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So What Are CRUTs and What Can They Do for Me?

CRUTYou may have heard of a CRUT, which is a rather unpleasant acronym that stands for charitable remainder unitrust. While the acronym may be unattractive, a charitable remainder trust can be a very valuable tool that high-net-worth individuals can use for estate planning, income generation, tax savings, and charitable giving.


There are a number of charitable remainder trusts and other trusts that allow you to pass on assets to a charitable organization, and the rules for each of them are quite complicated.In this post, however, we will just give you some basic information about two types: the standard CRUT and the charitable remainder annuity trust (CRAT). The most important difference between these two is how payouts are made. A CRUT pays out a percentage of the trust assets each year to the beneficiary or beneficiaries—an amount that will vary depending on the performance of the trust’s assets. The payout must be at least 5% of the fair market value of the assets originally placed in the trust, but not more than 50%. A CRAT is set up to pay out a specific amount each year. Another significant difference is that you can make additional contributions to a CRUT but not to a CRAT.
With both types, you put assets into a trust for one or more IRS-approved charities. The trustee manages those assets and will probably sell assets that don’t generate income and replace them with ones that do. The trustee will then make distributions to the beneficiary or beneficiaries according to the terms of the trust. At the end of the trust’s lifetime (which could be a set period or your lifetime), what remains in the trust goes to the charities—hence the term charitable remainder trust. (At least 10% of the initial asset value must be distributed to the charity at the end of the trust’s lifetime.)

Most advantageous with highly appreciated assets

One of the main benefits of these trusts is that you can donate assets whose value has grown significantly since you bought them. While you would face a stiff tax bill if you sold these assets, they can usually be sold within the trust without incurring capital gains taxes.

For example, let’s say that you bought 5,000 shares of XYZ stock at $20 a share back in 1995, and the share price has soared to $150. Your initial $100,000 investment is now worth $750,000. If you were a high-income earner and sold that stock yourself, you could be facing a tax bill of up to $154,700 (at the highest combined capital gains/Medicare tax rate).

Or, the trustee of your CRUT or CRAT (which can be the charity, an advisor, or even you) may be able to sell that stock within the trust and net the full $750,000. This is why these trusts are most effective with highly appreciated assets.

What kinds of investments can the trustee buy?

The trust document will define the trustee’s duties regarding managing and investing the trust property. In California, unless the trust expands or contracts the trustee’s powers, the trustee’s investment power will be governed by the Uniform Prudent Investor Act, incorporated into Probate Code Section 16047. Prudence is the governing word for the trustee or the person the trustee chooses as the trust’s investment manager, but there are no limitations on the types of investments that can be purchased in a trust so long as they do not contravene state law. Even higher-risk investments can be included as long as the portfolio as a whole is diversified, has a reasonable risk/return profile, and is managed in a way that acknowledges economic realities.

Other advantages

Income tax savings: You can take an income-tax deduction for the “present value” of the charitable donation. Basically, this means the value of the trust’s assets at its inception minus the amount of income that the trust is expected to pay out over its life. Further, the income distributions that you or other beneficiaries receive may include capital gain or tax-exempt components, which will not be treated as ordinary income.

Estate tax: The amount that you donate to a CRUT or CRAT is not included in your estate and will therefore not incur estate tax. By lowering the overall value of your estate, you may be able to avoid estate tax altogether.

Income: You, or a beneficiary or beneficiaries you choose, will receive income from the trust paid out according to the terms of the trust. You can start the distributions immediately or delay them to supplement your retirement income.

With a CRUT, the distribution is a specified percentage of the trust’s assets (at least 5% but not more than 50%). Because the amount of the distribution is dependent on the value of the trust’s assets in any given year, the amount of income will vary.

If you prefer to get a specified amount that you can count on to augment your income, you can set up a CRAT, which pays out a specified amount like an annuity.


Unlike a living trust, which is a revocable trust that you can modify at will, charitable trusts such as CRUTs and CRATs are irrevocable—once you establish one, you cannot change its terms. This means that you should fund a trust only with money that you can live without.

If a charitable trust sounds like something you might be interested in, we strongly recommend that you meet with an estate planning attorney who specializes in trusts and can discuss all of the various options so that you can select the trust and terms that best fit your needs and goals.

If you’d like to find out more about whether a charitable remainder trust might be an effective component of your long-term financial planning, please call or e-mail us today at (925) 365-1533 or

Accretive Wealth Management is not a law firm and cannot provide legal advice, but we would be happy to put you in touch with an experienced estate planning attorney who can help you.

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