As the season of giving rolls in, many families start thinking about the causes they want to support, but not everyone pauses long enough to think about how to do it in a financially savvy way. Last month, we talked about donating appreciated assets in a smart, tax-aware way, and that conversation naturally leads to a bigger question: how do you pair generosity with long-term planning when the gifts themselves are substantial? That’s where advanced Charitable Remainder Trust techniques come into focus. Here in Sarasota, we’ve seen how these trusts have helped people support the community they love while also creating steady income for themselves or their families. If you enjoy giving and appreciate strategy, CRTs can bring those two worlds together in a way that feels incredibly rewarding.
Before we go any further, a quick but necessary point.
These strategies are highly technical, and the rules around them are sensitive to timing, valuations, and coordination across your entire financial picture. Therefore, none of this should be implemented on your own. A CRT should only be created and funded in close collaboration with your CPA, estate attorney, and financial advisor so every step is handled correctly and in the right order.
What Is a CRUT?
A Charitable Remainder Unitrust, or CRUT, is a split-interest trust that lets you convert appreciated assets into a long-term income stream while reserving the remainder for charity. You transfer an asset into the trust, the trust can sell it without immediate capital gains tax at the trust level, and you receive a set percentage of the trust’s value each year for life or for a term of years. When the trust ends, whatever is left goes to the charitable beneficiary you chose at the start.[1]
You (Donor)
Highly Appreciated AssetsCRUT (Trust)
Can sell assets without immediate capital gains taxIncome Stream
To You (Donor)Remainder
To CharityConvert appreciated assets into income, defer capital gains taxes, and support a cause.
It’s a simple structure with a powerful combination of immediate tax relief, long-term income, and a meaningful charitable gift. For families with highly appreciated stock, real estate, or a business interest they’re ready to transition out of, a CRUT potentially creates a smoother, more tax-efficient path than selling outright.
The NICRUT and The NIMCRUT: Two Variants for Irregular or Low-Yield Assets
A standard CRUT pays the fixed unitrust percentage each year regardless of how much income the trust actually produces. That approach works well when the funding asset is liquid and income-generating. But many families look to CRTs when they’re holding assets that do not produce steady income, such as raw land, a property awaiting sale, or pre-IPO stock. For situations like these, the tax code allows more flexible versions of the CRUT.
Two structures are especially useful:
Net Income CRUT (NICRUT)
A NICRUT pays the lesser of the unitrust percentage or the trust’s actual income for the year. If the trust doesn’t produce enough income, the payout simply adjusts downward for that year. There is no makeup feature, so once the trust pays a reduced amount, that year’s shortfall is gone.[2]
NICRUTs work well when you want the payout to rise and fall with the asset itself. For example, a rental property with fluctuating income or a portfolio invested for growth rather than yield may align with this structure. You’re never forced to sell assets to meet the annual payout.
Net Income With Makeup CRUT (NIMCRUT)
A NIMCRUT adds one important feature: the ability to catch up missed payouts later. It still pays the lesser of the unitrust percentage or annual net income, but any unpaid amount is recorded in a makeup account. When future years produce higher income, such as after an asset is sold, the trust can distribute both the regular payout and the accumulated makeup.Essentially, it aligns distributions with the reality of the asset’s cash flow and avoids pressure to sell too early.
Let’s say you’re 60 and plan to retire at 65. You own $5 million of closely held stock in a private company that pays no dividends. You want to diversify and generate retirement income, but selling now would trigger a huge capital gain. Instead, you contribute the stock to a NIMCRUT with a 5% payout rate. Because the stock produces no income initially, the trust distributes little or nothing for a few years – no forced payouts. Come year 3, the company is sold (within the trust) for $5 million. The NIMCRUT “flips” to a standard CRUT after the sale (a common feature called a Flip CRUT), and now it can start paying you the full 5% annually using the sale proceeds.[3]
What’s more, those early years’ unpaid distributions are tracked in the makeup account. So when the trust has cash while it is still operating as a NIMCRUT, it can catch up by paying out the accumulated makeup in addition to the regular unitrust amount, and once it flips to a standard CRUT any remaining makeup balance is generally forfeited under current IRS rules. As a result, you’ve deferred income to when you actually need it (and potentially at lower tax rates), avoided a forced asset sale, and still secure a generous charitable deduction upfront (so long as the trust passes the IRS 10% remainder test under §664).[4]
Net Income CRUT (NICRUT)
- Payout = lesser of unitrust % or actual trust income.
- No makeup feature, missed payouts are gone.
- Useful for assets with fluctuating income, for example rental property.
- You are never forced to sell assets only to meet the payout formula.
Net Income With Makeup CRUT (NIMCRUT)
- Payout = lesser of unitrust % or actual trust income.
- Includes a makeup account while it is a NIMCRUT, missed payouts can be caught up in later high income years.
- Useful for low yield assets with future sale potential, for example pre-IPO stock.
- Aligns distributions with asset cash flow and helps defer income to later years.
Makeup features apply only while the trust is operating as a NIMCRUT and stop if it later flips to a standard CRUT.
When is a Standard CRUT Simpler?
If you have readily marketable assets that produce income and you need cash flow immediately, a plain CRUT might suffice. NIMCRUTs add complexity and are “powerful in a narrow lane”. For instance, if your contribution is cash or dividend-paying stock and you want steady payments now, a standard CRUT provides that without the extra administrative considerations of tracking income and makeup balances.
Advanced Funding Considerations
If you’re contemplating funding a CRT with closely held business interests or real estate, there are some advanced considerations to get right. These transactions can unlock tremendous tax and charitable benefits, but only if executed properly. Let’s highlight three critical factors:
1. Contribute Before a Sale
- Avoid "Step Transaction" risk.
- No binding sale agreement BEFORE funding.
- Trust should initiate and complete the sale.
- Consult legal counsel for timing.
2. Coordinate with an Independent Trustee
- Ensures objective valuation of illiquid assets.
- Professional administration & compliance.
- Helps with IRS scrutiny (arm's-length).
- Essential for complex provisions (makeup, flip).
3. Mind the IRS Rules
- Pass the 10% Remainder Value Test.
- Avoid Self-Dealing transactions.
- Watch out for UBTI (Unrelated Business Taxable Income).
- Qualified appraisals & ironclad documents are key.
Contribute Before a Sale, but Avoid a Step Transaction
A classic CRT strategy is to contribute an asset just before selling it, so that the trust (not you) sells the asset in a tax-deferred way instead of triggering immediate capital gains tax on your personal return. This can be highly effective for avoiding capital gains tax on a business or property sale.[5] However, timing is everything. The IRS scrutinizes deals where the sale appears prearranged before the donation, known as step-transaction risk. If you sign a binding purchase agreement and then transfer the asset to a CRT, the IRS can argue you effectively sold it yourself (nullifying the tax benefit). To be safe, you must avoid any binding commitment to sell before funding the CRT.[6]
In practice, that means doing the CRT transfer early in the negotiation process or when a sale is only a hopeful possibility, not a done deal. For example, you might contribute real estate to the CRT, then have the trustee list it for sale and negotiate with buyers. As long as the trust is the one completing the sale and you hadn’t legally bound yourself to the deal beforehand, you’ve sidestepped the capital gains hit. Always consult legal counsel to ensure you’re not tripping over the line, as the difference between planning to sell and contractually obligating a sale is a fine line the IRS pays attention to.
Coordinate with an Independent Trustee
While you can be your own trustee (or co-trustee) of the CRT, an independent trustee can add a layer of assurance and professionalism, particularly with complex assets or when certain tax rules come into play. An independent trustee (for example, a trust company or professional fiduciary) can help objectively value illiquid assets, help ensure annual payouts and makeup accounts are calculated correctly, and navigate rules like the unitrust’s definition of income under the Uniform Principal and Income Act.
Having an independent party also helps with perceived arm’s-length administration, which can be important if the IRS ever examines the trust’s operations (for instance, valuing a privately held stock each year is easier to defend when a qualified appraiser and independent trustee are involved).[7] While not legally required, many donors choose a professional trustee or co-trustee when contributing hard-to-value assets or when they plan to use makeup provisions and flip triggers that require careful accounting. At a minimum, engage qualified appraisers for any non-public asset going into the CRT and document everything.[8] The goal is to satisfy all IRS requirements (annual valuations, proper tax filings, etc.) and avoid any hint that the trust isn’t operating by the book.
Mind the IRS Rules
Advanced CRT funding means threading some needles. You need to pass the 10% remainder value test, the present value of the charity’s remainder interest must be at least 10% of the contribution, or the CRT fails to qualify.[9] Low interest rates or very high payouts can make this test tricky, especially for older donors, so calculate carefully. You might need to lower the payout percentage or shorten the trust term to qualify. Also, stay clear of self-dealing if your remainder beneficiary is a private foundation you or family control, because the trust’s transactions must not improperly benefit you or other disqualified persons.[10] An independent trustee can help here by ensuring, for example, that if the CRT sells your company stock, it is done at a fair price and not back to yourself in some arrangement the IRS would view skeptically.
Lastly, watch out for Unrelated Business Taxable Income (UBTI). Certain debt-financed real estate or active business income in the trust can trigger a considerable 100% excise tax, which you obviously want to avoid.[11] Proper asset selection (or post-contribution planning, like having the CRT sell a mortgaged property after a waiting period) can manage this. The takeaway is advanced funding requires advanced planning: qualified appraisals, ironclad trust documents, and professional guidance at each step. Do it right, and you unlock tremendous tax savings; rush it or cut corners, and the consequences can be costly.
In Conclusion
Charitable remainder trusts sit at the intersection of generosity and long-term planning, and advanced techniques can make them even more effective. When you match the right trust structure to the right asset, time the income stream carefully, and build in the safeguards these tools require, you create a tax-aware way to unwind appreciated positions while directing real support to the causes you care about.
Naturally, these strategies aren’t one-size-fits-all; in fact, quite the opposite. They work best when they’re part of a larger plan that considers your business, your retirement income, and your estate goals. When everything is coordinated, a CRT becomes more than a vehicle for giving. It becomes a way to strengthen your balance sheet, reduce future friction, and support the organizations and communities that matter to you.
As we head into year-end, this is a good moment to take stock. If you’d like to review how a CRT could fit with your broader financial picture, or if you want to make sure your business plan, retirement plan, and estate plan are moving in the same direction, we’re here to help you look at it from every angle. Just click the button below to set up a time to chat.
Appendix
[1] – What a CRUT is, payouts, remainder to charity
- 26 U.S. Code § 664 – Charitable remainder trusts
Defines CRUTs and CRATs, their payout structure (5–50% of value), maximum 20‑year term or life, and tax‑exempt status with a special excise tax for UBTI.
https://www.law.cornell.edu/uscode/text/26/664 - Treas. Reg. §1.664‑1 (Charitable remainder trusts)
General description of CRTs, including annual specified distributions to noncharitable beneficiaries and remainder to charity; confirms exemption from income tax and excise tax treatment for UBTI.
https://www.ecfr.gov/current/title-26/section-1.664-1 - IRS – “Charitable remainder trusts” (updated June 29, 2025)
Plain‑English IRS overview: CRTs are irrevocable trusts, provide an income stream to noncharitable beneficiaries for life or a term (up to 20 years), with the remainder going to charity.
https://www.irs.gov/charities-non-profits/charitable-remainder-trusts
[2] – NICRUT and NIMCRUT structures (net income & makeup)
- Instructions for Form 5227 (2024), Split-Interest Trust Information Return
IRS instructions describe net‑income CRUTs (NICRUTs) and net‑income‑with‑makeup CRUTs (NIMCRUTs): paying the lesser of net income or the unitrust amount, and in the NIMCRUT case tracking shortfalls in a makeup account to be paid in future high‑income years.
https://www.irs.gov/instructions/i5227 - “Planning with charitable remainder trusts,” The Tax Adviser, Sept. 30, 2025
Walks through standard CRUTs, NICRUTs, and NIMCRUTs; explains the income limitation, the makeup feature, and when these structures are useful (e.g., illiquid or low‑yield assets).
https://www.thetaxadviser.com/issues/2025/sep/planning-with-charitable-remainder-trusts/ - Richard L. Fox, “Charitable Remainder Trusts, Charitable Lead Trusts,” outline
Confirms that a CRUT can be (1) standard, (2) NICRUT, (3) NIMCRUT, or (4) NICRUT/NIMCRUT that flips to a standard CRUT, and describes makeup mechanics.
https://midatlanticfellowsinstitute.org/wp-content/uploads/2019/10/Richard-L.-Fox-Charitable-Remainder-Trusts-Charitable-Lead-Trusts-reduced-3.pdf
[3] – Flip‑CRUTs (NIMCRUT flipping to standard CRUT after a sale)
- Treas. Reg. §1.664‑3 (Charitable remainder unitrusts)
Provides rules for CRUT payouts and allows a net‑income (or net‑income‑with‑makeup) unitrust to convert (“flip”) to a standard CRUT upon a permitted triggering event (such as the sale of an “unmarketable asset”).
https://www.ecfr.gov/current/title-26/section-1.664-3 - “Planning with charitable remainder trusts,” The Tax Adviser (2025)
Explicitly defines a flip‑CRUT as a NICRUT or NIMCRUT that flips to a standard CRUT upon a trigger such as the sale of a hard‑to‑sell asset or reaching a certain age, and notes that if it began as a NIMCRUT, no makeup payments may be made after the flip.
https://www.thetaxadviser.com/issues/2025/sep/planning-with-charitable-remainder-trusts/ - “Flip Charitable Remainder Unitrust (Flip‑CRUT),” Kidwell & Kent (Broadridge)
Short client piece explaining Flip‑CRUTs; confirms that a NIMCRUT or NICRUT may flip to a standard CRUT, that the flip occurs in the year following the trigger, and that any remaining makeup balance must be forfeited at the flip.
https://www.kidwellkent.com/wp-content/uploads/sites/1403971/2023/03/Flip-Charitable-Remainder-Unitrust-Flip-CRUT-.pdf
[4] – Deferral of income, charitable deduction, and the 10% remainder test
- IRS – “Charitable remainder trusts”
States that CRTs can provide an immediate income tax deduction for the present value of the remainder interest, allow deferral of income tax on the sale of assets transferred to the trust, and provide income for life or a term of years.
https://www.irs.gov/charities-non-profits/charitable-remainder-trusts - 26 U.S.C. §664(d)(1) and (d)(2)
Require that the actuarial value of the charitable remainder interest be at least 10% of the initial fair market value of property contributed to the CRT, otherwise the trust doesn’t qualify as a CRT.
https://www.law.cornell.edu/uscode/text/26/664 Legal Information Institute - IRS Publication 6109 – Exempt Organizations Technical Guide TG 70: Charitable Trusts (May 2025)
IRS technical guide for charitable and split‑interest trusts; explains the 10% minimum remainder test, the deduction based on present value of the remainder, and exam focus areas.
https://www.irs.gov/pub/irs-access/p6109_accessible.pdf
[5] – CRT selling appreciated assets without immediate capital gains tax
- 26 U.S.C. §664(c)
Provides that CRTs are exempt from income tax for any year, except that a CRT with unrelated business taxable income owes an excise tax equal to 100% of that UBTI. This is why non‑UBTI capital gains realized inside the trust are not taxed at the trust level.
https://www.law.cornell.edu/uscode/text/26/664 - “Family Charitable Remainder Trust,” Strategic Planning Law Group
Client handout explaining that when highly appreciated assets are transferred to a CRT, the trust’s tax‑exempt nature allows it to sell them “without immediate income taxation,” effectively deferring (and potentially reducing) capital gains tax versus a direct sale.
https://strategicplanninglawgroup.com/handouts/family-charitable-remainder-trust/ - “Supercharge the sale of your business with a charitable remainder trust,” Baker Tilly (Oct. 31, 2022)
Walks through funding a CRT with closely held business interests, the trustee selling the business inside the CRT with no tax at the time of sale, and the gain being recognized by beneficiaries gradually through distributions.
https://www.bakertilly.com/insights/supercharge-sale-business-charitable-remainder-trust bakertilly.com
[6] – Step‑transaction / prearranged sale risk
- “Family Charitable Remainder Trust,” Strategic Planning Law Group
Section 9.6 explains that the IRS does not allow you to avoid gain if the sale of property contributed to a CRT was prearranged prior to contribution, and notes the Service will look to whether the CRT is obligated to sell as part of a prearranged sale; recommends transferring the asset “as early as possible” before negotiations are finalized.
URL: https://strategicplanninglawgroup.com/handouts/family-charitable-remainder-trust/ - 26 U.S.C. §664 & related guidance (e.g., IRS CPE texts like “Charitable remainder trusts: the income deferral abuse”)
These explain the abuse concerns and the need to avoid using CRTs simply as conduits for prearranged sales; IRS has applied the Palmer and Rev. Rul. 78‑197 “legally bound or can be compelled” standard to determine when gain is still attributed to the donor.
Example CPE PDF: https://www.irs.gov/pub/irs-tege/eotopick97.pdf
[7] – Annual valuations, FMV, and proper filings
- Instructions for Form 5227 (2024)
Require CRUT trustees to determine fair market value of trust assets annually to compute the unitrust amount and to report income, deductions, and distributions on Form 5227.
URL: https://www.irs.gov/instructions/i5227 IRS - Treas. Reg. §1.664‑1
Notes that CRUTs must have their unitrust amount based on annual FMV and references filing obligations (via §1.6012‑3 and §6034) for charitable remainder trusts.
URL: https://www.ecfr.gov/current/title-26/section-1.664-1 eCFR - IRS Publication 6109 (2025)
Emphasizes the need for accurate classifications of income and proper reporting for charitable trusts, including CRTs.
https://www.irs.gov/pub/irs-access/p6109_accessible.pdf IRS
[8] – Qualified appraisals for non‑public assets
- “Substantiating noncash contributions,” IRS
States that for noncash donations over $5,000, a donor must obtain a qualified appraisal and attach Form 8283, with special rules for publicly traded securities.
URL: https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-organizations-substantiating-noncash-contributions IRS - About Form 8283 & Instructions for Form 8283 (Rev. Dec. 2024)
Official IRS pages describing Form 8283 and its instructions, including when qualified appraisals are required for noncash charitable contributions.
About Form 8283: https://www.irs.gov/forms-pubs/about-form-8283
Instructions PDF: https://www.irs.gov/pub/irs-pdf/i8283.pdf
[9] – 10% remainder value test & rate / payout sensitivity
- 26 U.S.C. §664(d)(1)(D) and (d)(2)(D)
Explicitly require that the actuarial value of the remainder interest be at least 10% of the initial fair market value of property placed in the CRT.
https://www.law.cornell.edu/uscode/text/26/664 - Charitable remainder unitrust – Wikipedia (summarizing the statute and regs)
Summarizes the 5–50% payout rule, annual valuation, and 10% minimum remainder requirement, citing §664(d).
https://en.wikipedia.org/wiki/Charitable_remainder_unitrust - “Planning with charitable remainder trusts,” The Tax Adviser (2025)
Discusses how Section 7520 interest rates and payout levels affect whether the CRUT passes the 10% test, and why low rates and high payouts can cause failures, especially for older donors.
https://www.thetaxadviser.com/issues/2025/sep/planning-with-charitable-remainder-trusts/
[10] – Self‑dealing and disqualified persons for CRTs
- IRS Publication 6109 – Exempt Organizations Technical Guide TG 70: Charitable Trusts
Explains that split‑interest trusts (including CRTs) treated under §4947 are subject to the private foundation rules on self‑dealing (IRC §4941), taxable expenditures, etc.; defines “disqualified persons” and discusses prohibited transactions.
https://www.irs.gov/pub/irs-access/p6109_accessible.pdf - IRS CPE text “Self-dealing and other tax issues involving charitable trusts”
Discusses self‑dealing rules in detail and how they apply to charitable remainder unitrusts under §664.
https://www.irs.gov/pub/irs-tege/eotopicg96.pdf
[11] – UBTI and the 100% excise tax on CRTs
- 26 U.S.C. §664(c)(2)
Imposes an excise tax equal to 100% of a CRT’s unrelated business taxable income (UBTI) for any taxable year in which it has UBTI.
https://www.law.cornell.edu/uscode/text/26/664 - Federal Register – “Guidance under section 664 regarding the effect of unrelated business taxable income on charitable remainder trusts” (2008)
Explains the switch from income tax on UBTI to a 100% excise tax and confirms that CRTs with UBTI must pay excise tax equal to the UBTI amount.
https://www.federalregister.gov/documents/2008/06/24/08-1380/guidance-under-section-664-regarding-the-effect-of-unrelated-business-taxable-income-on-charitable - IRS Publication 6109 (2025)
Restates that a CRT with UBTI must file Form 4720 and pay an excise tax equal to 100% of its UBTI, reinforcing why you avoid debt‑financed property and active business income inside CRTs.
https://www.irs.gov/pub/irs-access/p6109_accessible.pdf
[12] – Flip‑CRUTs and forfeiture of makeup balances
- “Planning with charitable remainder trusts,” The Tax Adviser (2025)
Flip‑CRUT section explicitly says: a flip‑CRUT is a NICRUT or NIMCRUT that flips to a standard CRUT upon a triggering event; and if the CRUT was a NIMCRUT, no makeup payments may be made once it flips to a standard CRUT.
https://www.thetaxadviser.com/issues/2025/sep/planning-with-charitable-remainder-trusts/ - “Flip Charitable Remainder Unitrust (Flip‑CRUT),” Kidwell & Kent
“Caution” section states that when a NIMCRUT flips, “make‑up payments for any deficits that remain are forfeited,” reinforcing that makeup deficits don’t survive the flip.
https://www.kidwellkent.com/wp-content/uploads/sites/1403971/2023/03/Flip-Charitable-Remainder-Unitrust-Flip-CRUT-.pdf
