Estate Planning · Haute Lawyer Network

What Is a Charitable Remainder Trust?

Last reviewed: October 2026 · Jurisdiction: United States (federal income, estate and gift tax)

A charitable remainder trust (CRT) is an irrevocable trust that pays you, or other people you name, an income stream for life or for a term of up to 20 years, and then passes what remains to one or more qualified charities. You may get a partial income-tax charitable deduction when you fund it. The trust itself doesn't pay income tax when it sells appreciated assets, so the full sale proceeds can be reinvested. The payments you receive are taxed under IRS ordering rules. Federal law (IRC §664) sets strict limits: the payout must be between 5% and 50% a year, and the charity's projected share must be worth at least 10% of what you put in.

How a charitable remainder trust works

You transfer assets (cash, securities, real estate or other property) into an irrevocable trust. Assets you transfer during life keep your carryover basis (IRS).
The trust pays at least one non-charitable beneficiary, usually you, you and your spouse, or family members, at least annually. Individual beneficiaries must be living when the trust is created (§664(d)).
The payout period is either a term of years (no more than 20) or the life or lives of the individual beneficiaries.
At the end, the remainder goes to charity: one or more organizations described in IRC §170(c).
The 10% test. The value of the charity's remainder, calculated under §7520, must be at least 10% of the initial net fair market value of the property placed in the trust. For a CRUT, the test applies to each contribution.
You can create a CRT during life or at death (inter vivos or testamentary). The IRS publishes sample trust forms for each type (Rev. Procs. 2003-53 to 2003-60 for CRATs; 2005-52 to 2005-59 for CRUTs).

CRAT vs. CRUT: the two types

	Charitable remainder annuity trust (CRAT)	Charitable remainder unitrust (CRUT)
Annual payment	A fixed dollar amount (a "sum certain")	A fixed percentage of the trust's value, revalued every year
Payout limits	At least 5% and no more than 50% of the initial net fair market value	At least 5% and no more than 50% of the assets' value, valued annually
When markets rise or fall	Payment stays the same	Payment rises or falls with the trust's value
10% remainder test	Measured once, at creation	Measured for each contribution
Net-income option	Not available	The document may limit each year's payment to the trust's income, with later make-up payments when income exceeds the fixed percentage (§664(d)(3))

Source: 26 U.S.C. §664(d); IRS "Charitable remainder trusts."

How CRT payments are taxed

The trust. A CRAT or CRUT is not subject to federal income tax (§664(c)(1)). That is why a trust can sell a donated, appreciated asset without paying capital gains tax on the sale itself; the IRS describes this as a way to defer income tax on the sale. One exception: if the trust has unrelated business taxable income, an excise tax equal to 100% of that income applies (§664(c)(2)). The trust reports it on Form 4720.

You, as the income beneficiary. Each payment is taxed under a four-tier order (§664(b); IRS):

Ordinary income first, to the extent of the trust's current and undistributed ordinary income;
then capital gain, to the extent of current and undistributed capital gain;
then other income, including tax-exempt income;
then a tax-free return of corpus (principal).

So if the trust's main income is the gain from selling a donated, appreciated asset, your payments are generally treated as capital gain (after any ordinary income) until that gain is used up. The tax is spread over the payout period rather than due all at once. Payments are reported to you on Schedule K-1 (Form 1041).

The charitable deduction

Income tax. You can take a partial deduction, limited to the present value of the charity's remainder interest: the property's value minus the present value of the payments to non-charitable beneficiaries (IRS; Treas. Reg. §1.664-2(c)). It is subject to the adjusted-gross-income limits and the §170(e) rules for appreciated property.
The §7520 rate. The remainder's value is calculated with IRS tables and the §7520 interest rate for the month of the gift: 5.6% for October 2026. For a charitable gift, you may elect the rate for either of the two prior months instead: 5.2% for August 2026 or 5.4% for September 2026 (§7520(a)). The rate you use changes the remainder's value, and so the deduction and whether the trust passes the 10% test.
2026 changes for itemizers. P.L. 119-21 added a floor: charitable contributions are deductible only to the extent they exceed 0.5% of your contribution base (generally AGI) (§170(b)(1)(I)). It also capped the tax value of itemized deductions at 35% for top-bracket taxpayers, beginning in 2026 (CRS).
Estate and gift tax. A transfer that splits interests between charity and family generally earns an estate or gift tax charitable deduction for the remainder only if the trust is a qualifying CRAT or CRUT (or a pooled income fund) (§§2055(e)(2)(A), 2522(c)(2)(A)). The 2026 basic exclusion amount is $15,000,000 per person (IRS).

Filing and compliance

Form 5227 (Split-Interest Trust Information Return) every year. For calendar-year 2025 it was due April 15, 2026, per the IRS instructions.
Schedule K-1 to each income beneficiary, showing the tier character of each payment.
What the IRS says a CRT may not do:
step up an asset's basis to market value at transfer;
leave sales off the books;
relabel income or gains as corpus;
make extra payments to non-charitable beneficiaries (self-dealing);
send the remainder to a non-qualified organization;
pay the charity cash up front in lieu of the remainder.

Donors and beneficiaries may not borrow from the trust or use it to pay personal expenses. The IRS also publishes guidance on abusive CRAT structures.

Trade-offs to weigh

Irrevocability. Assets that go in can't be taken back (IRS).
Less for heirs. The remainder goes to charity, not family. Ask your attorney how the CRT fits with what you plan to leave to heirs.
Payout choices are locked in. A CRAT's fixed payment can't grow with markets. A CRUT's payment can fall in a down year.
Ongoing administration. Trustee duties, annual Form 5227, K-1s and investment management.
Complex assets. Real estate or private business interests can raise valuation questions and unrelated-business-income exposure (§664(c)(2)). Get specialist advice before funding.
Law can change. The 2026 deduction rules and exemption amount are set by Congress (P.L. 119-21).

Charitable remainder trust vs. charitable lead trust

	Charitable remainder trust (CRT)	Charitable lead trust (CLT)
Who is paid first	You or your family (an annuity or unitrust amount)	Charity (a guaranteed annuity or fixed-percentage unitrust amount)
Who receives what's left	Charity	Your family or other non-charitable beneficiaries
Gift/estate tax deduction for	The charity's remainder (only if the trust is a CRAT or CRUT)	The charity's lead interest (only if it's a guaranteed annuity or unitrust interest)

Source: 26 U.S.C. §§664, 2055(e)(2), 2522(c)(2). See What is a charitable trust? for an overview of charitable trusts.

Questions to ask an estate planning attorney

Should this be a CRAT or a CRUT, and what payout rate and term pass the 10% test at this month's §7520 rate?
Which assets should fund it, and do any carry debt or unrelated business income risk?
Who should serve as trustee, and who prepares Form 5227 and the K-1s?
How does the 2026 0.5% floor and 35% cap affect the value of my deduction this year versus next?
How does the CRT fit with my estate plan, gifts to family and any private foundation or donor-advised fund?

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This page is general information, not legal or tax advice. Tax rules change and depend on your facts; consult a licensed attorney and tax advisor before creating or funding a charitable remainder trust.

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