Charitable remainder trusts provide income payments before passing remaining assets to charity.
You may find that while there is slightly more effort and expense involved in setting up a trust, it can be an extremely useful and flexible way to:
- Reduce income taxes
- Convert appreciated assets into a lifetime income stream
- Bypass the capital gains tax
- Benefit Cottonwood Gulch and other personally meaningful charities
- Make a gift now or in your will
A charitable remainder annuity trust (CRAT) works like this:
- You transfer money or property to the irrevocable trust (often non-producing appreciated property held for over one year), removing the property from your estate. A CRAT cannot accept additional contributions.
- You pay no capital gains tax on the transfer.
- You qualify for an immediate income tax deduction (if you itemize) for our estimated remainder interest.
- You name the income beneficiaries—yourself, your spouse, or anyone you choose.
- The trustee manages the assets and pays out an income for life or for a set number of years (up to 20) to you and/or other named beneficiaries.
- Income payments are fixed and typically equal 5% of the initial trust value, but you can set the amount within legal limits. This is a steady, reliable income stream that can be a good way to lock in a high interest rate.
- At the end of the trust term, the trust pays out the remaining assets to us (or other named charitable beneficiaries).
Evaluate the fit.
A CRT may be a particularly good option to consider if you want to:
- Make a major gift and gain immediate income tax benefits, all without a loss of spendable income
- Make a significant property gift but don’t want to lose the income produced by the asset
- Convert an appreciated asset into an income stream
See how it works.
Ginny transfers highly appreciated assets worth $400,000 to a charitable remainder trust, specifying that $20,000 will be paid to her each year for as long as she lives. When Ginny dies, the remaining property in the trust will be distributed to Cottonwood Gulch. By using a CRT to make her gift to us, Ginny receives a few important benefits:
- An annual income of $20,000 for life
- An immediate and substantial income tax deduction if she itemizes
- No capital gains tax due when she transfers the appreciated property to the trust or even when the trustee sells the property to fund the income payments
A one-time funding option
Note that an IRA owner age 70½ or older can choose to fund a new CRT by making a one-time, tax-free distribution from the IRA of up to $54,000 (in 2025). (Spouses may combine their distributions from their own IRAs into a single CRT.) This distribution does not create a charitable income tax deduction, but it does count toward the donor’s required minimum distribution if one is due. A CRT created this way has slightly different rules than regular CRTs.
Consider your timing.
If you want to qualify for a charitable deduction this year, you should initiate the transfer of the assets to the trust as early as November to ensure everything is properly established by the end of the year.
We can help.
We would be happy to discuss how you can tailor a charitable remainder trust to meet your personal or family needs. We can also provide you with the estimated deduction amount that would be available for your gift (the amount depends partly on the applicable federal rate, which changes every month), as well as the estimated income payment amount.