As we approach the end of 2025, many business owners and investors are exploring ways to reduce taxes while supporting the causes they care about. A Charitable Remainder Trust (CRT) remains one of the most effective and flexible tools for accomplishing both. A CRT is an irrevocable trust that provides an income stream for you (or other beneficiaries) during your lifetime or for a set term. When the trust ends, the remaining assets go to your chosen charity or charities. This charitable giving strategy allows you to pursue your philanthropic goals while maintaining an income source and managing tax exposure—making it a powerful component of retirement, estate, and tax planning.
How Does a Charitable Remainder Trust Work?
Let’s walk through a modern example that illustrates how a CRT can benefit both the donor (often called the grantor) and the charitable beneficiaries.
Scenario: Selling a Business in 2025
John owns a business valued at $5 million and plans to sell in late 2025. He anticipates a substantial capital gains tax from the sale and wants to find a way to both reduce taxes and support a favorite charity. To achieve this, John decides to use a Charitable Remainder Unitrust (CRUT), one of the two main types of CRTs.
Steps in the Process
1. Establish the Charitable Remainder Trust
Before selling, John works with his financial and legal advisors to set up the CRUT.
2. Transfer the Business Assets
John transfers ownership of his business into the CRT before the sale. This is a critical step—because the CRT is a tax-exempt entity, it can sell the business without triggering immediate capital gains taxes.
3. Sale of the Business
The CRT sells the business for $5 million. Since the sale occurs within the tax-exempt trust, no capital gains tax is due at the time of sale.
4. Investing the Proceeds
The CRT reinvests the sale proceeds in a diversified portfolio designed to produce long-term growth and income.
5. Annual Income Distributions
John receives an annual income—typically a fixed percentage (say 5%) of the trust’s assets, recalculated each year. These payments are taxable, but the tax burden is spread out over time, often at lower effective rates.
Benefits to the Grantor
Tax Deferral: John avoids immediate capital gains taxes on the business sale.
Income Stream: Provides a reliable annual income, useful for supplementing retirement.
Estate Tax Reduction: Moving the business into the trust reduces the taxable value of John’s estate.
Charitable Deduction: John receives an immediate charitable income tax deduction in the year he funds the CRT. The deduction equals the present value of the remainder interest expected to go to the charity.
Benefits to the Charity
Guaranteed Future Gift: The charity is assured of receiving the remainder once the trust term ends.
Potential for Greater Impact: Because trust assets can grow tax-free, the charity may ultimately receive more than if John had donated after paying capital gains taxes.
Timing of Benefits
For the Grantor (John): Immediate benefits include a charitable deduction and future annual income.
For the Charity: The gift is received after the trust ends—typically upon the grantor’s death or after a set number of years.
Why CRTs Remain Powerful in 2025
Even amid changing tax laws and market conditions, Charitable Remainder Trusts remain a cornerstone of strategic giving. They provide flexibility, tax efficiency, and the satisfaction of supporting causes that matter most—while maintaining personal financial security.
With potential adjustments to capital gains and estate tax thresholds on the horizon, reviewing CRT options before year-end can be a timely and strategic move.
Is a Charitable Remainder Trust Right for You?
If you’re selling a business, real estate, or other highly appreciated assets, a CRT could help you:
- Reduce or defer taxes
- Maintain a steady income stream
- Support your charitable goals in a lasting way
Our team can help you determine whether a Charitable Remainder Trust fits your financial, retirement, and philanthropic plans for 2025 and beyond. Contact us to explore the right charitable strategy for you.