Charitable Remainder Trust: How Giving, Income and Taxes Can Work Together
A charitable remainder trust is one of the few planning tools that touches three goals at once: supporting causes you care about, creating an income stream, and managing taxes on appreciated assets. For Wisconsin families holding concentrated stock, a closely held business, or real estate that has grown in value for decades, a charitable remainder trust (often called a CRT) can be worth a closer look.
It is also a permanent decision. Once assets go into a CRT, they generally cannot come back out. That is why a charitable trust strategy works best when it is evaluated as part of your full wealth and tax picture, not as a stand-alone tax idea.
Start Here: A Complimentary Wealth and Tax Review
Before discussing any trust, it helps to know where you stand. Compound offers a complimentary, no-obligation wealth and tax review that may include:
Appreciated holdings: which assets carry the largest embedded gains and how concentrated your portfolio is
Income needs: what you may need from your assets now and in retirement
Charitable goals: how much you give today and what you hope to support over time
Tax picture: recent returns and upcoming events, such as a business or property sale
Estate plan: how current documents coordinate with your giving
Request your wealth and tax review.
What Is a Charitable Remainder Trust?
A charitable remainder trust is an irrevocable trust. You transfer assets into the trust, the trust pays an income stream to you (and possibly a spouse or other named beneficiaries) for life or for a set term of years, and when that period ends, the remaining assets pass to one or more charities you have chosen.
There are two main types:
Charitable remainder annuity trust (CRAT). Pays a fixed dollar amount each year, set when the trust is created. Additional contributions are generally not allowed.
Charitable remainder unitrust (CRUT). Pays a fixed percentage of the trust's value, recalculated each year. Payments can rise or fall with the trust's investments, and additional contributions may be allowed.
Federal rules set minimum and maximum payout requirements and require that a meaningful remainder be projected to pass to charity. Your estate attorney and tax advisor can confirm how these rules apply to a specific design.
How Does a CRT Affect Taxes?
The tax side is a large part of why families consider a CRT. Several features are worth understanding:
An income tax deduction. In the year you fund the trust, you may be eligible for a charitable deduction based on the present value of the amount projected to pass to charity. Annual limits apply based on your income and the type of asset donated, and unused amounts may carry forward.
Deferred capital gains. A CRT is generally exempt from income tax. If the trust sells an appreciated asset, the gain is not taxed immediately at the trust level. That can allow the full value to be reinvested and diversified.
Taxable distributions. Payments you receive are taxed under a tiered system that may treat them as ordinary income, capital gains, tax-exempt income, or return of principal, depending on what the trust has earned and realized over time. Gains are spread out rather than eliminated.
Estate planning effects. Assets in a CRT are generally removed from your taxable estate, though the income stream and charitable remainder affect what passes to heirs.
Because these features interact with your other income, deductions, and multi-year tax strategy, modeling them alongside your full return is important. This is where tax planning and preparation and wealth planning need to work together.
The Wealth Management Side of a CRT
A CRT is also an investment account with its own goals. The trust must produce the income stream you selected while preserving enough value for the charitable remainder. That raises practical portfolio questions:
Diversifying a concentrated position. Contributing a single stock or business interest and selling it inside the trust may allow diversification without an immediate tax bill on the sale.
Matching investments to the payout. A unitrust payout rises and falls with trust value, while an annuity trust payout stays fixed, which affects how the portfolio may be built.
Coordinating with your other accounts. The trust's income becomes one piece of your retirement cash flow, alongside retirement accounts, taxable investments, and Social Security.
Replacing what heirs do not receive. Some families pair a CRT with other planning so children still receive an inheritance.
Wealth management that looks at the trust as part of your high net worth financial plan, rather than as a separate account, can help keep these decisions connected. To see how reinvested proceeds may grow under different assumptions, try the Compound calculator. Results are hypothetical and for illustration only.
Who May Consider a Charitable Remainder Trust?
A CRT is not right for everyone. It is often discussed by people who:
Hold highly appreciated stock, real estate, or business interests with a low cost basis
Are planning a liquidity event, such as selling a business or a real estate capital event
Want a reliable income stream in retirement
Already have meaningful charitable goals and plan to give over their lifetime
Are comfortable giving up access to principal permanently
Timing matters. If an asset is already under a binding sale agreement, contributing it to a CRT may not produce the intended tax result. Planning ahead of a transaction gives you more options.
Coordinating With Your Estate Attorney and Family
A CRT is a legal document, and it should be drafted by an estate attorney who can coordinate it with your will, other trusts, and beneficiary designations. Your wealth and tax advisors can model the income, deduction, and portfolio impact, while your attorney handles the legal structure. Families with larger or multigenerational plans may also benefit from family office wealth management, where giving, investments, and legacy planning are coordinated in one place.
It is also worth involving family in the conversation. Explaining why part of your wealth will go to charity can help avoid surprises later.
Integrated Planning for Wisconsin Families
Compound works with individuals, families, and business owners throughout Wisconsin, including Milwaukee, Madison, Green Bay, Appleton, Waukesha, Eau Claire, and La Crosse, as well as surrounding areas. Because wealth management and tax planning sit together, a charitable remainder trust can be evaluated for its investment, income, tax, and legacy effects in the same conversation, with legacy planning and charitable giving coordination built into your broader plan.
Considering a charitable trust strategy? Request a complimentary wealth and tax review to see whether a CRT is worth discussing for your situation.
Frequently Asked Questions
What is a charitable remainder trust?
A charitable remainder trust is an irrevocable trust that pays income to you or other beneficiaries for life or a term of years, then passes the remaining assets to charity.
Does a charitable remainder trust avoid capital gains tax?
A CRT may allow appreciated assets to be sold inside the trust without immediate capital gains tax. Gains are generally spread out and may be taxed as distributions are paid to you, rather than eliminated.
What is the difference between a CRAT and a CRUT?
A CRAT pays a fixed dollar amount each year. A CRUT pays a fixed percentage of the trust's value, recalculated annually, so payments may change over time.
Can I change a charitable remainder trust after it is created?
A CRT is irrevocable, so the core terms generally cannot be changed. Some trusts allow changing the charitable beneficiary. Your estate attorney can explain what flexibility a specific document may include.
Who should I talk to before setting up a CRT?
An estate attorney to draft the trust, plus wealth and tax advisors who can model the income, deduction, and investment effects within your overall plan.
Compound is a registered investment adviser. Registration does not imply a certain level of skill or training. This article is for informational and educational purposes only and should not be construed as personalized investment, tax, or legal advice. Tax laws are complex and subject to change. Strategies discussed may not be suitable for everyone, and there is no guarantee that any strategy will achieve its objectives or reduce taxes. Calculator results are hypothetical, are not guarantees of future results, and do not reflect any actual investment. Investing involves risk, including possible loss of principal. Diversification does not ensure a profit or protect against loss. Please consult your tax, legal, and financial professionals before acting on any information in this article. For more information, see Compound's Form ADV, available at adviserinfo.sec.gov.
About Compound Wealth
Compound Wealth is an integrated tax, wealth management, accounting, and business transition firm serving business owners, professionals, real estate investors, and families. Rather than viewing financial decisions independently, the firm takes a coordinated approach that considers how tax planning, wealth management, accounting, and long-term planning often intersect. This planning-first philosophy helps clients evaluate financial decisions within the context of their broader objectives.
