A Charitable Remainder Unitrust (CRUT) is an irrevocable trust that provides annual income payments to one or more individuals for a specified term or lifetime, with the remaining assets eventually passing to charity.
CRUTs are commonly used by individuals and families looking to diversify appreciated assets, create ongoing income, and support charitable organizations within the same planning structure.
Because appreciated assets inside the trust can generally be sold without triggering immediate capital gains recognition within the CRUT itself, the structure is often explored when someone holds a concentrated low-basis investment position.
CRUT Case Study
Both 45 years old, Susan and David had built a concentrated stock position over many years, and by the time they approached retirement, that single holding represented a large share of their net worth. They wanted to diversify and create more dependable income, but selling the position outright would have created a substantial capital gains tax bill.
Their estate planning team introduced a dual-life CRUT funded with $1 million of appreciated low-basis stock. Once the shares were transferred to the trust, the assets could be sold and diversified inside the CRUT without triggering immediate capital gains recognition within the trust itself. The capital gains flow out of the trust in small amounts over a long period of time and that tax deferral is valuable. That gave Susan and David a way to reduce concentration risk while keeping the planning tied to their income and charitable goals.
Over their joint lifetimes, the CRUT was projected to provide approximately $9.7 million in total income distributions while also generating an immediate charitable income tax deduction of $100,000. The remaining trust assets are projected to leave approximately $11.3 million for charity, donor advised fund, or a private foundation at the end of the trust term.
Summary
Susan and David used a CRUT to diversify a concentrated stock position while creating approximately $9.7 million in projected lifetime income distributions, a $100,000 up front income tax deduction, and an estimated $11.3 million future charitable benefit. The structure helped them reduce concentration risk, create retirement income, offset current income tax liability, and build a long-term charitable legacy through a single planning strategy.
The right solution often involves more than one type of trust working together.
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CRUT FAQs
Is a CRUT revocable?
No. A CRUT is an irrevocable trust, so the decision to transfer assets into the structure should be considered carefully before the trust is funded.
Why do people use CRUTS?
People often use CRUTs when they want income, diversification, and charitable giving to work together. The structure can be especially helpful when appreciated assets would create an immediate large tax bill if sold directly.
How are payments made from a CRUT?
A CRUT pays a fixed percentage of the trust’s value each year. Because the trust is revalued annually, the actual dollar amount of the payment can rise or fall depending on investment performance.
What types of assets are commonly contributed to a CRUT?
CRUTs are often funded with appreciated assets, including concentrated stock positions, investment portfolios, closely held business stock, or other assets that may benefit from a more tax-efficient diversification strategy.
What happens to the remaining trust assets?
At the end of the trust term, the remaining assets pass to one or more charitable organizations, a donor advised fund, or a private foundation named in the trust document.
Why are CRUTs often associated with appreciated assets?
CRUTs are often associated with appreciated assets because the trust may allow those assets to be sold and diversified without triggering immediate capital gains recognition inside the trust. As distributions are made, the capital gain from the sale comes out slowly over a long period of time, greatly deferring the tax. Because of time value of money, the present value of the tax payments is significantly less.
