What Is a Charitable Remainder Unitrust (CRUT)?

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A Charitable Remainder Unitrust (CRUT) combines charitable giving with generating income. This estate planning strategy allows you to donate to your chosen charity while receiving regular income payments for life or a set period.

At the end of the term, the remaining assets go to your chosen charity.

Here's everything you need to know about Charitable Remainder Unitrusts so you can decide if it's the right strategy for you.

What Is a Charitable Remainder Unitrust?

A CRUT is an irrevocable trust that generates two benefits: income for you and a future gift to charity.

You transfer assets into the trust and receive annual payments based on a fixed percentage of the trust's value. This percentage is locked in when you create the trust, but your actual payment amount changes yearly as the trust's value changes.

According to The National Law Review, CRUTs remain "underutilized" despite offering significant tax and income benefits for donors.

How Does a Charitable Remainder Unitrust Work?

First, you set up the trust and transfer assets into it - typically appreciated investments, real estate, or business interests.

Second, the trust pays you (or your chosen beneficiaries) a fixed percentage of its value every year. This percentage stays the same, but the actual dollar amount changes based on the trust's annual value. This can provide you with lifetime income.

Finally, when the trust ends, the remaining assets go to your designated charity.

The trust can sell assets without triggering immediate capital gains tax - unlike if you sold them yourself. It then reinvests the proceeds to generate ongoing income for your annual payments.

You choose both the payment rate (between 5% and 50% of the fair market trust's value) and who receives these payments - it can be you, your spouse, your children, or any beneficiary you select. The payments continue for either your lifetime or a set period of time.

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Charitable Remainder Unitrust Benefits

If you're thinking about a CRUT, there are a few important advantages:

Immediate Income Tax Deduction: You can typically get an immediate charitable deduction in the year you fund the trust based on the projected amount that will eventually go to charity.
Capital Gains Tax Avoidance: Transfer appreciated assets to the trust, and it can sell them without triggering immediate capital gains tax for you.
Regular Income Stream: Receive predictable payments for life or a set period, with potential for growth if trust assets perform well.
Estate Tax Reduction: Assets in the trust avoid estate tax since they pass directly to charity at the end of the trust term.
Professional Management: A trustee manages the investments, relieving you of this responsibility (while potentially improving returns).

The income tax charitable deduction is ultimately one of the main reasons why people with a high net worth decide to put their assets in a Charitable Remainder Unitrust (CRUT).

Related Article | Planning Trusts and Estates

What Is the Disadvantage of CRUT?

The main drawback of a CRUT is its irrevocable nature - once you transfer assets, you can't change your mind or access the principal. Your income also varies with the trust's performance, which could mean lower payments in down markets when you might actually need more money.

And, of course, you must accept that your heirs won't receive these assets since they ultimately go to charity. So, if you have children or other loved ones that you'd like to ultimately pass your wealth down to, a CRUT is likely not the best option for you.

Related Article | Grantor Retained Annuity Trust

Charitable Remainder Unitrust Rules

According to the IRS, here are the Charitable Remainder Unitrust rules you should stick to:

You can only receive your set yearly payments - no extra money or loans from the trust
You can't use trust money for personal expenses
You must report all asset sales accurately
You can't inflate asset values when putting them in the trust
You can't pay charities upfront instead of waiting for the remainder
Only qualified tax-exempt organizations can receive the final charitable gift
You must file yearly tax returns for the trust
Once created, you can't change payment rates or cancel the trust
You can change which charity gets the money but not eliminate the charitable gift

The IRS strictly regulates how these trusts operate, so make sure to use a qualified lawyer and do everything by the book.

Charitable Remainder Unitrust Example

Let's say you own $1 million in company stock you bought years ago for $200,000. If you sell the stock, you'll owe capital gains tax on $800,000 of appreciation. Instead, you transfer the stock to a CRUT with a 6% payment rate.

The trust sells the stock tax-free and reinvests in a diversified portfolio. In year one, you receive $60,000 (6% of $1 million). You also get an immediate charitable deduction of $350,000. Each following year, your payment adjusts based on the trust's new value.

When you die, the remaining trust assets go to your chosen charity (this must be a legitimate charity with a tax-exempt status).

So, Is CRUT Worth It?

A CRUT makes sense if:

You own appreciated assets (like stock, real estate, or a business) that you're ready to sell
You want an ongoing income from these assets
You have a genuine charitable intent since the assets ultimately go to charity (instead of heirs like your children)

CRUTs work particularly well if you want to create retirement income. They're less helpful if you might need access to the principal or want to ultimately leave these assets to your family.

FAQs

What Is the Difference Between a Charitable Remainder Trust and a Charitable Remainder Unitrust?

A Charitable Remainder Trust is the general category, and a Charitable Remainder Unitrust (CRUT) is a specific type. The other main type is a Charitable Remainder Annuity Trust (CRAT).

The key difference is payment structure: CRUTs pay a percentage of the trust's value, which changes yearly as the trust value changes. CRATs pay a fixed dollar amount that never changes, regardless of trust performance.

Can I Be the Trustee of My Own CRUT?

Yes, you can be your own trustee, but it's often not the best choice. As the trustee, you'll be responsible for investing assets, making payments, filing tax returns, and following IRS rules. Most people choose a professional trustee (like a bank or trust company) to handle these duties and keep you compliant with tax laws.

What Is a Charitable Remainder Unitrust Used Most Often For?

CRUTs are most commonly used to sell highly appreciated assets without immediate capital gains tax. Common scenarios include selling real estate, artwork, stock, and other assets. They're also popular for creating retirement income while eventually supporting your favorite charity.

Does a Charitable Remainder Unitrust Pay Taxes?

A CRUT generally doesn't pay taxes on its income because it's a tax-exempt entity. The beneficiaries pay taxes on their payments based on the trust's income type.

The Bottom Line

A Charitable Remainder Unitrust can give you income for life, immediate tax deductions, and capital gains tax savings - all while supporting a charitable cause. That said, make sure to use a qualified advisor to set up your CRUT in the right way and avoid IRS scrutiny.