When to Consider a Charitable Remainder Trust (CRT) as a UHNW Individual
Charitable Remainder Trusts (CRTs) are powerful planning tools available to ultra-high-net-worth (UHNW) individuals under the right economic and strategic conditions. These trusts offer a unique combination of advantages—notably, significant tax benefits, dependable income streams, and the ability to create lasting philanthropic impact.
As markets fluctuate and tax environments evolve, CRTs provide a stable and flexible framework for families seeking to optimize their financial position while furthering their charitable legacy. The following are the most common financial circumstances in which CRTs are especially effective for UHNW individuals.
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6 Common CRT Considerations
Significant Appreciated Assets
UHNW families often hold concentrated positions in highly appreciated assets—whether public equities, real estate, or privately held business interests. Liquidating these assets outright may trigger substantial capital gains tax liabilities. A CRT enables donors to defer capital gains taxes and preserve asset value for reinvestment:
- Capital gains tax deferral: Assets contributed to a CRT may be sold by the trust without immediate capital gains recognition, allowing full proceeds to be reinvested.¹
- Tax-deferred compounding: Investment growth within the CRT compounds without taxation, potentially enhancing long-term outcomes. For instance, a $1 million asset with a $250,000 basis avoids $178,500 in upfront tax (assuming a 23.8% capital gains rate).¹
Large Liquidity Events
Executives and entrepreneurs who experience one-time liquidity events—such as a business sale, IPO, or stock option exercise—may face steep tax consequences. CRTs can play an important role in smoothing taxes and preserving more capital:
- Tax smoothing: CRTs allow the donor to spread out income recognition over time. Selling a $10 million stake through a CRT could defer a $2.38 million capital gains tax.²
- Immediate charitable deduction: The donor may receive a charitable income tax deduction based on the present value of the remainder interest.²
Estate Tax Mitigation
CRTs may also be incorporated into a broader estate planning strategy to reduce exposure to federal and state estate taxes:
- Asset removal from taxable estate: CRTs are irrevocable; contributed assets are removed from the estate and directed to a qualified charity at trust termination.³
- Legacy alignment: Donors can designate their family foundation or other philanthropic entities as the ultimate charitable beneficiary.⁴
Investment Portfolio Diversification
For families with significant exposure to a single stock, real estate asset, or other concentrated investment, CRTs can be a mechanism for achieving tax-efficient diversification:
- Diversification without triggering gains: Assets can be transferred to the CRT, sold within the trust, and reallocated to a diversified portfolio without immediate tax.¹
- Institutional oversight: CRT trustees often bring investment expertise and professional risk management to the trust portfolio.⁴
Philanthropic Goals with Income Needs
CRTs are attractive to those seeking to support charitable causes while maintaining income security:
- Income distributions: Donors receive a fixed percentage (e.g., 5% to 7%) of the trust’s annual value. A $5 million CRT at 6% generates $300,000/year.⁵
- Dual benefit impact: The remainder passes to a named charity or foundation, delivering long-term philanthropic value. For example, a $250,000 CRT could yield over $740,000 in combined donor income and charitable gift over two decades.⁵
Complex Asset Management Requirements
CRTs are often well-suited to managing illiquid or complex wealth components:
- Simplified administration: Trustees may handle the sale of private company stock, manage income distributions, and ensure regulatory compliance.⁴
- Beneficiary flexibility: While irrevocable, many CRTs permit the donor to change the charitable beneficiary during their lifetime, provided the recipient meets IRS criteria.⁵
Other Key Considerations For Establishing A CRT
While CRTs offer meaningful advantages, they are not appropriate in all situations. UHNW individuals should evaluate several CRT tax factors including but not limited to:
- IRS Section 7520 rate: This rate, which changes monthly, affects the charitable deduction. A higher rate increases the present value of the charitable remainder interest. In 2024, the rate reached 4.45%, compared to just 1.6% in 2012.¹
- Irrevocability: Contributions to CRTs are permanent. Families should ensure long-term alignment with financial and philanthropic goals.⁶
- Income taxation: Distributions follow a tiered system—first as ordinary income, then capital gains, followed by other income and finally tax-free return of principal.⁶
How IEQ Capital Supports Charitable Planning
At IEQ Capital, our Family Office Services team works closely with qualified clients to design and implement charitable strategies that are aligned with long-term financial and philanthropic goals. We help UHNW individuals and families evaluate whether a Charitable Remainder Trust is the right fit based on their specific asset profile, liquidity needs, estate planning priorities, and values.
From structuring and coordinating trust formation to integrating CRTs with broader tax and investment strategies, our team provides comprehensive, institutionally informed guidance. We collaborate with your legal and tax advisors to ensure the plan is executed with clarity, compliance, and care.
Philanthropy is more than a legacy decision—it is a reflection of what matters most. At IEQ, we help you shape that legacy with intention.
Sources
1 Investopedia, "Charitable Remainder Trust: Definition, How It Works, and Types," published December 2024.
2 Mercer Advisors, "How Charities Can Leverage CRUTs," published March 7, 2024.
3 Kiplinger, "Charitable Remainder Trust: The Stretch IRA Alternative," published January 2025.
4 Evolution Tax & Legal, "Charitable Remainder Trusts (CRTs) for Tax & Estate Planning," published March 2025.
5 Magellan Planning, "Pros & Cons of a Charitable Remainder Trust," published March 2025.
6 Internal Revenue Service, "Charitable Remainder Trusts," published January 2024.
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