How Charitable Remainder Trusts Help Business Owners Reduce Taxes and Give Back
If you own highly appreciated assets like business stock or real estate, you may be wondering how to manage the tax consequences when you eventually sell these. Imagine if you could also give back to causes you care about while receiving income to support your lifestyle and potentially minimizing your capital gains taxes.
There’s an estate planning strategy that can help you achieve these goals. It’s called a charitable remainder trust (CRT). While it may sound fancy, a CRT is not just for the ultra-wealthy. Business owners, real estate investors, and anyone with appreciated assets can benefit from understanding how these trusts work and whether they should income them as part of their estate planning.
Here, we break down exactly what a charitable remainder trust is and how it can help with tax savings, income generation, and charitable giving, especially for business owners.
What Is a Charitable Remainder Trust?
A charitable remainder trust (CRT) is a certain type of trust that lets you donate appreciated assets to charity while still receiving income from those assets during your lifetime.
A CRT allows you to enjoy the tax benefits of charitable giving while maintaining an income stream from the assets you donated. When you set up a CRT, you're basically splitting the benefits between yourself (the income stream) and the charitable organization of your choice (the remainder).
The charity gets the benefit of receiving any remaining assets in the trust after the trust term and you get a partial tax deduction upon funding the trust without having to pay capital gains taxes on the donated assets.
How Charitable Remainder Trusts Work
So how exactly does a charitable remainder trust work?
After you set up the trust structure with an estate planning attorney, you transfer assets like stocks, real estate, or business interests into the trust. You then become eligible for a partial tax deduction based on the estimated value of the charity’s future interest, which you can write off against your current income.
The trust then pays you (or other beneficiaries you name) a regular income for a specified period, which can be up to 20 years or for your lifetime. These payments can be structured as monthly, quarterly, semi-annual, or annual distributions. While you'll pay regular income tax on these distributions, the overall tax impact may be lower than selling the assets outright (especially if you have a large embedded capital gain).
When the trust term ends, whatever remains goes to the charitable beneficiary, which can either be a public charity or a private charitable organization of your choice. This is why it’s called a charitable remainder trust, as opposed to another type of trust — a charitable lead trust (CLT) where the charitable organization gets the income and a non-charitable beneficiary gets the remaining assets.
Types of Charitable Remainder Trusts
There are two main types of charitable remainder trusts: a charitable remainder annuity trust (CRAT) and a charitable remainder unitrust (CRUT). Each one offers different advantages depending on whether you want predictable income or the potential for growing payments.
Charitable Remainder Annuity Trust (CRAT)
A CRAT pays you a fixed dollar amount each year, regardless of how the trust's investments perform. Once you set this amount – say $50,000 annually – it never changes. This provides predictable income that's especially valuable if you're using the CRT for retirement planning.
The downside is that you can't make additional contributions to a CRAT after it's established. If you want to add more assets later, you'd need to create a separate trust.
CRATs work best when you have a lump sum of appreciated assets and want guaranteed income that won't fluctuate with market conditions.
Charitable Remainder Unitrust (CRUT)
A CRUT pays you a fixed percentage of the trust's value, which is recalculated annually. If you set a 6% payout rate and the trust is worth $1 million, you receive $60,000 that year. If the trust grows to $1.2 million the following year, your payment increases to $72,000.
This structure allows for additional contributions over time, making it more flexible than a CRAT.
CRUTs are ideal if you expect to have more appreciated assets to contribute in the future or if you want payments that can potentially grow with inflation and investment performance.
Tax Benefits of Using a CRT
The tax advantages of charitable remainder trusts can be substantial, especially for business owners and investors with highly appreciated assets. These are the top three reasons people may choose to use a CRT in their estate planning:
1) Immediate Income Tax Deduction
When you fund a CRT, you receive an immediate income tax deduction based on the present value of the charity's remainder interest. This deduction is subject to charitable contribution limits for 2025, which allow deductions up to 50% of your adjusted gross income for cash gifts and 30% for appreciated property gifts to public charities.¹
2) Capital Gains Tax Elimination
Instead of paying potentially hundreds of thousands in capital gains taxes when selling appreciated assets, you can transfer them to the CRT tax-free. The trust can then sell the assets without triggering immediate taxes, preserving the full value for reinvestment and income generation.
3) Estate Tax Minimization
The charitable remainder trust is an irrevocable type of trust, which means that the assets you donate into it are removed from your taxable estate, potentially leading to a reduction or elimination of estate taxes, depending on the size of your estate. After the passage of the One Big Beautiful Bill Act (OBBBA), the federal estate tax exemption has been raised to $15 million per individual starting in January 2026 (and then indexed for inflation). So if the value of your estate could be over this amount by the time you sell or pass on your business, using a CRT could be one way to get it under these exemption limits.
Potential Drawbacks and Considerations of a CRT
While CRTs offer significant benefits, they're not right for everyone. Here are some things to keep in mind if you’re considering using a CRT.
The Irrevocable Nature of the Trust
The irrevocable nature of these trusts means you permanently give up control over the donated assets. Once you transfer property to a CRT, you can't change your mind or access the principal.
Complexity and Costs
Establishing and maintaining a CRT requires ongoing professional management, including legal, tax, and investment services. These costs can add up to several thousand dollars upfront, along with annual maintenance costs. This can make CRTs impractical for smaller asset amounts.
Ordinary Income Tax Rates
The income you receive from a CRT is taxable as ordinary income, regardless of the underlying investment returns. This means you might pay higher tax rates on CRT distributions than you would on capital gains or qualified dividends from direct investments.
CRTs as an Estate Planning Tool for Business Owners
Estate planning for business owners is a bit more complex than for other individuals. If you've built a successful business over time, much of your wealth may be tied up in company stock or other business assets. Hopefully, these assets have appreciated quite a bit since you started.
Traditional exit strategies often create massive tax bills that can consume 20-40% of your business value. A CRT offers an alternative path that preserves more of your wealth while providing ongoing income.
The CRT strategy also works well for business succession planning. Instead of selling to outside buyers or struggling with complex family transitions, you can donate business interests to a CRT while maintaining income from the business value. The charitable remainder unitrust structure is often preferred for business assets since it allows additional contributions as your business continues to grow.
For business owners approaching retirement, the CRT could even replace part of the income your business currently provides. The trust would, in a sense, become your "pension plan," funded by the business assets you've spent years building.
Many successful entrepreneurs also use CRTs as part of a broader wealth management strategy after liquidity events such as selling a business. The trust provides one income stream while they pursue new ventures or investments with their remaining assets. This diversification reduces risk while ensuring they maintain the lifestyle they've worked to achieve.
And if you’re concerned about ensuring that you don’t shortchange your kids if you give a part of your business to a CRT, you can also consider funding an irrevocable life insurance trust (ILIT) using your income or the tax savings from the deduction. Here’s an example of how this strategy could work to ensure that your family will receive the value you intended while the charity still receives the remainder of the CRT.
CRT Example for a Business Owner with Children
When David, a business owner, prepared to sell his company for $10 million, he wanted to secure retirement income, provide for his children, and leave a charitable legacy.
With his advisor’s help, he placed $3 million of company stock into a Charitable Remainder Trust (CRT) before the sale. The CRT sold the shares tax-free and provided David with $150,000 in annual income for life, along with a sizable charitable deduction.
But David also wanted to make sure his children weren’t left with less. To balance things out, he used part of his CRT income and tax savings to fund a life insurance policy held in an Irrevocable Life Insurance Trust (ILIT). The policy was designed to pay his heirs $3 million tax-free, replacing the value of the stock he’d donated to the CRT.
This strategy allowed David to accomplish three goals at once: steady income for himself, a protected inheritance for his family, and a meaningful charitable gift that would last long after he was gone.
Is a Charitable Remainder Trust Right for You?
When you’ve poured years of your life into building a successful business, selling it isn’t just about the money. It’s also about what comes next—for you, your family, and the legacy you want to leave behind.
Implementing a charitable remainder trust requires careful planning and professional expertise to ensure compliance with complex IRS regulations. Working with experienced professionals helps you navigate the technical requirements while optimizing the trust structure for your specific situation. This includes selecting appropriate charitable beneficiaries, determining optimal payout rates, choosing between CRAT and CRUT structures, and coordinating the CRT with your overall estate plan.
If you’re not sure whether a charitable remainder trust would make sense for your situation, we suggest consulting an estate planning attorney in your area, or you can schedule a complementary call with one of our financial advisors to guide you and ensure your estate and financial plan is aligned with your goals.
Disclosure: Jaffe Tilchin Investment Partners is a Registered Investment Advisor. Certain representatives of Jaffe Tilchin Investment Partners are also Registered Representatives offering securities through APW Capital, Inc., Member FINRA/SIPC. 100 Enterprise Drive, Suite 504, Rockaway, NJ 07866 (800)637-3211 Check the background of this firm on FINRA’s BrokerCheck.