US FederalWhat is a charitable remainder trust and how does it reduce estate taxes?
A charitable remainder trust (CRT) is an irrevocable trust that pays income to non-charitable beneficiaries for life or a term up to 20 years, then distributes the remaining assets to charity; it reduces estate taxes because the remainder interest passing to charity qualifies for an estate tax charitable deduction under federal law.
What the Law Says
Federal estate tax law allows a full deduction for the value of property passing to qualified charities — including the remainder interest in a charitable remainder trust — thereby reducing the taxable estate.
A charitable remainder trust (CRT) is a tax-exempt irrevocable trust authorized under Internal Revenue Code (IRC) §§ 664 and 2055. It provides income to one or more non-charitable beneficiaries (e.g., the donor or their family) for life or a fixed term not exceeding 20 years. At the end of that period, the remaining trust assets pass to one or more qualified charities.
Because the remainder interest is guaranteed to go to charity, its actuarial value is deductible from the donor’s gross estate under IRC § 2055(a), which permits a deduction for 'the value of all bequests, legacies, devises, or transfers to or for the use of any corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes.' This deduction directly reduces the taxable estate subject to the federal estate tax.
The federal estate tax itself is imposed by 26 U.S.C. § 2001, which states: 'A tax is hereby imposed on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States.' The tax applies only to the 'taxable estate' — i.e., the gross estate minus allowable deductions like the charitable deduction.
Statutory TextA tax is hereby imposed on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States.
— 26 U.S.C. § 2001 — Imposition and rate of tax
What to Do
Work with an estate planning attorney and CPA to draft a CRT that meets IRS requirements (e.g., fixed annuity or unitrust payout, qualified charity beneficiary).
Fund the CRT with appreciated assets during life (to avoid capital gains tax) or name it as a beneficiary in your will or revocable trust.
Obtain a qualified appraisal for the charitable remainder interest to substantiate the estate tax deduction.
File IRS Form 706 (United States Estate Tax Return) and attach Form 709 (if lifetime gift) with proper valuation and disclosure.
Ensure the CRT is administered by a qualified trustee and files annual Form 5227.
Sources
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UKNot legal advice. This article is general information based on publicly available sources, written for educational purposes. Laws change and individual situations vary. Consult a licensed attorney in your jurisdiction before acting on anything you read here. Last reviewed: 2026-06-08.