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How a Charitable Remainder Unitrust (CRUT) Can Pay You for Life—and Support a Cause You Love

How a Charitable Remainder Unitrust (CRUT) Can Pay You for Life—and Support a Cause You Love

If you’re a California resident with appreciated assets—like stock, real estate, or a business—you may feel stuck:

Sell now and face a hefty capital gains tax? Or hold forever and lose the flexibility?

There’s a better path: a Charitable Remainder Unitrust (CRUT).

It’s a powerful tool that pays you income, reduces taxes, and leaves a legacy.

Let’s break it down.


What Is a CRUT?

A CRUT is a special type of irrevocable trust.

You transfer assets into the trust. The trust can sell those assets—without triggering capital gains tax—and reinvest the money.

Each year, the CRUT pays you (or someone you choose) a set percentage of its value—usually 5% to 8%.

When the trust ends (either after your lifetime or up to 20 years), what’s left goes to a charity you select.


Why Californians Use CRUTs

High-income Californians face some of the nation’s steepest tax rates:

  • Capital gains are taxed as ordinary income in California.

  • No step-up in cost basis if you sell before death.

  • No charitable deduction without a structured gift.

A CRUT helps you:

  • Avoid state and federal capital gains taxes when appreciated assets are sold inside the trust.

  • Receive a lifetime income stream, adjusted annually.

  • Get a current charitable income tax deduction.

  • Remove assets from your taxable estate.


A Real Example

Let’s say you own Bay Area rental property worth $2 million with a low basis.

You:

  1. Transfer it into a CRUT.

  2. The trust sells it, tax-free.

  3. The proceeds are reinvested.

  4. You receive 6% of the trust value annually (starting at $120,000).

  5. When the trust ends, the remainder—say, $1.5 million—goes to your chosen nonprofit.

You’ve avoided a seven-figure tax bill, created income for life, and supported a cause you care about.


What’s the Catch?

  • You can’t take it back. Once the CRUT is created, it’s irrevocable.

  • If the trust assets underperform, your annual payout could drop.

  • The remainder goes to charity—not your heirs (but we can fix that—ask me about ILITs or wealth replacement strategies).


CRUT vs. CRAT vs. CLT

Here’s how CRUTs compare to other charitable trusts used in California estate planning:

Feature

CRUT (Charitable Remainder Unitrust)

CRAT (Charitable Remainder Annuity Trust)

CLT (Charitable Lead Trust)

Payout Type

Fixed % of trust value (recalculated annually)

Fixed dollar amount

Charity gets income; remainder to heirs

Payout Fluctuates?

Yes

No

No

Who Gets Paid First?

You (or your beneficiary)

You (or your beneficiary)

Charity

Charity Receives

What’s left at the end

What’s left at the end

Income stream for a set term

Term Options

Life or up to 20 years

Life or up to 20 years

Fixed term or lifetime

Tax Deduction

Based on projected gift to charity

Based on projected gift to charity

Based on present value of charity’s interest

Best Use Case

Appreciated assets + lifetime income

Predictable fixed income

Reduce estate tax + gift to heirs

Income to Donor

Variable, adjusts with trust performance

Fixed

None

Revocable?

No

No

No


Bottom Line

A CRUT isn’t just a tax play—it’s a way to create predictable income, preserve wealth, and make a lasting difference.

If you:

  • Own appreciated assets in California

  • Want steady income for life

  • Care about leaving a charitable legacy

…a CRUT deserves a serious look.

Need help deciding if it fits your estate plan?

Let’s talk. I’ll help you run the numbers, choose the right structure, and coordinate with your financial team.

 

Estate Planning Attorney Eric Ridley