What Is a Charitable Remainder Trust (CRT)?

I'm Hans Goldstein (NPN 20602398). My practice centers on IRC §453 structured installment sales, not trust drafting — so treat this as an honest explainer from someone who will tell you when a CRT is the wrong tool, not a pitch for one.

How a CRT works, step by step

1. You create an irrevocable trust and name yourself (and/or a spouse) as the income beneficiary and a qualified charity as the remainder beneficiary.
2. You contribute an appreciated asset — a business, commercial real estate, a concentrated stock position — before it is sold.
3. The trust sells the asset. Because a CRT is a tax-exempt entity, that sale generates no immediate capital-gains tax at the trust level. The full pre-tax proceeds stay invested and working.
4. The trust pays you an income stream — annually, for your life or for a term of up to 20 years.
5. At the end of the term, the remainder passes to charity. The IRS requires that the charity's projected remainder be worth at least 10% of the initial contribution.

In exchange for the eventual gift, you also receive a partial charitable income-tax deduction in the year you fund the trust, based on the present value of the projected remainder.

CRAT vs CRUT: the two flavors

Both must pay out between 5% and 50% annually, and both must clear the 10%-remainder test. Most people who want the money to keep pace with a long retirement choose a CRUT.

What a CRT is genuinely good at

• Deferring and reducing capital-gains tax on a highly appreciated, low-basis asset you were going to sell anyway.
• Turning an illiquid asset into a lifetime income stream without eating a large one-time tax bill up front.
• Producing a current charitable deduction while you are still alive to use it.
• Removing the asset from your taxable estate.

If you are genuinely charitably inclined and sitting on a large gain, a CRT can be an excellent fit.

The honest tradeoffs

A CRT is irrevocable and it is not an heir-friendly tool by itself:

• The remainder goes to charity, not to your children. That is the entire point of the structure — and the single biggest reason people regret one they didn't fully understand.
• It only defers, not erases, tax on your income. The payments you receive are taxed under a four-tier ordering rule (ordinary income first, then capital gain, then other income, then return of principal) — so much of your income stream is still taxable.
• It is complex and costs money to run — trustee fees, administration, and annual filings.
• You give up control. Once funded, you cannot unwind it or reclaim the principal.

Because heirs are cut out of the remainder, CRTs are often paired with a guaranteed universal life (GUL) policy funded from the income stream, so the family is made whole outside the trust. That "wealth replacement" combination is covered on our CRT + GUL page.

CRT vs an IRC §453 structured installment sale

A CRT is not the only way to avoid a big one-time capital-gains hit. For sellers who are not primarily charitably motivated — and who want the money to stay in the family — an IRC §453 structured installment sale is usually the cleaner fit: you spread the gain across a payment schedule backed by a major life carrier, keep the full remainder for your heirs, and skip the irrevocable-trust machinery.

We compare these side by side in detail on the CRT vs SIS page, and explain why a CRT is a legitimate strategy while a Deferred Sales Trust is not on our DST breakdown. If you want the mechanics of the installment-sale alternative, start with what a structured installment sale is and the underlying IRC §453 rules.

Who should consider a CRT

A CRT tends to make sense when all of these are true: you hold a highly appreciated asset, you are genuinely charitably inclined, you want a lifetime income stream, and you have other assets (or a life policy) to take care of your heirs. If you want your family to receive the full value of the asset, a CRT is the wrong tool — and a §453 structured installment sale is usually the right conversation to have instead.

Bottom line

A Charitable Remainder Trust is a powerful, IRS-sanctioned way to sell an appreciated asset tax-efficiently, draw income for life, and benefit a charity — but it is irrevocable, it routes the remainder to charity rather than your heirs, and it only defers the tax on your own income stream. If charity is part of your goal, it is worth a serious look. If it isn't, compare it honestly against a §453 structured installment sale before you commit. Either way, get independent advice before funding anything irrevocable — call Hans Goldstein at 317-463-6659.