Salvatore M. Capizzi, CEPA, CBDA, is Dunham's Chief of Sales & Marketing and a 2026 Wealthies CMO of the Year Finalist. His work focuses on retirement planning, emerging trends for financial advisors, and advanced tax, trust, and estate strategies.
A charitable remainder trust, or CRT, is an irrevocable trust that can pay income to a client or other noncharitable beneficiary for life or a term of up to 20 years, with remaining assets passing to charity. For clients with highly appreciated assets, a CRT may allow the trust to sell assets without immediate capital-gains tax at the trust level, provide a potential charitable deduction, diversify a concentrated position, and support a charitable legacy. CRTs are complex and should be designed with qualified legal and tax professionals.
Key Takeaways
A Charitable Remainder Trust (CRT) is a powerful estate and tax planning tool for clients with highly appreciated assets.
CRTs can help eliminate capital gains tax, provide lifetime income, reduce estate size, and support charitable giving.
There are multiple CRT structures — CRUT, CRAT, NIMCRUT, and Flip CRUT — each offering unique advantages.
Pairing CRTs with life insurance, retirement, or business exit planning enhances tax efficiency.
Advisors who master CRTs differentiate their practice and build deeper high-net-worth relationships.
What Is a Charitable Remainder Trust?
When a client walks into your office with highly appreciated assets, concerns about capital gains tax, and a need for steady income, how do you respond?
This is where understanding how a charitable remainder trust(CRT) works becomes your competitive advantage. It is how you differentiate yourself from other advisors in your community.
In our view, a charitable remainder trust is one of the most powerful planning tools in your arsenal.
A CRT could help your clients eliminate an immediate capital gains tax, provide an income stream, gain a tax deduction, remove the asset from their estate, and create a charitable legacy, all in one strategy.
Yet many advisors I meet hesitate to discuss CRTs, viewing them as too complex.
In this article, I will break down the key elements so you can make this an option when speaking with clients, prospects, or centers of influence like CPAs.
How Does a Charitable Remainder Trust Work?
A CRT generally works by having a donor transfer assets to an irrevocable trust, receive an income interest, and name one or more qualified charities to receive the remaining trust assets after the income term ends.
An attorney drafts the charitable remainder trust document.
The client contributes appreciated assets to the trust.
The trust sells the assets. A qualifying CRT generally does not owe immediate capital-gains tax at the trust level on that sale.
The CRT assets are invested according to the trust’s objectives and payout requirements.
The trust pays income to the client or other noncharitable beneficiary for life or a set term. After that period, the remaining assets pass to the designated charity or charities.
The client has made an irrevocable gift. That means they generally cannot take the contributed assets back or freely revise the arrangement later.
What Are the Potential Benefits of a Charitable Remainder Trust?
A charitable remainder trust may help a client turn appreciated assets into an income stream while preserving a future charitable gift.
Potential benefits may include:
Eliminates capital gains tax at the point of sale.
Immediate charitable income tax deduction.
Provides income (lifetime or term).
Diversifies concentrated stock or real estate positions.
Removes assets from taxable estate.
Creates a lasting charitable legacy.
But ultimately, the benefits depend on the trust structure, asset type, payout rate, beneficiary age, charitable remainder interest, and the client’s tax situation.
Changes to CRUT at a trigger point like retirement age
Great for business sales
Simpler administration
The Charitable Remainder Trust Deduction
Your clients enjoy two major tax advantages when using a CRT:
1. Immediate charitable deduction
Based on the expected remainder value
Reduces current tax bill
Amount varies with age and payout rate
2. Capital gains tax savings
No tax when the trust sells assets
More money stays invested
Better long-term growth potential
Life Insurance and Key Planning Strategies
Consider these opportunities:
Pair with life insurance for wealth replacement
Use for retirement income planning
Convert concentrated positions
Reduce estate tax exposure
Create lasting charitable impact
CRT Risks & Considerations: What Every Financial Advisor Should Know
Before implementing, evaluate:
Risks
Irrevocable decision
Cannot recover assets
Market impact on payments
Ongoing fees
Costs
Setup fee for an attorney to draft the trust
Annual trust administration fee
Investment management
Tax Preparation
How to Get Started with CRTs
Success with CRTs requires:
Clear client communication
Proper structure selection
Coordination with other advisors
Understanding of client goals
Regular monitoring and updates
Next Steps for Advisors: How Financial Advisors Can Use CRTs
Ready to implement CRT strategies for your clients? Contact Dunham’s Business Development Teamfor a personalized consultation and exclusive resources
Identify suitable clients with appreciated assets
Review their charitable goals
Analyze their tax situation
Consider timing if their income and asset sale needs
Select the appropriate structure
Run illustrates the benefits of this program
Closing Thoughts
Remember, charitable remainder trusts offer powerful benefits when matched with the right client situation. Understanding how they work helps you deliver better solutions and grow your practice.
Frequently Asked Questions About Charitable Remainder Trusts
What is a charitable remainder trust and how does it work? A charitable remainder trust, or CRT, is an irrevocable trust that pays income to one or more noncharitable beneficiaries for life or for a term of up to 20 years. When the trust term ends, whatever assets remain pass to one or more qualified charities. People often fund CRTs with appreciated assets, since the structure lets them combine income planning with charitable goals.
Does a charitable remainder trust avoid capital gains tax? A qualifying CRT doesn't owe immediate capital-gains tax when it sells appreciated property inside the trust, but that doesn't mean the tax disappears for good. Distributions to the income beneficiary follow a four-tier system, with ordinary income taxed out first, then capital gains, then tax-exempt income, and finally principal, which comes out tax-free.
What is the difference between a CRAT and a CRUT? A charitable remainder annuity trust (CRAT) pays a fixed dollar amount every year, set when the trust is created. A charitable remainder unitrust (CRUT) pays a fixed percentage of the trust's value instead, recalculated annually. CRAT payments stay steady but can lose purchasing power over time, while CRUT payments move up or down along with the trust's investment performance.
What is the 10% remainder test for a charitable remainder trust? The 10% remainder test is an IRS actuarial requirement stating that the value expected to eventually pass to charity must equal at least 10% of the initial value contributed to the trust. If the projected charitable remainder falls short of that threshold, the trust doesn't qualify as a CRT, and it loses the tax benefits that come with that status.
This communication is general in nature and provided for educational and informational purposes only. It should not be considered or relied upon as legal, tax or investment advice or an investment recommendation, or as a substitute for legal or tax counsel. Any investment products or services named herein are for illustrative purposes only and should not be considered an offer to buy or sell, or an investment recommendation for, any specific security, strategy or investment product or service. Always consult a qualified professional or your own independent financial professional for personalized advice or investment recommendations tailored to your specific goals, individual situation, and risk tolerance.
All examples are hypothetical and are for illustrative purposes only.
Federal and state laws and regulations are complex and subject to change, which can materially impact your results.
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.
Charitable Remainder Trust:
Charitable deductions at the federal level are available only if you itemize deductions. Rules and regulations regarding tax deductions for charitable giving vary at the state level, and laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy or completeness of the information provided. Dunham Trust Company cannot guarantee that such information is accurate, complete, or timely; and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.
The trust is subject to the published fee schedule at the time the trust is established.
Although the trust itself is a tax-exempt entity, the trust income distributed to beneficiaries is taxable, according to terms dictated by the U.S. Internal Revenue Code and accompanying U.S. Treasury regulations.
There are two types of CRTs, Charitable Remainder Annuity Trusts (CRATs) and Charitable Remainder Unitrusts (CRUTs). Both CRATs and CRUTs require that payments be made to designated individuals for their lifetimes or a fixed term not exceeding 20 years.
Because the annuity payments from CRATS are fixed and must immediately begin after the creation of the trust, the underlying assets within the structure must be kept highly liquid.
Income tax consequences for the donor can be complex, depending on the individual situation. All or some of the income from the trust may be taxed at ordinary income rates, but part may be taxed at lower capital gains tax rates, or may even be tax-free, for some years.
Dunham Trust Company does not guarantee the completion of the installment note as investments will be subject to market conditions.
Dunham & Associates Investment Counsel, Inc. is a Registered Investment Adviser and Broker/Dealer. Member FINRA/SIPC. Advisory services and securities offered through Dunham & Associates Investment Counsel, Inc.
Trust services offered through Dunham Trust Company (“DTC”), a Nevada Trust Company. Dunham Private Trust is the Wyoming division of Dunham Trust Company. Dunham and DTC are affiliated entities.
