What Does CRUT Mean? Charitable Remainder Unitrust

A charitable remainder unitrust, or CRUT, is an irrevocable trust that pays you or another named beneficiary a fixed percentage of the trust’s assets, revalued every year, and then transfers whatever is left to a charity when the trust ends. The payout percentage has to fall between 5% and 50%, the trust can run for one or more lifetimes or for a set term of up to 20 years, and the present value of the charity’s projected share must be at least 10% of what you contribute.¹ Because the trust itself is generally exempt from income tax, it can sell appreciated property without triggering an immediate capital gains bill, reinvest the full proceeds, and pay you from a larger base than you would have had after a taxable sale.

Why the Payment Changes Every Year

The “unitrust” label describes how the payment is set. Each year the trustee revalues the trust’s assets on a date fixed in the trust document, multiplies that value by the payout percentage written into the document, and pays out the result. If the portfolio grew, next year’s check is larger. If it shrank, the check is smaller. That variable payout is the feature that distinguishes a CRUT from a charitable remainder annuity trust, which pays a fixed dollar amount that never moves.²

A standard CRUT pays the full percentage every year regardless of the trust’s actual income. That’s fine when the trust holds liquid securities. When the trust is funded with something harder to sell, three variations offer more room to breathe:

A Net Income CRUT (NICRUT) pays the lesser of the fixed percentage or the trust’s actual net income for the year.
A Net Income with Makeup CRUT (NIMCRUT) does the same thing but keeps a running tab of shortfalls; in later years when income exceeds the fixed percentage, the trustee can pay out the accumulated deficit on top of the normal amount.
A Flip CRUT starts as a NICRUT or NIMCRUT and then permanently converts to a standard CRUT when a specified triggering event occurs. The trigger has to be written into the trust document and cannot be something the donor or trustee controls at will. Common triggers include the sale of a contributed property, the income beneficiary reaching a specified age, or a life event such as marriage. The conversion takes effect on the first day of the tax year after the trigger.¹

The right variation depends on what you’re putting in. Publicly traded stock lines up with a standard CRUT. A rental building or shares of a closely held company that may take years to sell often lines up with a Flip CRUT, so the trust can ride out the illiquid phase and then move to full fixed-percentage payments once the asset turns into cash.

The Three Rules Every CRUT Has to Satisfy

For the IRS to recognize the trust as a valid CRUT, three conditions must all be met:

The fixed percentage has to be at least 5% and no more than 50% of the annually revalued trust assets.²
The trust can run for the life of one or more income beneficiaries, or for a set number of years up to 20.¹
For each contribution, the present value of the charity’s expected remainder must be at least 10% of that contribution’s net fair market value on the date it goes into the trust.¹

The 10% test is where CRUTs most often fail. A high payout rate, a long term, and a young income beneficiary all pull the remainder value down. If the math leaves less than 10% for the charity, none of the tax benefits apply. The calculation runs off the IRS Section 7520 rate, which changes every month. In April 2026, that rate is 4.6%.³ A lower 7520 rate makes the test harder to pass because it assumes slower growth in the remainder. Running the numbers before you sign anything is not optional here.

The Income Tax Deduction You Get Up Front

Funding a CRUT produces a charitable income tax deduction in the year of the contribution. The deduction is not the full value of what you put in. It equals the present value of the remainder interest, meaning the charity’s projected share. IRS actuarial tables handle the calculation using the payout rate, the trust term or income beneficiary’s life expectancy, and the 7520 rate for the month of the gift.⁴ A higher 7520 rate produces a larger deduction because it assumes faster trust growth, leaving more for the charity.

How much of the deduction you can actually use in a given year is capped by your adjusted gross income. Appreciated long-term capital gain property going to a public charity is limited to 30% of AGI. Cash to a public charity is capped at 60%. Contributions with a private foundation as the remainder beneficiary face a 20% ceiling.⁵ Anything you can’t use in the contribution year carries forward for up to five additional tax years.⁶ For a large appreciated-asset contribution, that five-year window can matter as much as the initial deduction.

How the Payments You Receive Are Taxed

The trust itself is generally exempt from income tax.¹ Your payments are not. The tax code assigns a character to each dollar you receive through a four-tier ordering system that pushes the highest-taxed income out first:

Tier 1 is ordinary income — interest, dividends, and other ordinary income earned by the trust in the current and prior years, taxed at your regular rate.
Tier 2 is capital gains from sales of trust assets, taxed at capital gains rates. Short-term gains come out ahead of long-term gains.
Tier 3 is other income, which includes tax-exempt interest that passes through to you tax-free.
Tier 4 is a return of trust principal, received tax-free.¹

Each tier has to be fully exhausted before the next one applies. In practice, most CRUT payments in the early years fall into Tiers 1 and 2 because the trust typically has substantial ordinary income and capital gains from selling the contributed assets and reinvesting. Reaching Tier 4 usually takes many years.

One trap deserves mention. If the trust earns unrelated business taxable income (UBTI), a common problem with certain partnership investments or leveraged real estate, the trust owes an excise tax equal to the full amount of that UBTI.¹ The trustee needs to screen investments for UBTI exposure.

What to Fund It With

Highly appreciated publicly traded securities, real estate, and closely held business interests are the assets that make a CRUT worth the effort. The advantage is straightforward: the trust can sell an appreciated asset without the donor paying capital gains tax on the sale, so the full pre-tax proceeds get reinvested. You start with a bigger investment base than you would have had if you’d sold the asset yourself and paid the tax.

Unlike a CRAT, a CRUT accepts additional contributions after the initial funding. Each new contribution runs its own 10% remainder test using the 7520 rate in effect that month.¹ That matters if you expect to make gifts to the trust over time.

If you contribute property other than publicly traded securities and claim a deduction above $5,000, you need a qualified appraisal and must file Form 8283 with your return. The appraisal has to be completed no earlier than 60 days before the contribution date and received before the return’s filing deadline. For contributions valued above $500,000, the full appraisal report has to be attached. Skipping either requirement can disqualify the entire deduction.⁷

CRUT vs. CRAT

A charitable remainder annuity trust pays a fixed dollar amount set at funding that never changes. A CRUT recalculates every year off the trust’s current value. That single difference drives the practical trade-offs:

CRUT payments can grow with the portfolio. CRAT payments lose purchasing power to inflation.
CRUT payments shrink in bad markets. CRAT payments stay flat, which can drain the trust faster during a downturn.
A CRUT accepts additional contributions later. A CRAT does not.
Only CRUTs offer the NICRUT, NIMCRUT, and Flip variations for illiquid funding assets.

The choice comes down to predictability versus growth potential and flexibility.

Gift and Estate Tax Effects

Naming yourself as the sole income beneficiary produces no gift tax at funding. Naming a non-spouse beneficiary to receive income payments does: the present value of that person’s income interest is treated as a taxable gift and may require a gift tax return. The gift tax charitable deduction covers the remainder interest, but the income interest going to someone other than you or your spouse is a completed gift.

If you die while the trust is still running and the income interest ends at your death, the trust assets pass to the charity and their value qualifies for the estate tax charitable deduction, effectively pulling those assets out of your taxable estate.⁸ If a successor income beneficiary continues to receive payments after your death, only the present value of the remainder qualifies for the estate tax deduction.

Running the Trust Year to Year

Administration is real work. The trustee’s central recurring task is the annual valuation on the date fixed in the trust document. That number sets the next year’s payout. Publicly traded securities are easy; real estate or private business interests may require an independent appraisal each year.

Every CRUT files Form 5227 annually, reporting financial activity, charitable interests, and distributions.⁹ The trustee issues each income beneficiary a Schedule K-1 (Form 1041) breaking the payments down by the four-tier character rules, and the beneficiary uses that K-1 to report the income on their personal return.¹⁰ Missed filings draw IRS penalties.

CRUTs are split-interest trusts, so certain private foundation rules apply. The self-dealing prohibitions bar the donor and related parties from buying or selling property to the trust, borrowing from it, or otherwise using its assets for personal benefit.¹¹ Violations trigger excise taxes. This trips up people who serve as their own trustee and treat the trust casually. The assets belong to the trust, not to you, even though you created it and take payments from it.

When the term expires or the last income beneficiary dies, whichever the document specifies, the trustee distributes the balance to the designated charity or charities and the trust ends.

1
Office of the Law Revision Counsel. 26 USC 664 – Charitable Remainder Trusts
2
Internal Revenue Service. Charitable Remainder Trusts
3
Internal Revenue Service. Rev. Rul. 2026-7
4
eCFR. 26 CFR 20.7520-1 – Valuation of Annuities, Unitrust Interests, Interests for Life or Terms of Years, and Remainder or Reversionary Interests
5
Internal Revenue Service. Publication 526, Charitable Contributions
6
Office of the Law Revision Counsel. 26 US Code 170 – Charitable, Etc., Contributions and Gifts
7
Internal Revenue Service. Instructions for Form 8283
8
Office of the Law Revision Counsel. 26 US Code 2055 – Transfers for Public, Charitable, and Religious Uses
9
Internal Revenue Service. Instructions for Form 5227
10
Internal Revenue Service. Schedule K-1 (Form 1041) – Beneficiarys Share of Income, Deductions, Credits, Etc.
11
Internal Revenue Service. IRC 4941 – The Nature of Self-Dealing