Charitable Remainder Trusts — Tax Planning, IRS Scrutiny & How to Use Them Correctly
What This Video Covers
Charitable remainder trusts are a well-established and legitimate estate planning and tax planning tool that the IRS has placed under heightened scrutiny — not because the structure is improper, but because promoters have repeatedly used it to engineer improper tax deferral and inflated deductions. The trust itself is sound. The abuse comes from how it is implemented.
This video explains how charitable remainder trusts work, what tax benefits they legitimately provide, why the IRS has made them an enforcement focus, and how to use them correctly as part of a broader estate or tax planning strategy.
Key topics addressed include:
- What a charitable remainder trust is and how it is structured
- The income stream, charitable deduction and estate planning benefits a CRT provides
- How appreciated property transfers work inside a CRT — and why they are powerful
- The two primary CRT structures: charitable remainder annuity trusts (CRATs) and charitable remainder unitrusts (CRUTs)
- How promoters have abused CRTs to manufacture improper tax deferral
- IRS enforcement activity and what triggers examination
- How to evaluate whether a CRT is appropriate for your situation
- The role of qualified legal counsel in structuring and administering a CRT
Why This Matters
A charitable remainder trust is an irrevocable trust into which a donor transfers assets — often highly appreciated property — in exchange for an income stream paid to the donor or other beneficiaries for a period of years or for life. At the end of the trust term, whatever remains passes to one or more qualified charitable organizations.
The donor receives a charitable deduction in the year of the transfer, based on the present value of the remainder interest that will eventually pass to charity. The trust itself is tax-exempt, which means it can sell appreciated assets inside the trust without immediately triggering capital gains tax — allowing the full pre-tax value to be reinvested and generating a larger income stream than a taxable sale would produce.
About the Presenter
Benjamin A. Goldburd, Esq.
Goldburd McCone LLP
Benjamin brings focused experience in IRS collection defense, including lien and levy disputes, CDP hearings and negotiated resolutions. Our team’s combined backgrounds in accounting, business and wealth management ensure that enforcement responses account for the full scope of a client’s financial position.
Frequently Asked Questions About Charitable Remainder Trusts
What is a charitable remainder trust and how does it work?
A charitable remainder trust is an irrevocable trust you fund with assets — typically appreciated property or investments — that pays an income stream to you or other named beneficiaries for a term of years or for life. At the end of the term, the remaining assets pass to one or more qualified charities. You receive a charitable deduction in the year you fund the trust, based on the actuarially determined present value of the charity’s remainder interest. Because the trust is tax-exempt, it can sell appreciated assets without immediate capital gains tax, reinvest the full proceeds, and generate a larger income stream than you would have had after a taxable sale.
What is the difference between a CRAT and a CRUT?
A charitable remainder annuity trust (CRAT) pays a fixed dollar amount each year — set at the time the trust is created — regardless of how the trust’s investments perform. A charitable remainder unitrust (CRUT) pays a fixed percentage of the trust’s value as recalculated each year, so the payment fluctuates with investment performance. CRUTs can also accept additional contributions after the initial funding, which CRATs cannot. The choice between them depends on whether you want income certainty or the potential for growth in your distributions over time.
Can I contribute real estate or a business interest to a charitable remainder trust?
Yes, and this is one of the most common and effective uses of the structure. If you own real estate or a business interest with a low cost basis relative to its current value, contributing it to a CRT allows the trust to sell the asset without immediately recognizing capital gains, reinvest the full proceeds, and pay you an income stream from the larger pre-tax amount. The combination of the income stream, the upfront charitable deduction and the capital gains deferral can produce significantly better after-tax economics than a direct sale — particularly for long-held, highly appreciated assets.