CRUT: Unlock Income & Support Charity

Short answer: A charitable remainder unitrust, or CRUT, is an irrevocable trust that holds an appreciated asset, such as stock, rental property, or a business interest, and sells it without you paying the capital gains tax that a personal sale would trigger. The trust then pays you, or another person you name, an income stream for life or for a set number of years. When the payments stop, whatever remains in the trust goes to the charity or charities you chose when you created it. You give up control of the asset permanently in exchange for income now and a tax-favored way to make the gift.

What is a charitable remainder unitrust?

A CRUT is one of several charitable trusts recognized under federal tax law. You fund it by transferring an asset into the trust, name yourself or someone else as the income beneficiary, and name the charity that will receive whatever is left at the end. Once the trust is signed and the asset is transferred in, you cannot take the asset back or unwind the arrangement. That irrevocability is what makes the tax treatment work in the first place. It also means a CRUT is not a decision to make lightly or in a hurry.

How does a CRUT avoid an immediate tax bill on the sale?

If you sold the appreciated asset yourself, you would owe capital gains tax on the difference between what you paid for it and what it sold for, and you would only have the after-tax proceeds left to invest. Inside a CRUT, the trust is the seller, not you personally, so the full sale proceeds stay invested and available to generate the income you will draw from later. This is not a way to escape tax altogether. The income the trust eventually pays out to you is taxed to you as you receive it, under rules that track what kind of income and gain the trust has earned over the years. You are deferring and reshaping the tax, not eliminating it.

What income do you actually receive?

Each year, the trust pays out a percentage of its value, recalculated annually, to you or to whoever you named as the income beneficiary. Because the payout tracks the trust’s current value rather than a fixed dollar amount, your income moves with how the underlying investments perform. If the portfolio grows, your payment can grow with it. If the portfolio loses value, your payment drops too. That payout continues for your lifetime, for the lifetime of another person you name, or for a term of years you choose when you create the trust.

Who ends up with the assets when the trust ends?

When the trust term ends, whatever remains, the original contribution plus growth, minus everything already paid out to you, goes to the charity you named when you created the trust. That future gift to charity is the reason the arrangement gets favorable tax treatment in the first place. It also means a CRUT is not a tool for passing wealth to your children or other family. If leaving an inheritance matters to you as much as the charitable gift, a CRUT typically needs to be paired with separate planning, such as life insurance held outside your taxable estate, to replace what the charity will eventually receive.

How does a CRUT compare to other charitable trusts?

A charitable remainder annuity trust, or CRAT, uses the same basic structure but pays a fixed dollar amount each year instead of a percentage that moves with the trust’s value, which trades flexibility for predictability. A charitable lead trust flips the order entirely: the charity receives the income stream first, for a set term, and whatever is left goes to your family when the term ends. All three are irrevocable once funded. The right structure depends on whether you want income that can grow with the portfolio, income that stays flat regardless of performance, or a plan aimed at eventually passing wealth to family rather than to charity.

What are the tradeoffs?

• You cannot undo it. Once you fund a CRUT, the asset belongs to the trust, not to you, permanently.
• Your income is not guaranteed to stay level. A unitrust payout moves with the value of the trust, for better or worse.
• The charity, not your family, receives whatever is left. A separate plan is needed if you also want to leave an inheritance.
• A CRUT is a trust with its own ongoing tax filings and administration. It is not a document you sign once and forget.

What to do next

A CRUT only makes sense if you already hold an appreciated asset you plan to sell, want income instead of a lump sum, and have a specific charity you actually want to benefit. Before funding one, talk with an estate planning attorney about how it fits with the rest of your estate plan and whether a properly funded living trust already covers what you need without giving up control of the asset.