Last updated: October 2026
A charitable remainder trust is an irrevocable trust that pays you, or people you name, an income stream for life or for up to 20 years, then passes what remains to charity. Federal law requires an annual payout of 5% to 50% and a charitable remainder worth at least 10% of the starting value. Donors often fund one with appreciated stock or real estate. Bay Legal drafts the trust, and your CPA advises on the tax results.
Charitable remainder trust (CRT): an irrevocable trust that pays a noncharitable beneficiary for a set period, then distributes the remainder to charity.
A charitable remainder trust is one of several tools covered on our charitable estate planning page.
How does a charitable remainder trust work?
- Fund the trust. You transfer assets, often appreciated stock or real estate, to an irrevocable trust.
- The trust may sell the assets. A CRT itself is generally exempt from federal income tax (IRC section 664(c)), so a sale inside the trust is treated differently than a sale you make directly. Your CPA should confirm the effect for you.
- Beneficiaries receive payments. The trust pays you, or others you name, at least once a year for life or for a term of up to 20 years.
- Charity receives the remainder. When the term ends, the remaining assets pass to the charities named in the trust.
What are the types of charitable remainder trusts?
| Type | What it pays | Often used when |
|---|---|---|
| Charitable remainder annuity trust (CRAT) | A fixed dollar amount every year, set when the trust is funded | You want predictable payments |
| Charitable remainder unitrust (CRUT) | A fixed percentage of the trust’s value, revalued every year | You want payments that can grow with the investments |
| Net-income unitrust (NICRUT / NIMCRUT) | The lesser of trust income or the fixed percentage; a NIMCRUT can make up earlier shortfalls in later years | The trust holds assets that produce little income |
| Flip unitrust | Starts as a net-income unitrust, then switches to a standard unitrust after a set date or event | The trust holds real estate or other assets that will be sold later |
A flip must be triggered by a specific date or a single event outside anyone’s control, such as the sale of an unmarketable asset, a marriage, a divorce, a death or a birth. The switch takes effect the following year, and any makeup amount is forfeited (Treas. Reg. section 1.664-3).
What rules must a charitable remainder trust meet?
- Payout. At least 5% and no more than 50% a year (IRC section 664(d)).
- Term. The life of one or more people living when the trust is created, or a term of up to 20 years.
- Charitable share. The remainder going to charity must be worth at least 10% of the property placed in the trust, measured with IRS valuation tables and the monthly section 7520 rate.
- Annuity trust test. For a CRAT, the IRS also applies a test of the chance the trust will run out before charity receives anything. A qualified contingency clause can satisfy it (Rev. Proc. 2016-42).
- Sample forms. The IRS publishes sample CRAT and CRUT forms that many drafters start from (IRS charitable remainder trusts).
How are the payments taxed?
Bay Legal does not provide tax advice. As general background, payments keep the character of the trust’s income in a set order: ordinary income first, then capital gain, then other income, then return of principal (IRC section 664(b)). A CRT that earns unrelated business income owes an excise tax equal to all of that income. Some private-foundation rules, including the ban on self-dealing, also apply (section 4947). California generally follows these federal trust rules (Revenue and Taxation Code section 17731). Review the tax effects with your CPA before funding.
What filings does a charitable remainder trust need?
Every CRT files IRS Form 5227 each year. In California, the trustee does not register with the Attorney General’s Registry of Charitable Trusts while the charity’s interest is still in the future. Registration is due within 30 days after the charity’s interest becomes a present interest, usually when the payment term ends (Government Code section 12585).
Frequently Asked Questions
What is the difference between a CRAT and a CRUT?
A charitable remainder annuity trust pays a fixed dollar amount every year, set when the trust is funded. A charitable remainder unitrust pays a fixed percentage of the trust’s value, which is revalued each year, so payments rise or fall with the investments. Both must pay between 5% and 50% a year under IRC section 664.
What is a flip unitrust?
A flip unitrust starts by paying only the trust’s actual income, then switches to a standard fixed-percentage payout after a set date or a single event outside anyone’s control, such as selling real estate. The switch takes effect the following year. It suits trusts funded with assets that produce little income until they are sold.
Does a charitable remainder trust have to register in California?
Not at first. Under Government Code section 12585, a trustee does not register with the Attorney General while the charity’s interest is a future interest. The trustee must register within 30 days after that interest becomes a present interest, which usually happens when the payment term ends.
Related Questions
What is the 10% remainder test?
Federal law requires the value of the charity’s remainder, calculated when the trust is funded, to be at least 10% of the property placed in the trust. Long terms or high payout rates can cause a trust to fail this test.
What is Form 5227?
It is the annual IRS information return that every charitable remainder trust, and other split-interest trusts such as charitable lead trusts, must file. A CPA usually prepares it with the trustee.
Can a CRT be named as an IRA beneficiary?
Yes. Because a charitable remainder trust is exempt from federal income tax, it can receive IRA assets at death without paying income tax on receipt. Its income beneficiaries are taxed later as they receive payments.
About the attorney
Sivendra Ganesh Maraj handles estate planning at Bay Legal, including charitable trusts built into a client’s living trust and overall plan. Sivendra works with clients’ CPAs and financial advisers so the trust documents and the tax planning fit together. Charitable planning is part of Bay Legal’s estate planning practice.
Talk to a California estate planning attorney about a charitable remainder trust
If you are considering a charitable remainder trust, gather a list of the assets you might contribute and their cost basis, and talk with your CPA about the tax picture. To discuss drafting a CRT, call the office nearest you or email intake.
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This page is general information about California law and does not constitute legal advice or create an attorney-client relationship. For advice on your specific situation, contact a licensed California attorney.