Referral Most charitable giving in retirement works the same way it has for decades: write a check, get a receipt, take a deduction if you itemize. That approach leaves a significant amount of value on the table. For retirees who hold highly appreciated assets — a stock position bought at a fraction of its current value, or real estate purchased decades ago — there is a set of giving strategies that can convert those gains into income, reduce taxes, and fund charitable goals simultaneously. The two primary tools are Charitable Remainder Trusts and Donor-Advised Funds. They are often used toget
When a retiree sells a stock position or piece of real estate that has grown significantly in value, the profit — called a capital gain — is taxable. The federal long-term capital gains rate for most retirees is 15%. For those with higher income, it rises to 20%, plus the 3.8% Net Investment Income Tax. State taxes add further to the bill in most states. A $1,000,000 stock position with a $100,000 original cost basis — meaning $900,000 in gains — could generate a federal and state tax bill of $200,000 to $250,000 when sold. The retiree receives $750,000 to $800,000 rather than the full $1,000,000. A Charitable Remainder Trust changes that math entirely.
A Charitable Remainder Trust — abbreviated CRT — is an irrevocable trust that holds appreciated assets, sells them without paying capital gains tax, reinvests the full proceeds, and then pays the retiree an income stream for life (or for a period of up to 20 years). When the retiree dies, the remaining assets in the trust go to the charity or charities named in the trust document. The CRT is classified as a tax-exempt entity under the Internal Revenue Code. When it sells the appreciated stock, no capital gains tax is owed. The full $1,000,000 can be reinvested rather than the $750,000 that would remain after tax. That larger principal generates more income over the retiree's lifetime.
Scenario Direct Sale **Charitable Remainder Trust** Asset value $1,000,000 stock $1,000,000 stock Original cost basis $100,000 $100,000 Capital gains tax at ~$200,000$238,000 $0 (trust is tax-exempt) sale Amount available to $762,000$800,000 $1,000,000 invest Immediate tax None Partial charitable deduction deduction based on actuarial value Income stream From net proceeds From full $1M — generates more income What goes to charity Whatever donor chooses Remainder of trust at death to give separately Source: Greater Houston Community Foundation — Guide to Charitable Remainder Trusts; DAFgiving360; IRC § 664 The retiree receives a partial charitable income tax deduction in the year the CRT is funded. The exact amount of the deduction is calculated using IRS actuarial tables based on the retiree's age, the payout rate chosen, and the applicable federal interest rate. This deduction can be used to offset ordinary income, subject to limitations.
Charitable Remainder Trusts come in two payout structures. Understanding the difference is important for matching the tool to the retiree's income needs. A Charitable Remainder Annuity Trust (CRAT) pays a fixed dollar amount each year for the life of the trust. The amount is set when the trust is created and never changes. It provides predictability but no growth — if the trust's assets grow, the charity receives more at the end, not the retiree. A Charitable Remainder Unitrust (CRUT) pays a fixed percentage of the trust's value, recalculated each year based on current market value. If the trust assets grow, the income payments grow with them. This structure provides an inflation hedge and is generally preferred by retirees in the 5565 age range with a longer income horizon.
A CPA or estate planning attorney with experience in charitable
Greater Houston Community Foundation — Guide to Charitable