What Is a Charitable Remainder Unitrust (CRUT)?

A charitable remainder unitrust lets you give an asset to charity while still collecting income from it during your lifetime — and it can help you sidestep capital gains tax along the way. People with substantial assets often use this tool to support a college, university, or other cause while lowering what they owe in taxes.

This overview explains how these trusts work in general terms. Because trust and tax rules vary and change, talk with an estate planning attorney about your specific situation before setting one up.

How a charitable remainder unitrust works

A charitable remainder unitrust, or CRUT, is an estate planning arrangement that pays income to a chosen beneficiary during the donor's lifetime, then passes what's left to a charity. The donor — or a family member — is usually the one collecting that income at first. The payment isn't a fixed dollar amount; it's a percentage of the trust's assets, recalculated every year based on current fair market value.

People typically fund a CRUT with something valuable: artwork, real estate, stocks, bonds, or similar property. You can add more assets to the trust later on. And because the IRS doesn't want these trusts used purely as a tax dodge, federal rules require that the charity end up with at least 10% of the asset's fair market value.

A simple example

Say Sarah, a Penn State graduate, inherits $200,000 in stock from her grandfather. She wants ongoing income from that gift, but she'd also like to leave something to her alma mater. So she sets up a charitable remainder unitrust:

1. Sarah moves the stock into the trust.
2. Each year, the trust pays Sarah a percentage of the principal's current value.
3. When Sarah dies, the trust closes out and sends $20,000 — 10% of the total assets — to Penn State.

Different types of CRUTs

How much income the beneficiary receives depends on which version of the CRUT is used. In every case, the payout shifts year to year with the trust's value, and it's usually taxable. Payments can last for the beneficiary's lifetime or for up to 20 years.

Standard unitrust

With a standard unitrust, you lock in a fixed percentage rate when you create the trust. That rate has to fall somewhere between 5% and 50% of the trust's fair market value, recalculated at the start of each year.

Net income unitrust

A net income unitrust pays out either the standard-unitrust amount or the trust's actual net income for the year — whichever is smaller. Younger donors, or those who'd rather wait for bigger payouts down the road, often choose this version.

Flip unitrust

A flip unitrust starts out as a net income unitrust, paying beneficiaries only what the trust actually earns. This setup makes sense when the trust is funded with something hard to sell quickly, like real estate or art. The trust document names a future date when that asset will be sold, at which point the trust converts into a standard unitrust. Donors planning around retirement often like this structure.

How CRUTs handle capital gains tax

Favorable tax treatment is a big reason people set these trusts up. A CRUT doesn't owe capital gains tax when it sells an asset inside the trust. That alone motivates some donors to move appreciated stock or property into one — it lets the trust sell highly appreciated assets without the usual tax hit.

Back to Sarah's example: suppose her stock climbs $50,000 in value, to $250,000, and she sells it outright. She'd owe capital gains tax based on her bracket — at a 15% long-term rate, that's $7,500 out of pocket.

Instead, by placing the stock in a CRUT with a 5% annual payout, Sarah collects $12,500 in year one, claims an income tax deduction, and owes no capital gains tax at all. When she dies, Penn State receives what's left in the trust, to be used however she directed — for instance, to fund a scholarship in her name.

What CRUTs offer donors

Charitable remainder unitrusts come with several advantages:

• an immediate income tax deduction for part of what you put into the trust
• no upfront capital gains tax on appreciated assets you contribute
• a steady income stream for life or for a set number of years
• a federal — and sometimes state — income tax charitable deduction, and
• the satisfaction of supporting a cause you care about.

Getting help setting one up

If a charitable remainder unitrust sounds like the right move for you, loop in an estate planning attorney. These trusts sometimes come with extra requirements, like state registration, and an attorney can walk you through those details. You may also find useful guidance directly from the charity you're planning to support — many universities, hospitals, and nonprofits publish their own resources on setting up a CRUT. For more background, see the full discussion of charitable remainder unitrusts.