Selling a highly appreciated asset — such as a rental property that’s doubled in value — can trigger a major capital gains tax bill. One strategy that can help manage both the tax and charitable sides of that equation is a charitable remainder unitrust, or CRUT.
At first glance, CRUTs can look complex, but the core idea is straightforward once you break it down.
How a CRUT Works
A CRUT is an irrevocable trust — once you fund it, you no longer own the asset. You transfer the appreciated property into the trust, and the trust then sells it. Because the CRUT is a charitable entity, the sale doesn’t trigger immediate capital gains taxes.
The proceeds from the sale stay within the trust, which can then invest those assets. Each year, you receive a fixed percentage of the trust’s value as income — typically around 5%. That income continues for the rest of your life (or a specified term), and anything left at the end passes to charity.
In your example, if you transferred a $6 million property into a CRUT and set a 5% payout rate, the trust would pay you $300,000 annually, adjusted as the value of the trust changes over time.
Why Pair a CRUT with a Donor-Advised Fund
A CRUT must ultimately benefit a charitable cause, but it doesn’t have to go directly to one organization today. That’s where a donor-advised fund (DAF) comes in.
You can name your DAF as the remainder beneficiary of the trust. The DAF receives what’s left when the trust ends, but you (and potentially your family) retain advisory privileges to direct grants from that fund to multiple charities over time.
That structure provides both flexibility and control — you’re not locking your giving into one organization, and you can decide later which causes to support.
What to Consider Before Setting One Up
A CRUT offers meaningful tax deferral and lifetime income benefits, but there are trade-offs:
- Loss of ownership: Once the asset is in the trust, it’s irrevocable.
- Administrative complexity: Each year, the trust must be valued, and distributions are calculated based on that valuation.
- Legal setup: CRUTs require thoughtful design around payout percentages, funding assets, and long-term charitable goals.
It’s not something to set up casually or without coordination between your attorney, CPA, and financial advisor. The details — from how much income you’ll take each year to how the trust invests — have long-term implications for both your cash flow and your family’s giving legacy.
The Bottom Line
For families with highly appreciated assets, a CRUT can be a powerful way to defer capital gains, receive steady income, and build a long-term charitable plan. Pairing it with a donor-advised fund adds flexibility, letting you guide your family’s philanthropy for years to come.
It’s one of those rare strategies that can reduce taxes, sustain your lifestyle, and amplify your impact — all within a single structure, when executed thoughtfully.
This post is adapted from a recent episode of the Scholar Wealth Podcast. For more perspective on charitable remainder trusts and tax-efficient giving, listen to the full podcast episode here.