Charitable Remainder Unitrust (CRUT)

---

A Charitable Remainder Unitrust (CRUT) is an advanced estate planning strategy that may provide substantial income tax, estate tax, and estate planning benefits. A CRUT may allow a highly-appreciated and/or concentrated position to be liquidated without incurring capital gains tax, resulting in the grantor receiving more income from the assets than if they had been liquidated in a taxable transaction outside of the CRUT. A CRUT also allows the trust assets, and future appreciation, to be excluded from the grantor’s taxable estate.

 A CRUT is frequently used as a way to liquidate a highly appreciated or concentrated stock position, create a charitable deduction, protect assets from estate tax, or to allow an IRA to be paid out to a beneficiary beyond the 10-year period imposed by the SECURE Act. As a tax-exempt entity, a CRUT can sell donated property with no capital gain tax consequences. The initial gift of appreciated or concentrated assets into the CRUT is eligible for a charitable income tax deduction. The CRUT would then sell the donated assets tax-free and use the invested proceeds to pay the grantor and/or other beneficiaries an annual income stream as set by the terms of the trust. At a specified time, usually the grantor’s death, the CRUT would terminate and transfer the remaining trust assets to one or more designated charities. Assets remaining in the CRUT are not included in the grantor’s taxable estate.

• The grantor works with an attorney to set up the CRUT.
• The grantor makes a charitable gift of the specified property to the CRUT, resulting in a potential income tax deduction, and the CRUT then sells the property tax-free and reinvests the proceeds.
• The CRUT is managed by a Trustee, who must be someone other than the grantor.
• The grantor, or family members, will receive the designated annual payout. The annual payout can range from 5% to 50% per year, but is generally on the lower end of that range to comply with IRS rules.               
• At the end of the CRUT term (usually the death of the grantor, but in no case more than 20 years), the CRUT terminates and distributes the remaining trust property to one or more designated charities. 

 A CRUT may be appropriate if any of the following apply:

• You are charitably-inclined and you own a concentrated position, highly-appreciated assets, or assets that may appreciate substantially in the future.
• Your net worth exceeds or will likely exceed the applicable estate tax exclusion amount at the state or federal level – this is as low as $1 million in some states.
• You have tax-deferred retirement assets such as a traditional IRA or 401(k) that you hope will benefit your loved ones, especially if a Roth conversion is not an appropriate option for you.