Charitable Remainder Trusts: How Retirees Sell Appreciated Assets, Spread The Tax And Keep An Income

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Consider a 71-year-old retiree, a composite case, who bought a block of stock decades ago for a fraction of its current value. She’d like to sell it and buy something that pays her income. The problem is the tax bill. Her shares are a low-basis asset, meaning her purchase price (the basis) is tiny next to the market value, so almost every dollar of a sale counts as taxable gain in a single year.

She has plenty of company. Households headed by someone 70 or older held 40.5% of all household stock and mutual fund shares outside workplace plans as of 2026 Q2, according to Federal Reserve data. Ages 55 to 69 held another 39.3%. For owners sitting on large gains, a charitable remainder trust (CRT) under 26 U.S.C. § 664 can turn that one-time tax hit into an income stream, with the gain taxed gradually as the checks arrive.

How a Charitable Remainder Trust Sells Your Asset Tax-Free

The steps go in order. You transfer the stock, real estate or business interest to the trust. The transfer is irrevocable, which means it’s permanent: you can’t take the asset back. The trustee then sells it.

Here’s where the tax treatment kicks in. Under § 664(c)(1), a qualifying CRT is “not subject to any tax imposed by this subtitle,” so the trust keeps the full sale proceeds and reinvests all of them. It pays you, or you and your spouse, for life or for a term of years limited at 20 years. When the payments end, whatever is left (the remainder) goes to charity.

There’s one catch. If the trust earns unrelated business taxable income, often from debt-financed real estate, § 664(c)(2) imposes an excise tax equal to that income. Mortgaged property needs careful review before it goes in.

Annuity Trust or Unitrust: Choosing Fixed Dollars or a Floating Payout

A charitable remainder annuity trust pays a fixed dollar amount every year. The law sets that amount at no less than 5% and no more than 50% of the property’s initial value. Markets can swing, but the check stays the same, which suits retirees who want a predictable income.

A charitable remainder unitrust pays a fixed percentage, within the same 5% to 50% band, of the trust’s value, revalued every year. When the portfolio grows, the payment rises. When it falls, so does the payment. That fits younger retirees who want income that can keep up with inflation. Under § 664(d)(3), a unitrust can also be written to pay only the income the trust actually earns. That’s useful for land or a business that may take time to sell.

Four-Tier Payout Rules Spread the Capital Gain Over Decades

The tax savings come from how each payment is labeled. Section 664(b) gives distributions a fixed order. Payments count first as ordinary income, then as capital gain, then as other income such as tax-exempt interest, and finally as a tax-free return of principal.

So the big gain from the sale stays inside the trust and reaches your tax return a piece at a time, year after year, as part of each payment. You never face it all in one April.

You also get an up-front charitable deduction, a write-off for the estimated value of what charity will eventually receive. Section 170(f)(2)(A) allows that deduction for a remainder gift in trust only if the trust is a qualifying CRT or a pooled income fund. The value comes from IRS actuarial tables and the Section 7520 interest rate, which is 6.20% for November 2026. For annuity trusts in particular, a higher rate generally makes the charity’s projected share larger. Normal limits on charitable deductions as a share of income still apply, and unused amounts can carry forward (CRTs sit alongside donor-advised funds, QCDs and appreciated-stock gifts in the toolkit we walked through in a free guide to tax-smart giving).

Rules and Trade-Offs That Catch Families Off Guard

The projected remainder must be worth at least 10% of the property’s initial value, measured using the Section 7520 rate. Choose a high payout or name young beneficiaries and the trust can fail that test.

Other trade-offs to consider:

• Heirs lose the asset. Whatever is left goes to charity, not your children.
• Costs add up. You’ll pay legal fees to draft the trust, plus ongoing trustee, investment and tax-filing costs.
• Medicare can still notice. CRT payments raise your income. For 2026, Part B’s base premium is $202.90 a month. It rises to $284.10 once income tops $109,000 for single filers or $218,000 for married couples filing jointly. Still, spreading the gain out usually keeps you lower on that ladder than one lump-sum sale would.

Many families pair a CRT with life insurance to make up for the lost inheritance. They put part of the trust income toward a policy, often held in an irrevocable life insurance trust, so the payout reaches heirs outside the taxable estate.

There’s also a smaller version for IRA owners. For 2025, a one-time qualified charitable distribution of up to $54,000 could fund a charitable remainder annuity trust, a unitrust or a charitable gift annuity, as long as qualified charitable distributions were its only funding.

Who a Charitable Remainder Trust Fits Best

A CRT works best for a charity minded retiree with a large, low-basis asset, a need for steady income, and heirs who are already provided for or covered by insurance. If keeping the asset in the family matters most, the trade rarely makes sense. Payout rate, trust type and funding date all change the deduction and the income, so this is math to run with a CPA or fiduciary tax advisor before anything is signed.

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