What Is a CRUT Trust: Payout Rules, Taxes, and Setup

A CRUT, or charitable remainder unitrust, is an irrevocable trust that pays you or another beneficiary a fixed percentage of the trust’s value every year and then transfers whatever remains to a charity you choose when the trust ends.¹ The payout must fall between 5 and 50 percent of assets each year, and the trust has to be structured so the charity’s projected share is worth at least 10 percent of what you contribute.² In return, you get a partial income tax deduction the year you fund it, you can sell appreciated assets inside the trust without triggering an immediate capital gains bill, and you receive an income stream for life or a set term of up to 20 years.

How It Works

A CRUT has four roles. The grantor contributes assets, typically stock, mutual funds, or real estate. A trustee manages and invests them. The income beneficiary, often the grantor or a spouse, receives the annual payments. The charitable remainder beneficiary, a qualified 501(c)(3), receives what is left when the trust ends.

Once you fund it, you cannot take the assets back.¹ The trust can run for the lifetime of one or more named people, for a fixed term of up to 20 years, or a combination.² Each year the trustee revalues the assets on a chosen valuation date and pays the beneficiary the elected percentage of that new value. Payments must go out at least once per year. Unlike a charitable remainder annuity trust (CRAT), which pays a fixed dollar amount set at inception, a CRUT’s payments rise and fall with the trust’s investment performance, and you can add more assets to it after the initial funding.

The Tax Benefits

Three separate tax advantages make CRUTs attractive in estate and retirement planning.

An upfront income tax deduction. When you fund the trust, you get a charitable income tax deduction equal to the present value of the charity’s remainder interest — an estimate of what the charity will eventually receive, discounted to today’s dollars.¹ The IRS calculates this using its actuarial tables and the Section 7520 rate, which equals 120 percent of the federal mid-term rate rounded to the nearest two-tenths of a percent and is published monthly. For February 2026, the 7520 rate was 4.6 percent.³

The deduction is capped based on adjusted gross income: 30 percent of AGI for gifts of appreciated property, 60 percent of AGI for cash. Anything you cannot use in the contribution year carries forward for up to five additional tax years.⁴

A concrete example: contribute $500,000 in appreciated stock to a CRUT with a 5 percent payout, and suppose the present value of the remainder is calculated at $175,000. Your deduction is $175,000, not $500,000. If your AGI is $400,000, the 30 percent cap limits your deduction that year to $120,000, and the remaining $55,000 carries forward.

No immediate capital gains hit on the sale. The CRUT itself is exempt from income tax, so the trustee can sell the appreciated assets inside the trust without triggering capital gains at the time of sale.² That means the full sale proceeds stay invested and working, rather than being reduced by tax first. This is often the main draw for donors sitting on concentrated, highly appreciated positions.

An income stream you can rely on. The variable payout tied to current asset value gives a built-in hedge against inflation. Over a long time horizon, that structure typically produces higher total payments than a fixed annuity-style trust when investments grow.

Payout Rules and the 10 Percent Remainder Test

Section 664 of the Internal Revenue Code sets the qualifying rules. The annual payout rate must be at least 5 percent and no more than 50 percent of the trust’s net fair market value on its valuation date.²

Separately, the present value of the charity’s projected remainder must be at least 10 percent of the property’s fair market value on the date it is contributed.² That number is calculated from the beneficiary’s age, the chosen payout rate, and the current 7520 rate. A higher payout rate or a younger beneficiary shrinks the projected remainder and can push the trust below the 10 percent floor.

If a trust fails the 10 percent test, it does not qualify as a charitable remainder trust at all, and none of the tax benefits apply. Federal law does allow a trust that inadvertently misses the mark to be reformed through a court proceeding to bring it into compliance.

The Four Payout Variations

Federal regulations recognize four structural versions of the CRUT. The right one depends on the type of asset you are contributing and how quickly you need predictable payments.

Standard CRUT (SCRUT). The trustee pays the full elected percentage every year, no matter what the trust actually earned. If earnings fall short, the trustee sells assets to cover the payment.
Net Income CRUT (NICRUT). The trustee pays the lesser of the elected percentage or the trust’s actual net income for the year. In lean years the beneficiary receives less, but principal is preserved.
Net Income with Makeup CRUT (NIMCRUT). Works like a NICRUT, but any shortfall accumulates as a makeup amount. When earnings later exceed the elected percentage, the trustee pays extra to catch up the deficit.
Flip CRUT. Starts as a net income trust and converts to a standard CRUT on a specified triggering event, commonly the sale of an illiquid asset like real estate. Useful when the initial contribution does not produce cash flow right away.

How Your Distributions Are Taxed

The trust is tax-exempt, but you are not. When you receive a distribution, it is taxed under a four-tier ordering system that pays out the most heavily taxed categories first:¹

Ordinary income first, to the extent the trust has current or accumulated ordinary income, taxed at your regular rate.
Capital gains next, once ordinary income is exhausted.
Other income after that, including tax-exempt interest.
Tax-free return of principal only after all accumulated income and gains have been distributed.

The practical effect: in the early years of a CRUT that has just sold significant appreciated assets, most distributions are taxed as ordinary income or capital gains rather than as tax-free principal. The capital gains tax is not avoided altogether. It is spread out over the life of the payments instead of hitting all at once.

What You Can Contribute — and What Causes Problems

CRUTs accept publicly traded stock, mutual funds, bonds, real estate, and closely held business interests. A few categories create issues you need to know about before funding.

S-corporation stock. A CRUT is not a permitted S-corp shareholder. Transferring S-corp stock into a CRUT causes the company to lose its S-corp election and be reclassified as a C-corp, which produces double taxation. The usual workaround is contributing the underlying business assets rather than the stock.

Unrelated business taxable income. The trust’s income tax exemption disappears for any year in which it earns unrelated business taxable income (UBTI). In that year, the trust owes an excise tax equal to the full amount of the UBTI.² UBTI most often comes from debt-financed real estate or certain partnership investments, so the trustee should evaluate an asset for UBTI risk before accepting it.

Non-cash gifts above $5,000. If you contribute property other than publicly traded securities and the claimed value exceeds $5,000, the IRS requires a qualified appraisal by a qualified appraiser.⁵ The appraisal must follow the Uniform Standards of Professional Appraisal Practice and be completed no earlier than 60 days before the contribution date. The appraiser’s fee cannot be tied to a percentage of the appraised value. You report the appraisal on Form 8283 with your income tax return for the year of the gift.

Setting Up and Filing

Creating a CRUT means drafting a trust instrument, transferring title to the assets, and meeting several federal filing requirements. Legal costs to have an estate planning attorney draft and implement a CRUT typically run from several thousand dollars to $15,000 or more, depending on how complicated the assets are.

The trust document has to identify the contributed assets, the payout rate, the income beneficiaries (by name and Social Security number for tax reporting), the charitable remainder beneficiary (a qualifying 501(c)(3), identified by EIN), and an annual valuation date. The IRS publishes sample trust documents you can start from — Revenue Procedure 2005-52 for a CRUT lasting one individual’s lifetime, Revenue Procedure 2005-53 for a fixed term of years, and additional sample forms for trusts with two measuring lives.¹

Once the document is signed and notarized, you have to transfer legal title of the assets into the trust’s name. Real estate requires a new deed; securities have to be retitled. The trustee obtains an Employer Identification Number from the IRS to open bank and brokerage accounts in the trust’s name.⁶

Every year, the trustee files Form 5227, the split-interest trust information return, reporting income, distributions, and asset values. For a calendar-year trust, the deadline is April 15 of the following year.⁷ Most of Form 5227 is open to public inspection, but Schedule A (donor information), the Schedule K-1s sent to beneficiaries, and the trust agreement itself stay private.⁸

1
Internal Revenue Service. Charitable Remainder Trusts
2
Office of the Law Revision Counsel. 26 USC 664 – Charitable Remainder Trusts
3
Internal Revenue Service. Actuarial Tables
4
Office of the Law Revision Counsel. 26 USC 170 – Charitable Contributions and Gifts
5
Internal Revenue Service. Instructions for Form 8283
6
Internal Revenue Service. Get an Employer Identification Number
7
Internal Revenue Service. Instructions for Form 5227
8
Internal Revenue Service. Instructions for Form 5227