Charitable Remainder Trusts, Donor-Advised Funds & Philanthropy as a Planning Tool

How a CRT Works 

Charitable Remainder Trusts

• You contribute appreciated assets (stock, a closely-held interest, or real estate) to the CRT before a sale.

• The CRT is tax-exempt, so it sells the asset and invests the full proceeds.

• You receive annual payments:

  • CRUT: a fixed percentage (e.g., 5%) of the trust’s value each year (revalued annually).

  • CRAT: a fixed dollar amount each year.

• At the end of the term or your lifetimes, the remainder passes to one or more charities (or your DAF for flexible, family-guided giving).

• You get an income-tax charitable deduction up front (based on IRS rules, payout rate, term/age, and interest rates).

• Payments are taxed to you under a tier system (capital gains first, then ordinary, etc.); we coordinate with your CPA to manage brackets.

When CRTs Shine: selling a low-basis asset; needing lifetime income; wanting to diversify without a giant tax bill; charitably inclined families who want to “do well and do good.”

DAFs, Explained

A Donor-Advised Fund is a charitable account at a sponsor (community foundation or national sponsor). You contribute cash or appreciated assets, receive a full deduction (subject to AGI limits), the DAF invests, and you recommend grants to IRS-qualified charities over time (including anonymously). DAFs pair beautifully with CRTs: send the CRT remainder to your family DAF, then let your children recommend future grants—guided by a simple family giving policy we help you write.

Choosing Between CRUT, CRAT, CLT & DAF

Quick Reference

• CRUT (Unitrust %): Flexible; good with volatile or growth assets; payments float with value.

• CRAT (Fixed $): Predictable; must pass IRS probability/exhaustion tests.

• CLT (Lead Trust): Charity first for a set term; remainder to family—useful in low-rate environments and for wealth transfer.

• DAF: Pure giving and simplicity; no income stream by itself, but pairs with CRT or outright gifts.

We’ll model all four against your age, objectives, and tax posture—then show side-by-side numbers.

Philanthropy + the Rest of Your Plan

Holistic Design

• RLT As The Hub: Avoid NJ probate (public, creditor-first, often a 3–7% all-in estate “drag” once commissions, legal/accounting fees, bond premiums, appraisals, and delays are tallied) by funding your RLT now.

• Married? Use CST/QTIP/Clayton for flexibility; CRT income can support the survivor while preserving protected trusts for children.

• IRAs/SECURE Act: Name a charity or DAF as an IRA beneficiary for a tax-efficient gift (charities pay no income tax), and direct non-retirement assets to heirs’ trusts; or funnel IRA dollars to a CRT to mimic a lifetime “stretch” income for a spouse/child (with a remainder to charity).

• Business Exits: Contribute a non-controlling interest to a CRT/DAF before LOI becomes binding to avoid assignment of income problems; we coordinate closely with deal counsel and your CPA.

• Shore & Rentals: Donate a fractional interest (or the whole property) to the CRT/DAF; mind debt-financed property rules and DAF sponsor policies.

New Jersey Specifics

What We Watch for

• Deeds & Sponsors: If donating real estate to a CRT or DAF, we use Bargain & Sale Deeds, environmental reps, and sponsor underwriting.

• Inheritance-Tax Classes: Charitable remainders are generally exempt; but if non-Class-A individuals are getting bequests elsewhere, we coordinate to avoid NJ inheritance-tax surprises.

• Probate Avoidance: We place the philanthropic architecture inside or alongside your funded RLT so your executor isn’t forced into Surrogate’s Court mechanics.

Case Studies

Illustrative and Simplified

• Monmouth Couple, Age 62: $2.5M low-basis brokerage position. We implement a 5% CRUT: no immediate capital gains tax, ~$125k first-year income (floats with value), six-figure deduction today, remainder to their family DAF. Heirs receive the house and non-retirement assets in lifetime protective trusts; IRA to charity.

• Somerset Entrepreneur, Age 55: Sells S-corp. Before LOI hardens, gifts a minority slice to CRUT, rest sold. Diversifies without a giant tax hit, funds personal income stream, remainder earmarked for a STEM scholarship via DAF.

• Widowed Client, Age 70: Shore rental with big gain. Transfers property to CRUT, sponsor sells; income funds retirement housing, remainder to animal rescue. Kids inherit diversified assets in HEMS trusts.

(We’ll show your numbers, not hypotheticals.)

Common Mistakes We Prevent

• Donating After A Deal Is Binding: Triggers assignment of income; tax savings lost.

• Overpaying From A CRT: Payout rates set too high starve the remainder and fail IRS tests.

• Wrong Asset To The Wrong Vehicle: IRAs to CRT/charity (great), loss assets to DAF (often wasteful).

• Unfunded RLT: Brilliant philanthropy, but your estate still drags through NJ probate. We fund now.

• SECURE Act Missteps: Conduit trusts for large IRAs; we use SRT (accumulation) where protection/tax pacing matter.

• No Family Governance: DAF without a giving policy leads to confusion. We draft a one-page charter.

Our Process

Design → Draft → Fund → File → Maintain

1. Design & Discovery Meeting (DDM): Goals, assets, basis, income needs, causes, heirs, and tax modeling.

2. Modeling: CRUT vs. CRAT vs. CLT vs. DAF—cash flow, deductions, estate impact, basis.

3. Drafting & Opening: CRT/CLT documents, RLT coordination, DAF account opening, trust protector provisions, payout design.

4. Funding: We transfer assets (deeds, stock, partnership interests), satisfy sponsor due diligence, and coordinate sale timing.

5. Compliance: Appraisals, Form 8283, 709/706, CRT tax returns (Form 5227), and DAF confirmations—handled with your CPA/EA.

6. Maintenance: AMP (annual review, funding/beneficiary audit, trustee training) or CCP (quarterly Advisor Summits with CPA/RIA; CRT/CLT administration, DAF governance, grant calendar).

Technical Considerations

• Qualification Tests: 10% minimum remainder value; CRAT/CRUT payout floors/ceilings; probability test & exhaustion for CRATs; NIMCRUT/Flip CRUT mechanics for illiquid assets.

• Tier Accounting: Ordinary → capital gains → tax-exempt → return of principal ordering; capital-gain “stack” management.

• Split-Interest Compliance: Appraisals, substantiation, related-party and self-dealing rules; §4941 (if private foundation involved).

• Flip CRUT With Real Estate: Flip trigger on sale to switch from net-income to standard unitrust.

• IRA To CRT (Testamentary): Draft with SECURE-aware income design; private letter ruling risk appetite discussion.

• DAF Policies: Sponsor acceptance for real estate/LLC interests; liquidation timelines; advisory privileges across generations.

FAQs

Q: Can I name my Donor-Advised Fund as the CRT remainder?
A: Yes—common and smart. It lets your family guide grants over years without rewriting the CRT.

Q: What payout rate should I choose?
A: We model cash flow vs. remainder; 5–7% is typical for CRUTs, but age, rates, and asset mix drive the right number.

Q: Can a CRT own my shore rental until it’s sold?
A: Yes, often via a Flip CRUT. We manage rents/expenses and flip to a standard unitrust after sale.

Q: Are CRT payments guaranteed?
A: CRAT has fixed payments (subject to qualification tests). CRUT payments vary with annual value; we design an investment policy to support stability.

Q: Should I use a private foundation instead of a DAF?
A: Only if you want staff, direct grantmaking control, or to run programs. A DAF is far cheaper/simpler for most families.

Q: Is a CLT better for estate tax?
A: CLTs can be powerful wealth-transfer tools in certain rate environments. We’ll model CRT vs. CLT vs. DAF against your goals.