Charitable trusts are a smart way to support causes you care about while reducing taxes. They let you donate assets, avoid capital gains taxes, and secure deductions, all while benefiting charities. The two main types - Charitable Remainder Trusts (CRTs) and Charitable Lead Trusts (CLTs) - offer unique benefits depending on your financial goals. CRTs provide income first, with the remaining assets going to charity, while CLTs prioritize charities first, then pass assets to heirs.
Key Points:
- CRTs: Avoid capital gains taxes, secure income, and reduce estate taxes.
- CLTs: Reduce gift and estate taxes, ideal for passing wealth to heirs.
- 2026 Tax Changes: New rules include a 0.5% AGI floor for deductions and caps on tax benefits for high-income earners.
With careful planning, charitable trusts can help you maximize tax savings, support charities, and preserve wealth.
Types of Charitable Trusts and Their Tax Benefits
CRT vs CLT Charitable Trust Comparison: Key Differences and Tax Benefits
This section breaks down the two primary types of charitable trusts and their distinct tax perks. Choosing the right option depends on whether you want to secure income for yourself during your lifetime or focus on minimizing taxes on assets passed to your heirs. Using a personal finance app can help you track these complex assets and long-term savings goals.
Charitable Remainder Trusts (CRTs)
A Charitable Remainder Trust is structured to pay income to you (or your beneficiaries) first, with the remaining assets going to a charity later. This setup is especially useful for highly appreciated assets like stocks or real estate, as it allows for tax-exempt sales under IRC Section 664, effectively deferring capital gains taxes.
For instance, imagine you own stock worth $300,000 that originally cost you $20,000. By transferring it into a charitable trust, the charity can sell the stock for its full $300,000 value without paying capital gains tax on the $280,000 profit. The proceeds can then be reinvested, and you receive income based on the entire $300,000.
Additionally, CRTs remove assets from your taxable estate, which could lower your future estate taxes. They are particularly advantageous when interest rates are high. Higher IRS Section 7520 rates increase the calculated value of the charitable remainder, resulting in a larger tax deduction. For example, in July 2024, a 60-year-old widow transferred an investment property valued at $1,000,000 (with a $250,000 cost basis) into a Charitable Remainder Annuity Trust (CRAT). She set a 5% annuity ($50,000 annually) for 20 years. With the July 2024 Section 7520 rate of 5.4%, she secured an immediate income tax deduction of $397,490 and avoided $178,500 in capital gains tax that she would have incurred had she sold the property herself.
Charitable Lead Trusts (CLTs)
A Charitable Lead Trust works in reverse: the charity receives payments first, and your heirs get the remaining assets at the end of the trust term. This structure is ideal for reducing gift and estate taxes on wealth passed to the next generation.
The tax benefit comes from how the IRS calculates the gift's value. The present value of the charitable payments is deducted from the total value of the assets placed in the trust, which lowers the taxable amount of the gift. This approach reduces current gift taxes and complements long-term estate planning. If the trust’s investments grow faster than the IRS Section 7520 "hurdle rate", the excess growth passes to your heirs without additional gift or estate taxes.
A CLT can even be structured so the remainder value is zero, allowing you to transfer assets to your heirs at the end of the term without triggering gift tax liability. For example, in September 2021, a donor created a 10-year Charitable Lead Annuity Trust (CLAT) with $10,000,000. The trust paid $1,000,000 annually to charity. With a Section 7520 rate of 1%, the present value of the charitable gift was calculated at $9,471,300, leaving a taxable gift of just $528,700 to the donor’s son. If the trust grew at 5% annually, the son would eventually receive $3,711,054, even though the gift was taxed at the lower value.
Unlike CRTs, CLTs are not tax-exempt. Income generated by a CLT is taxed either to you (if it’s a grantor CLT) or to the trust itself (if it’s non-grantor). A grantor CLT offers an immediate income tax deduction for the present value of future charitable payments. On the other hand, non-grantor CLTs don’t provide an upfront deduction but do remove the assets and their future income from your taxable estate.
CLTs tend to perform best in low-interest-rate environments. A lower IRS Section 7520 rate allows the trust’s assets to grow faster than IRS projections, enabling more wealth to transfer to your heirs tax-free.
| Feature | Charitable Remainder Trust (CRT) | Charitable Lead Trust (CLT) |
|---|---|---|
| Who Gets Income First? | You or your heirs | Qualified charity |
| Who Gets the Remainder? | Qualified charity | You or your heirs |
| Tax Status | Tax-exempt | Taxable (to donor or trust) |
| Capital Gains Tax | Deferred or avoided | Taxed to donor or trust |
| Best Economic Climate | High interest rates | Low interest rates |
| Term Limit | Up to 20 years or lifetime | No specific statutory limit |
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Tax Rules and Updates for 2026
Recent updates from the One Big Beautiful Bill Act (OBBBA) have introduced new guidelines for charitable tax deductions, effective January 1, 2026. These changes impact both individual taxpayers and trusts, reshaping how charitable contributions are handled for tax purposes.
Changes to Adjusted Gross Income (AGI) Limits
For individuals who itemize deductions, a new 0.5% AGI floor has been introduced. This means charitable contributions become deductible only after exceeding 0.5% of your AGI. For example, if your AGI is $400,000, the first $2,000 of donations won’t yield any tax savings.
"This effectively creates a charitable 'deductible', similar to an insurance deductible, and reduces the tax value of smaller annual donations for higher-income households." - Francis Xavier Bergmeister, Certified Financial Planner
High-income earners also face a cap on the top tax benefit. If you're in the 37% tax bracket, the benefit for charitable deductions is now limited to 35%. So, instead of saving 37 cents for every dollar donated, you’ll save only 35 cents. Additionally, the OBBBA has permanently extended the 60% AGI limit for cash contributions to public charities, which was previously set to expire.
Trusts and estates are hit even harder. The "unlimited" charitable deduction under Section 642(c) is now subject to Section 68 overall itemized deduction limits, reducing deductions by about 5.4% of the amount by which taxable income exceeds the 37% bracket. For most trusts, this bracket starts at just $16,001 in 2026.
"Beginning in 2026, trusts and estates may no longer receive a full deduction for charitable contributions, requiring strategic reassessment of planned charitable distributions to mitigate tax exposure." - Carol Warley, Washington National Tax private client services tax practice leader, RSM US
These changes are prompting many donors to "bunch" multiple years of giving into a single tax year to surpass the 0.5% AGI floor and maximize deductions. Trust fiduciaries may need to adjust their strategies, ensuring they have enough liquidity to cover new tax liabilities.
Charitable Deductions for Non-Itemizers
The OBBBA has also reinstated a limited charitable deduction for taxpayers who claim the standard deduction - approximately 87% of all U.S. filers. Starting in 2026, non-itemizers can deduct up to $1,000 for single filers or $2,000 for married couples filing jointly.
However, this deduction comes with strict rules. It applies only to cash contributions made directly to U.S. publicly supported charities. Eligible cash contributions include gifts made via check, credit card, debit card, ACH, online payment platforms, and payroll deductions. Donations to donor-advised funds, supporting organizations, and most private foundations are excluded, as are contributions made through charitable trusts.
For 2026, the standard deduction is expected to be $16,100 for single filers and $32,200 for married couples filing jointly. If you’re a non-itemizer planning year-end donations for 2025, it may be worth delaying them until January 2026 to take advantage of this new deduction.
| Feature | 2025 Rules | 2026 Rules (OBBBA) |
|---|---|---|
| Non-Itemizer Deduction | None | Up to $1,000 single / $2,000 joint |
| Itemizer Deduction Floor | None | 0.5% of AGI |
| Top Tax Benefit Value | Full marginal rate (up to 37%) | Capped at 35% |
| Trust/Estate Deduction | Unlimited (Section 642(c)) | Limited by Section 68 (~5.4% reduction) |
| Cash AGI Limit | 60% (scheduled to expire) | 60% (made permanent) |
Next, we’ll dive into actionable strategies to help you make the most of these new rules using charitable trusts.
Strategies to Maximize Tax Savings with Charitable Trusts
With the tax changes arriving in 2026, careful planning can help you get the most out of charitable trusts. The secret lies in choosing the right trust structures, timing contributions effectively, and weaving these strategies into your overall estate plan.
Using CRTs and CLTs Together
High-net-worth families can use a mix of Charitable Remainder Trusts (CRTs) and Charitable Lead Trusts (CLTs) to tackle multiple tax challenges at once. For example, CLTs can hold assets intended for heirs, while CRTs can manage retirement income assets.
"Stacking trust strategies (say, a lead trust holding real estate paired with a remainder trust holding business equity) can legally knock down both income and estate tax exposure, setting up heirs with maximum flexibility."
– KDA Inc.
The timing of these trusts matters. IRS Section 7520 rates directly affect trust values - higher rates increase CRT deductions, while lower rates reduce taxable gifts in CLTs.
It’s also important to match the right assets to the right trust. CLTs work well with high-growth assets like tech stocks or undeveloped land, as any growth beyond the IRS hurdle rate can pass to heirs tax-free. On the other hand, CRTs are ideal for highly appreciated assets, such as non-mortgaged real estate or long-held stock, allowing you to avoid immediate capital gains taxes while diversifying your portfolio.
If you need a deduction to offset a high-income year, a Grantor CLT might be the better option. For those facing adjusted gross income (AGI) deduction limits, a Nongrantor CLT could be more suitable, as the trust itself becomes a separate taxpayer and can claim unlimited charitable deductions under Section 642(c). Keep in mind that most advisors recommend a minimum asset value of $250,000 to justify the setup costs, which can run about $10,200 for more complex arrangements. Combining these strategies can help you reduce taxes while preserving wealth.
Timing Your Charitable Contributions
With the introduction of the new 0.5% AGI floor, timing your charitable contributions is more important than ever. For example, if your AGI is $400,000, the first $2,000 of donations won’t qualify for tax relief. This makes "bunching" multiple years of contributions into a single tax year an effective way to surpass the floor and maximize deductions.
Establishing trusts during high-income years can also amplify tax benefits. Whether you’re selling a business, exercising stock options, or converting a Roth IRA, funding a CRT or Grantor CLT during these years can help offset an income spike and potentially keep you in a lower tax bracket.
Take the case of Margaret Chen in early 2026. She contributed $500,000 in vested stock to a Charitable Remainder Unitrust (CRUT) during a high-income year. This move avoided $100,000 in capital gains tax and earned her a $280,000 upfront deduction, which translated to $103,600 in federal income tax savings at the 37% rate. On top of that, she secured an annual income stream of about $25,000.
For even more control over income recognition from a CRT, you can include a "net income make-up" provision (NIMCRUT). This allows you to defer distributions to future years, helping you avoid higher tax brackets. Plus, funding the trust with appreciated securities rather than cash can help you sidestep capital gains taxes while still qualifying for a deduction based on the full fair market value (subject to a 30% AGI limit). Proper timing ensures you get the most out of your deductions while keeping control over your tax obligations.
Using Charitable Trusts in Estate Planning
Assets transferred to irrevocable charitable trusts are excluded from your taxable estate, which can result in major estate tax savings. For 2025, the federal gift and estate tax exemption stands at $13.99 million per person, or $27.98 million for married couples.
CLTs are particularly effective for transferring wealth. A common approach is to "zero out" the trust, structuring the charitable payout so the remainder for heirs is valued at zero for tax purposes. If the assets grow faster than the IRS hurdle rate, any excess passes to heirs without being subject to gift or estate taxes.
"CLT payments can be defined in a manner in which the CLT would 'zero-out' at the end of the CLT term, meaning the remainder interest is valued at zero. If the assets of the CLT grow at a rate greater than the formula determined rate, assets will remain at the end of the term and can pass to the next generation gift- or estate-tax free."
– Michael Boncher, Cohen & Co
For instance, in December 2025, Amelia, a Los Angeles real estate broker, used a Charitable Lead Annuity Trust (CLAT) to transfer a $2 million commercial property. She structured the trust to pay $120,000 annually to an animal shelter for 15 years. This setup earned her an immediate $1.18 million tax deduction to offset her 2025 income. At the end of the term, her twins were projected to inherit over $1.8 million without any additional estate or gift tax, resulting in $620,000 in total tax savings.
These strategies not only help preserve wealth across generations but also support meaningful causes. Next, learn how Monefy can help you manage and track these contributions with ease.
Managing Charitable Trusts with Monefy
Managing charitable trusts effectively can do more than just secure tax savings - it plays a key role in preserving your wealth over the long term. While charitable trusts provide strategic benefits, keeping track of contributions and expenses is just as important. That’s where Monefy comes in. By consolidating trust income, expenses, and donations, it simplifies tax tracking and ensures everything stays organized.
Tracking Charitable Contributions with Monefy
With the 2026 AGI floor changes, keeping an accurate record of charitable contributions has become even more important. Monefy offers custom categories to help you separate trust income from charitable payments. For example, you can distinguish income from Charitable Remainder Trusts (CRTs) and payments made to charities through Charitable Lead Trusts (CLTs).
The app also helps you monitor whether your itemized deductions exceed the 2026 standard deduction thresholds - $16,100 for single filers and $32,200 for married couples filing jointly.
Budgeting for Charitable Giving
Monefy’s budgeting tools make it easier to implement strategies like "bunching", where you combine several years of charitable contributions into one tax year. This can help you surpass the higher 2026 standard deduction and meet the 0.5% AGI floor. By planning ahead, you can maximize deductions while keeping your finances in check.
You can also create dedicated categories for trust-related expenses, such as legal fees and trustee costs, ensuring every detail of your charitable giving is properly documented.
For pooled income trusts, which can accept contributions as low as $5,000 to $10,000, Monefy helps you plan smaller, incremental contributions over time. This makes charitable trusts more accessible, even if you don’t have a large lump sum to start with.
These budgeting features naturally tie into broader strategies for long-term wealth and tax planning.
Wealth Preservation and Tax Planning with Monefy
Preserving wealth through charitable trusts requires careful tracking of distributions and tax details. Monefy simplifies this by categorizing CRT distributions into ordinary income, capital gains, tax-exempt income, and trust corpus. This makes reporting on Schedule K-1 (Form 1041) much easier.
For Charitable Remainder Unitrusts (CRUTs), which involve annual asset revaluation to determine a fixed percentage payout, Monefy’s tools allow you to record valuations and ensure the minimum 5% distribution requirement is met. The app also helps you track the "10% rule", ensuring the remainder interest left to charity meets the required threshold of at least 10% of the initial fair market value.
"Using charitable trusts enables donors to achieve significant tax savings while supporting causes they care about." – Garrett Harbron, J.D., CFA, CFP®, Head of Advised Wealth Management Strategies, Vanguard
Conclusion
Charitable trusts offer a practical way to reduce your tax liabilities while supporting causes that matter to you. With their split-interest structure, these trusts allow you to enjoy financial advantages during your lifetime - such as income from a Charitable Remainder Trust or reduced estate taxes through a Charitable Lead Trust - while ensuring your chosen organizations receive substantial support.
Some key benefits include deferring capital gains taxes, securing upfront deductions, and shielding assets from estate taxes. Because of their tax-exempt status, appreciated assets can be sold without triggering immediate capital gains taxes. Additionally, the upfront deduction can be spread over five years, offering flexibility in financial planning.
It’s important to note that charitable trusts require an irrevocable commitment, meaning the assets placed in the trust cannot be reclaimed once established. This permanence ensures long-term support for the charities while aligning with your estate planning objectives. Due to the complexity of these arrangements, consulting with legal and tax professionals is crucial to ensure the trust aligns with your financial goals and charitable vision.
Whether your aim is to diversify concentrated stock holdings, secure a steady retirement income, or transfer wealth efficiently to heirs, charitable trusts provide a way to achieve these goals while making a positive impact. Tools like Monefy can help you track contributions and manage trust-related expenses, ensuring you maintain organized records as you build a legacy that benefits both your family and the causes you care about most.
FAQs
Which assets work best for a CRT vs. a CLT?
When it comes to a Charitable Remainder Trust (CRT), assets like stocks or real estate that have significantly increased in value are often the top choice. These assets allow you to defer capital gains taxes, generate income, and enjoy certain tax perks.
On the other hand, a Charitable Lead Trust (CLT) is best suited for assets that provide a reliable income stream, such as bonds or income-generating real estate. These assets ensure regular charitable payments and, if they grow in value over time, can increase the amount ultimately passed to your beneficiaries.
How do the 2026 deduction changes affect charitable trust planning?
The changes coming in 2026, such as new caps on itemized deductions and the introduction of a 0.5% Adjusted Gross Income (AGI) floor, will require adjustments to charitable trust strategies. To make the most of potential tax savings, it’s crucial to plan carefully and ensure your approach aligns with these updated rules.
What are the biggest downsides of setting up a charitable trust?
Setting up a charitable trust does come with its challenges. One major hurdle is dealing with complex tax regulations and ensuring ongoing compliance. For instance, you'll need to adhere to IRS rules and file annual forms like IRS Form 5227. Another downside? You’ll have to relinquish legal control over the assets placed in the trust. On top of that, most charitable trusts are irrevocable, meaning you can’t easily make changes later if your financial or personal situation shifts.