Charitable Remainder Trust (CRT)

• Step 1: The donor transfers appreciated assets into the CRT. These may include stocks or real estate.
• Step 2: The CRT sells the assets. Because the CRT is tax-exempt, no capital gains tax is owed.
• Step 3: The full proceeds are reinvested. The CRT pays the donor income at a set rate, typically 5 to 7 percent per year.
• Step 4: When the donor dies, the remaining balance passes to the chosen charity.

A CRT provides three layers of tax savings. First, the donor gets an immediate income tax deduction for the charitable portion. Second, there is no capital gains tax on the sale of appreciated assets. Third, the donated assets leave the donor's taxable estate.

Many families pair a CRT with an irrevocable life insurance trust (ILIT). The ILIT purchases a life insurance policy equal to the donated assets' value. This lets the donor's heirs receive the full value through the ILIT. The charity receives the CRT remainder. This approach is sometimes called a wealth replacement strategy.