Understanding Charitable Remainder Unitrusts: Types & Benefits

If you’ve ever wished you could support a favorite charity and still collect a
steady income from your investments, a charitable remainder unitrust (CRUT) might feel
like financial magic. In reality, it’s not magicit’s U.S. tax law. But when used well,
it can be pretty impressive.

In this guide, we’ll break down what a charitable remainder unitrust is, how it works,
the different types of CRUTs, and the key tax and estate planning benefits. We’ll also
walk through real-world style examples so you can see how a CRUT might fit into an
actual financial and charitable plan.

What Is a Charitable Remainder Unitrust (CRUT)?

A charitable remainder unitrust (CRUT) is a type of
charitable remainder trust defined under Internal Revenue Code
Section 664. It’s a “split-interest” arrangement: part of the benefit goes to
individuals (usually you and/or your family), and part goes to one or more charities.

Here’s the basic idea:

• You transfer assets (often highly appreciated stock, real estate, or a business interest) into the trust.
• The CRUT pays you (or other noncharitable beneficiaries) a fixed percentage of the trust’s value every year.
• When the trust term ends (after a number of years or at the death of the beneficiaries), whatever is left goes to charity.

By law, the annual payout must be at least 5% and no more than
50% of the trust’s value, and the actuarial calculation must show
that the charity’s remainder interest is at least 10% of the initial contribution’s
value. The trust’s value is re-determined annually, so your payout goes up or down as
the portfolio changes.

The kicker? Properly structured CRUTs are generally tax-exempt entities.
That means the trust itself doesn’t pay income tax on realized capital gains, which
allows more of the proceeds to stay invested for growth and future payouts.

How a Charitable Remainder Unitrust Works, Step by Step

1. You Choose the Assets and the Charity

Most donors use a CRUT when they hold significantly appreciated assets:

• Publicly traded stock
• Real estate that has grown in value
• A closely held business interest (in some cases)

You also select one or more qualified charities as remainder beneficiaries. These can
be public charities, universities, donor-advised fund sponsors, or other qualifying
organizations. You’ll also choose the noncharitable beneficiariesoften yourself and a spouse.

2. You Fund the Trust and Get an Income Tax Deduction

When you transfer assets into the CRUT, it becomes an irrevocable gift. In return,
you receive an immediate charitable income tax deduction based on
the present value of the charity’s projected remainder interest. The calculation uses:

• Your age (or ages, if there are multiple beneficiaries), or the chosen term of years
• The payout percentage
• Assumed growth and discount rates per IRS actuarial tables

If the deduction is more than you can use in the first year, you may typically carry
it forward for up to five additional years, subject to AGI percentage limits and other
IRS rules.

3. The CRUT Sells AssetsUsually Without Immediate Capital Gains Tax

One of the big attractions: a properly structured CRUT can sell appreciated assets
inside the trust without paying capital gains tax at the trust level. Instead, the tax
consequences show up gradually as you receive distributions over time, categorized
according to specific IRS ordering rules.

This allows:

• Full sale proceedsrather than after-tax proceedsto be reinvested.
• Potentially higher income than selling a concentrated and highly appreciated asset directly.
• Diversification without triggering a huge one-time tax bill.

4. The Trust Pays You a Percentage Every Year

Each year, the trustee:

1. Determines the fair market value of the trust assets as of a specified valuation date.
2. Multiplies that value by the payout percentage (say, 5% or 7%).
3. Pays that amount to the income beneficiary or beneficiaries.

Because the trust is revalued annually, your income can grow if the portfolio performs well.
Of course, it can also decline in a down marketCRUTs share the ride.

5. The Remainder Goes to Charity

At the end of the trust termeither after a stated number of years (up to 20) or upon
the death of the last income beneficiarythe remaining assets go to the named charity
or charities. This “remainder” is what your initial income tax deduction was based on.

From a legacy perspective, the CRUT can be a powerful way to:

• Support causes you care about in a meaningful, long-term way.
• Attach your name to a scholarship, program, or endowment.
• Model philanthropy for the next generation.

Core Types of Charitable Remainder Unitrusts

Not all CRUTs are built exactly the same. Several variations let you customize how
income is paid, particularly when asset values and cash flow may be unpredictable.

1. Standard (Straight) CRUT

The standard CRUT is the classic version. It pays the stated percentage of the trust’s
annually determined value, regardless of how much income the investments generate.
If the trust has a 5% payout and is worth $1 million on the valuation date, the
beneficiary gets $50,000 that year.

This design works well when:

• You want a relatively predictable income stream tied to trust value.
• The trust can comfortably distribute the full unitrust amount from income and, if needed, principal.
• You’re comfortable with occasional dips or bumps as market values change.

2. Net Income CRUT (NICRUT)

A Net Income CRUT still uses a stated percentage, but it pays the lesser of:

• The unitrust percentage (for example, 5% of trust value), or
• The trust’s actual fiduciary accounting income for the year.

This version can be attractive if you want:

• To preserve principal when the trust’s investments don’t generate much income.
• More flexibility during early years (for example, when holding development property that may not yet produce rental income).

The trade-off: in low-income years, you may receive less than the stated percentage.

3. Net Income with Makeup CRUT (NIMCRUT)

A NIMCRUT takes the NICRUT concept a step further. It still pays the lesser
of the unitrust percentage or actual income, but if income in a given year is less
than the percentage, the shortfall is tracked in a “makeup account.”

In future years, if the trust’s income exceeds the unitrust amount, the trustee can
pay:

• The regular unitrust amount plus some or all of the accumulated shortfall.

NIMCRUTs can be handy for:

• Donors who want lower payouts while assets are being repositioned or growth-oriented.
• Potentially higher payouts later, when the investments generate more income or are restructured.

4. Flip CRUT

A Flip CRUT starts as a net-income (or NIMCRUT-style) trust and then “flips”
into a standard CRUT when a triggering event occurs. The trigger must be an objective
outside event, such as:

• The sale of a specific asset inside the trust.
• The beneficiary reaching a certain age.
• The passage of a particular calendar year.

Flip CRUTs are common when funding the trust with illiquid assets like raw land or a
closely held business interest. Early on, income may be low, so the net-income design
makes sense. Once the asset is sold and reinvested, the trust flips to a regular
payout mode based on the fixed percentage.

Key Benefits of a Charitable Remainder Unitrust

1. Potentially Higher Income from Appreciated Assets

Many donors use CRUTs to unlock the value of a single, highly appreciated asset while
smoothing taxes over time. Instead of selling an asset and immediately paying capital
gains tax, the CRUT sells it inside the trust, keeps the full proceeds invested, and
distributes income gradually.

For example, imagine:

• You bought stock years ago for $100,000 that’s now worth $1 million.
• If you sell it outright, a large capital gains tax bill may shrink the investable amount.
• If you contribute it to a CRUT, the trust can sell the stock and reinvest $1 million, not $1 million minus taxes.

Over many years, the extra capital at work may significantly boost the income stream,
while the charity eventually receives the remainder.

2. Immediate Charitable Income Tax Deduction

Even though the charity won’t receive its remainder for years or decades, you can
typically claim an immediate charitable deduction. The deduction amount is based on
actuarial formulas and IRS interest rates and represents the present value of what
the charity is expected to receive.

That deduction can help offset other income and may be especially useful in a year
when you have a large taxable eventlike the sale of a business or an unusually high
bonus.

3. Estate and Legacy Planning Benefits

Because the CRUT is irrevocable, assets transferred into it are generally removed from
your taxable estate, potentially reducing estate taxes. At the same time, you’re
creating a reliable income stream for yourself or loved ones and ensuring a meaningful
gift to charity at the end.

Many donors coordinate CRUTs with life insurance, family trusts, and other tools to
balance:

• Income needs during life
• Charitable impact
• Wealth transfer goals for children or other heirs

4. Portfolio Diversification and Professional Management

CRUTs often involve professional trusteescharities, trust companies, or experienced
individual trustees with investment advisors. They can:

• Sell concentrated positions without immediate capital gains tax inside the trust.
• Build diversified portfolios tailored to your payout needs and risk tolerance.
• Handle valuations, tax reporting, and compliance requirements.

In other words, you’re not just giving to charity; you’re outsourcing a chunk of your
long-term income and charitable strategy to a well-structured vehicle.

Who Is a Charitable Remainder Unitrust Best For?

A CRUT isn’t for everyone. But it often fits people who:

• Are charitably inclined and genuinely want a meaningful gift to a charity at the end.
• Own highly appreciated assets and would like to sell them without a huge immediate tax hit.
• Want a supplemental income stream during retirement or a defined period (up to 20 years).
• Are comfortable with irrevocably transferring assets out of their estate.

It may not be ideal if:

• You need complete flexibility and access to principal.
• Your primary goal is maximizing inheritance for heirs rather than charitable giving.
• You’re uncomfortable with the administrative complexity and annual compliance.

As with most advanced planning tools, a CRUT should be designed with input from a
qualified tax advisor, estate planning attorney, and financial planner. This is not a
DIY template you fill out on a Sunday afternoon between football gamesthough it
is something you might proudly brag about during halftime.

Risks and Considerations to Keep in Mind

While CRUTs can be powerful, they come with some important trade-offs:

• Irrevocability: Once assets are in, you generally can’t pull them back out.
• Market Risk: Because payouts depend on annual asset value, a prolonged downturn can reduce your income.
• Complex Rules: Section 664 and related regulations are intricatemissteps can jeopardize tax benefits.
• Administrative Costs: Professional trustees and advisors charge fees that can affect net returns.

These aren’t deal-breakers, but they are important reasons to get personalized advice
and model different scenarios before signing anything.

Real-World Style Experiences with Charitable Remainder Unitrusts

To make this more concrete, let’s look at some composite, educational examples based
on how people often use CRUTs in practice. Names and details are fictional, but the
planning logic is very real.

Case Study 1: The Concentrated Stock Holder

Sarah, age 62, spent decades working at a technology company. She bought stock through
employee plans when it was worth very little. Now that position has grown to
$2 million, representing a huge share of her net worthand a giant capital gains tax
bill if she sells.

Sarah is also passionate about supporting a university scholarship fund. Her concerns:

• She needs more income in retirement.
• She wants to reduce portfolio risk.
• She would like to make a long-term gift to the school that helped launch her career.

Working with her advisors, Sarah creates a CRUT funded with $2 million of her company
stock. The trust sells the stock inside the CRUT and reinvests in a diversified
portfolio. It pays her 5% of its annual value, re-calculated each year.

The result:

• Sarah gets a significant charitable deduction in the year she funds the CRUT.
• The trust reinvests full proceeds without immediate capital gains tax.
• Her income stream is now tied to a diversified portfolio instead of a single stock.
• At her death, the remaining trust assets create a named scholarship endowment at her alma mater.

For Sarah, the CRUT transforms a risky concentrated asset into a flexible income and
legacy tool. She likes to joke that her stock “graduated into a scholarship fund.”

Case Study 2: The Real Estate Couple

David and Lisa own a small apartment building they bought decades ago. It’s worth far
more than their original cost, but being landlords is now more stress than joy. They
want:

• To simplify their lives and stop dealing with tenants.
• To avoid a massive capital gain when selling.
• To support their community hospital, which provided life-saving care to their child.

Their team designs a Flip NIMCRUT funded with the apartment building. Initially, the
trust holds the building and collects rental income, paying them the lesser of net
income or the unitrust percentage. When the building is sold, the trust flips to a
standard CRUT, distributing the full unitrust amount based on annual value.

David and Lisa enjoy:

• A more flexible payout structure while the property is still held.
• Tax-efficient sale of the building inside the trust.
• Ongoing income from a diversified portfolio instead of landlord duties.
• The satisfaction of knowing the hospital will ultimately receive a significant gift.

Case Study 3: The Entrepreneur Looking for a Soft Landing

Maya, age 55, owns a successful consulting business. She plans to sell the company
within the next two years and expects a large liquidity event. She is charitably
minded, but also wants to build a reliable income bridge until Social Security and
retirement account withdrawals start later in life.

Her advisors propose funding a CRUT with a portion of the company shares before the
sale. When the company is sold:

• The CRUT’s portion of the proceeds is realized inside the tax-exempt trust.
• Maya receives an immediate charitable deduction.
• The trust pays her a 6% unitrust amount each year, helping cover living expenses as she eases into semi-retirement.
• After her lifetime, the remainder supports a foundation focused on women in entrepreneurship.

Maya appreciates that she can combine a orderly business exit with philanthropy,
income planning, and tax managementall through one structure.

Lessons from These Experiences

Across these examples, a few themes repeat:

• CRUTs shine when there are large unrealized gains. They help shift from “paper wealth plus potential tax headache” to “income stream plus charitable impact.”
• They work best as part of a broader plan. In each case, advisors coordinate the CRUT with retirement accounts, insurance, and other estate documents.
• Charitable intent is non-negotiable. If you don’t genuinely care about the charity’s remainder, other strategies may fit better.

Ultimately, people who are happiest with their CRUTs are those who see them as
multi-purpose tools: a way to simplify portfolios, stabilize income,
and amplify generosity over time. The tax benefits are important, but the
emotional payoff of creating a lasting charitable legacy tends to be just as powerful.

Final Thoughts

A charitable remainder unitrust sits at the intersection of tax planning, investing,
philanthropy, and legacy. It’s not a casual choice, but for the right person, it can
turn a single decision“I want to do something meaningful with this asset”into
decades of income and impact.

If you’re considering a CRUT, your next step isn’t downloading a random form; it’s
having a detailed conversation with a qualified estate planning attorney, tax advisor,
and financial planner. Bring your goals, your balance sheet, and your favorite
charities to the table. Together, you can determine whether a CRUT is the right tool
or whether a different charitable or estate strategy fits better.