A Charitable Trust With Many Benefits for Retirees
You can use a charitable remainder trust to help support causes you love and leave money to heirs in a way that mimics the old "stretch" IRA.

Are you looking for an additional income stream in retirement? Do you want to leave behind something for charity and cut your tax bill now and when you pass away? If the answer is yes, a charitable remainder trust might be right for you.
A CRT is an irrevocable "split-interest" trust that provides income to you and any designated beneficiaries for a specified number of years (up to 20) or for the rest of your life or a beneficiary's, with the remaining assets donated to charity. Between 5% and 50% of the trust's assets must be distributed at least annually, but 10% or more of the CRT's initial value must eventually go to charity.
There are two types of CRTs. With a charitable remainder annuity trust, or CRAT, a set amount is distributed to you or beneficiaries that aren't charities each year. Once you set up a CRAT, you can't contribute more to it later. With a charitable remainder unitrust, or CRUT, distributions are based on a fixed percentage of the trust's value, which is redetermined annually. You can also put more into a CRUT after it's created. Both types of CRTs have tax advantages.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
According to Jim Ferraro, vice president and trust counsel of Argent Trust Co., CRTs are first and foremost a "tool for reducing the estate tax for people who are charitably inclined." That's because assets contributed to these trusts are generally not included in your estate when you die. If they're not part of your estate, they won't be subject to the federal estate tax.
You may even be able to avoid the tax altogether if the total value of the estate is reduced below the estate tax exemption amount for the year of death. That amount, which was $11.7 million in 2021, rises to $12.06 million in 2022. The exemption is doubled for married couples if portability is elected on Form 706 after the death of the first-to-die spouse.
You can also claim an itemized charitable deduction on your income tax return for the year you set up a CRT. The deduction is for the projected amount that will go to charity. Because a charity's future interest isn't always clear when the CRT is created, a complicated formula is used to calculate it. The formula is based on your age or the age of any other beneficiaries, whether a CRAT or CRUT is used, and the rate of distribution, among other factors.
You can also defer payment of capital gains taxes if you place appreciated capital assets, such as stock or real estate, in a CRT. If you sell assets outside of the CRT, the tax is due when you file your income tax return for the year of sale. But if you transfer the asset to a CRT, the trust can sell it tax-free. However, as Ferraro notes, the "character of the income or gain is trapped within the CRT" by IRS regulations that dictate how distributions are taxed. Although there is the potential for some tax-free income, portions of the distribution also may be treated as ordinary income, capital gain or other income and taxed accordingly. For capital gains, though, the tax bill will be delayed and you may owe those taxes only when you file your income tax return for years that you receive a distribution.
CRTs can also be used as an alternative to "stretch" IRAs, which were eliminated for most people in 2020. Under the old rules, nonspouse IRA beneficiaries could spread distributions from an inherited account over their own lifetime and leave the rest of the money to grow tax-free for decades. Now, all funds from an inherited IRA generally must be distributed to nonspouse beneficiaries within 10 years of the IRA owner's death. To get around the new rules, you can name a CRT as your IRA beneficiary and set up the trust to provide income for life to someone other than a spouse. Although the tax benefits are nice, Ferraro urges people not to "let the tax tail wag the dog." If you're not charitably inclined, don't opt for a CRT. "Charitable remainder trusts are not for everyone."
Rocky Mengle was a Senior Tax Editor for Kiplinger from October 2018 to January 2023 with more than 20 years of experience covering federal and state tax developments. Before coming to Kiplinger, Rocky worked for Wolters Kluwer Tax & Accounting, and Kleinrock Publishing, where he provided breaking news and guidance for CPAs, tax attorneys, and other tax professionals. He has also been quoted as an expert by USA Today, Forbes, U.S. News & World Report, Reuters, Accounting Today, and other media outlets. Rocky holds a law degree from the University of Connecticut and a B.A. in History from Salisbury University.
-
-
Kiplinger Readers' Choice Awards 2023 Results
The results are in for the Kiplinger Readers’ Choice Awards — celebrating the best products and services in personal finance.
By the editors of Kiplinger's Personal Finance • Published
-
Is Chevron Stock Set for a Rebound?
Chevron stock received its second analyst upgrade in as many days, boosting hopes for a recovery in the lagging energy major.
By Dan Burrows • Published
-
Best Cash Back Credit Cards June 2023
Smart Buying Looking for the credit card that pays the most cash back? These lenders may pay hundreds of dollars, with minimum hassle.
By Lisa Gerstner • Last updated
-
I-Bond Rate Is 4.30% for Next Six Months
Investing for Income Bonds issued May 1 to October 31 will have a rate of 4.30%.
By David Muhlbaum • Last updated
-
What Are I-Bonds?
savings bonds Inflation has made Series I savings bonds enormously popular with risk-averse investors. So how do they work?
By Lisa Gerstner • Last updated
-
Your Guide to Open Enrollment 2023
Employee Benefits Health care costs continue to climb, but subsidies will make some plans more affordable.
By Rivan V. Stinson • Published
-
Watch Out for Flood-Damaged Cars from Hurricane Ian
Buying & Leasing a Car In the wake of Hurricane Ian, more flood-damaged cars may hit the market. Car prices may rise further because of increased demand as well.
By Bob Niedt • Last updated
-
What You Need to Know About Life Insurance Settlements
life insurance If your life insurance payments don’t seem worth it anymore, consider these options for keeping the value.
By David Rodeck • Published
-
As the Market Falls, New Retirees Need a Plan
retirement If you’re in the early stages of your retirement, you’re likely in a rough spot watching your portfolio shrink. We have some strategies to make the best of things.
By David Rodeck • Published
-
Retirees: Your Next Companion May Be a Robot
happy retirement Robots may help fill the gap left by a shortage of humans to help older adults live independently.
By Alina Tugend • Published