would have triggered a combined 23.8% federal LTCG + NIIT rate (20% + 3.8%) is permanently eliminated — not deferred.
• Income stream on a larger base. The full pre-tax proceeds fund the income-producing portfolio. You earn income on the amount that would otherwise have been paid out as capital gains tax.
• Charitable deduction. You receive an upfront charitable deduction equal to the actuarial present value of the remainder interest — the charity's share — calculated using the IRS § 7520 rate (5.00% for May 2026, per IRS Rev. Rul. 2026-9).²

CRUT vs. CRAT: which structure fits

For most $5M–$50M households, the CRUT is the more flexible choice. The rest of this guide focuses on CRUTs.

CRUT income and remainder calculator

Model your charitable remainder unitrust. Enter the asset's fair market value, cost basis, payout rate (5% minimum, 50% maximum per IRC § 664), trust term, and assumed net investment return. The calculator compares (A) funding the CRUT — tax-free sale inside the trust — against (B) selling the asset outright, paying capital gains, and investing the after-tax proceeds at the same payout rate and return assumption. Federal figures only; state capital gains taxes are additional.

The capital gains bypass in detail

IRC § 664(c) exempts the CRT from federal income tax. When the trust sells a $2M position with a $300K basis, it owes no federal capital gains tax. If you had sold the same asset directly — above the $613,700 MFJ 20% LTCG threshold and the $250,000 MFJ NIIT threshold — you'd owe $1,700,000 × 23.8% = $404,600 in combined federal tax (per IRS Rev. Proc. 2025-32 and IRC § 1411).³

That $404,600 stays inside the trust, earning returns and funding your income stream. Over 15 years at a 7% return, $404,600 compounds to approximately $1.1M in incremental trust value. The capital gains bypass isn't just a one-time savings — it lifts every future year of income and the final remainder.

The charitable deduction: how much, when, and what limits apply

You receive a charitable deduction in the year of funding equal to the present value of the remainder interest — the actuarial estimate of what will eventually pass to charity, discounted at the § 7520 rate (5.00% for May 2026).²

• What's deductible. Only the charitable remainder interest — not the full FMV contributed. If you contribute $2M and the PV of the remainder is $700K, your deduction is $700K.
• AGI limit. Contributions of appreciated long-term capital gain property are subject to a 30%-of-AGI ceiling annually (IRC § 170(b)(1)(C)). Excess carries forward up to 5 additional years.⁴
• OBBBA 2026 floor. The 0.5%-of-AGI floor on charitable deductions applies. On $1.5M AGI, the first $7,500 of the deduction produces no benefit. For a $700K deduction, this reduces the deductible amount by roughly 1%.
• OBBBA 2026 cap for 37% bracket filers. For AGI above approximately $763,000 MFJ (37% bracket threshold, 2026 inflation-adjusted estimate), all itemized deductions are reduced by 2/37 — so the effective tax benefit is 35 cents per dollar, not 37. On a $700K deduction, the difference is $14,000.
• Calculation method. Exact deductions must be computed using IRS Publication 1457 (unitrust actuarial tables) or 1458 (annuity trust). The calculator above approximates PV of remainder at the § 7520 rate. Engage a CPA or estate attorney for the precise figure before filing.

CRT vs. DAF: when to use which

The two structures are also complementary. In the year of a business exit or large capital event, you might contribute one tranche to a CRUT for income and another tranche to a DAF for charitable giving — capturing the capital gains bypass on both while separately managing the income vs. philanthropy objectives.

Flip-CRUT: the solution for illiquid assets

A standard CRUT must begin paying the fixed percentage as soon as it holds assets. If you contribute illiquid assets — real estate, closely held stock, LP interests — the trust can't easily pay cash distributions before the asset sells. The Flip-CRUT solves this: the trust operates as a Net Income CRUT (NI-CRUT) from inception, paying only what it actually earns (net income). When a qualifying "flip trigger" event occurs — typically the sale of the illiquid asset — the trust permanently converts to a standard CRUT and begins paying the fixed percentage payout.⁴

Common Flip-CRUT applications at the $5M–$50M level:

• Low-basis rental real estate. Contribute the property before sale. The trust holds it during a NI-CRUT phase (earning rent), then executes the sale. The sale event is the flip trigger, and full CRUT distributions begin from the reinvested proceeds.
• Pre-IPO or closely held stock. Contribute shares before a liquidity event. Trust waits for the IPO or acquisition, then flips and begins distributions. No binding sale commitment may exist at the time of contribution — IRS scrutinizes this arrangement closely.
• Private equity interests. Contribute LP interests; flip on a major distribution or redemption event.

Estate planning integration

Removing assets from the taxable estate

Assets contributed to a CRT leave your taxable estate — provided neither you nor your estate is the sole beneficiary of the income stream. (If you retain sole income rights for life, the trust may be includable under IRC § 2036.) For a couple where both spouses are income beneficiaries, contributed assets leave the taxable estate; charity receives the remainder estate-tax-free. Under OBBBA's permanent $15M estate/gift/GST exemption, this matters most for estates modestly above the exemption — or in states with lower thresholds (Oregon $1M, Massachusetts $2M, New York $7.35M). See the estate planning guide for the full state-by-state breakdown.

Testamentary CRUT for IRA assets

IRA assets cannot be contributed to a CRT during your lifetime without triggering ordinary income recognition. The common alternative is the testamentary CRUT: name the trust as beneficiary of your traditional IRA. At death, the IRA distributes to the trust. The distribution is taxable as ordinary income — but the trust then pays that income out to beneficiaries over the trust term, spreading the recognition. Under the § 664(b) four-tier system, distributions to beneficiaries retain income character (ordinary income, then capital gain, then tax-exempt income, then corpus return).⁵ This structure is most useful for very large traditional IRAs where the 10-year inherited IRA rule (under T.D. 10001) would otherwise compress all recognition into a decade.

Practical considerations before funding

• Minimum practical size. Most practitioners recommend contributions of $250,000 minimum. Below that, trust drafting ($5K–$15K), annual Form 5227 filing fees, and ongoing trustee costs often exceed the tax benefit relative to a DAF.
• Trustee options. You may serve as your own trustee (common for liquid trusts). Corporate trustees — trust companies, bank trust departments — are advisable for larger trusts or illiquid assets. The trustee handles annual revaluation, distribution computation, investment management, and Form 5227.
• Annual reporting. The trust files Form 5227 (Split-Interest Trust Information Return) annually. Distributions to beneficiaries are reported on Schedule K-1.
• Irrevocability. Once funded, you have no access to trust corpus. The income stream can be assigned via qualified assignment, but trust terms are fixed.
• UBTI risk. If the trust earns unrelated business taxable income (UBTI) — for example, from operating business assets or debt-financed property — it loses its IRC § 664(c) tax-exempt status for that year and owes tax on all income. Structure contributed assets to avoid UBTI exposure.

1. 26 U.S. Code § 664 — Charitable Remainder Trusts (Cornell LII). Statutory text: CRUT and CRAT requirements including 5% minimum payout, 50% maximum payout, 10% remainder test, and tax-exempt status of the trust entity under § 664(c).
2. IRS Section 7520 Interest Rates. Current and historical § 7520 rates for valuation of charitable remainder and annuity interests. May 2026 rate: 5.00% per IRS Rev. Rul. 2026-9.
3. IRS Rev. Proc. 2025-32 — 2026 Inflation Adjustments. 2026 LTCG bracket thresholds: 20% rate above $613,700 MFJ / $518,900 single. NIIT $250,000 MFJ threshold under IRC § 1411.
4. 26 CFR § 1.664-3 — Charitable Remainder Unitrust (Cornell LII). Treasury Regulation governing CRUT structure, Net Income CRUT (NI-CRUT), and the flip-to-fixed-payout provision; IRC § 170(b)(1)(C) 30%-of-AGI limitation on capital gain property.
5. Greenleaf Trust — Testamentary Charitable Remainder Unitrust. Analysis of naming a CRUT as IRA beneficiary, the § 664(b) four-tier distribution system, and income-spreading strategy for large inherited IRAs under the 10-year rule.

Tax values reflect 2026 rules. LTCG brackets and NIIT threshold per IRS Rev. Proc. 2025-32. §7520 rate 5.00% for May 2026 per IRS Rev. Rul. 2026-9. OBBBA (July 2025): 0.5%-of-AGI floor and 35% effective deduction cap for 37%-bracket filers on all itemized deductions. OBBBA $15M permanent estate/gift exemption. T.D. 10001 (July 2024): inherited IRA 10-year rule with annual RMD requirement when decedent was past RBD. Consult a qualified estate attorney, CPA, and wealth advisor before establishing a CRT.