**Charitable Remainder Trust** (noun) — An irrevocable trust that provides income to designated beneficiaries for a period of time, with the remaining assets passing to a specified charity when the trust ends.
A charitable remainder trust lets you receive income from assets now while ensuring those assets eventually go to charity. You put property into the trust, receive payments for life or a set number of years, and when the trust ends, what's left goes to your chosen charity.
This arrangement offers significant tax benefits. You get an immediate tax deduction based on the calculated value of what will eventually go to charity, avoid capital gains tax on assets you transfer to the trust, and the trust's income isn't taxed to the trust (though you pay tax on payments you receive).
It's particularly useful for highly appreciated assets you want to convert to income. Instead of selling property and paying capital gains tax, you transfer it to the charitable remainder trust. The trust sells it tax-free and invests the proceeds to generate your income payments.
⏱ When you'll encounter this term
People use charitable remainder trusts when they want to support charity, need income, have appreciated assets, and benefit from substantial tax deductions. It's sophisticated planning that requires charitable intent—you can't simply use it as a tax dodge.
The trust must pay out at least 5% annually to the income beneficiaries, and at least 10% of the original value must be projected to reach the charity. These rules prevent people from taking large tax deductions while actually giving very little to charity.
You'll encounter these trusts in estate plans for wealthy individuals committed to charitable giving. They require professional setup and ongoing administration. Once established, they're irrevocable—you can't change your mind and take the assets back. The arrangement works only when you're genuinely comfortable with assets ultimately going to charity.
**Related terms:** [Charitable Trust](/dictionary/charitable-trust), [Irrevocable Trust](/dictionary/irrevocable-trust), [Beneficiary](/dictionary/beneficiary)
---
"Dad set up a charitable remainder trust with shares worth $500,000. He receives 6% annually for life, and when he dies, the remainder goes to the university that educated him."