What is a Charitable Remainder Trust and how does it work?

A Charitable Remainder Trust (CRT) is a particular kind of Irrevocable Trust that combines the benefits of charitable giving — including income tax reduction — with asset protection and estate tax planning. How it works: • You transfer assets (typically appreciated stock or real estate) into the CRT • The trust pays you or your named beneficiaries a fixed percentage of the trust value annually for life or a set term • When the beneficiary passes away, the remaining principal passes to the designated charity • The transfer generates a charitable gift tax deduction based on the present value of the charity's remainder interest Real example from Christopher's practice: When the Washington Estate Tax exemption was $2.193 million, a client with $4 million created two Charitable Remainder Trusts — one for each of his daughters — with $1 million each. The structure: • Avoided Washington Estate Tax on $2 million • Generated 5% annual income for life for each daughter ($50,000 per year on $1 million) • Provided asset protection for the father and both daughters • Generated a $2 million charitable gift tax deduction The growth effect: The average stock market return is approximately 10% per year. Each year, about $100,000 is added to the account and $50,000 is distributed — meaning the next year each daughter receives approximately $52,500, and so on throughout her life.

What is a Charitable Remainder UniTrust (CRUT) and what are the Washington State tax advantages?

A Charitable Remainder UniTrust (CRUT) is a specific type of Charitable Remainder Trust in which the annual payout is a fixed percentage of the trust's value recalculated every year — so if the trust grows, your payments increase. Washington State strategic advantages: 1. Capital Gains Tax Mitigation — Washington levies a 7% capital gains tax on the sale of certain high-value assets. Because a CRUT is a tax-exempt entity, it can sell your highly appreciated assets tax-free. 2. Pure Federal Deduction Advantage — Since Washington has no personal state income tax, the immediate federal charitable income tax deduction delivers unmitigated bottom-line value against your federal tax bracket. 3. Estate Tax Shield — Assets transferred into a CRUT are removed from your personal estate, reducing exposure to Washington's estate tax (one of the lowest exemption thresholds in the country at $3 million as of July 1, 2026). Key structural requirements (IRS): • Minimum payout rate: 5% annually • Maximum payout rate: 50% annually • The 10% Rule: The actuarial value of the charity's remainder interest must be at least 10% of the initial contribution • Duration: Lifetime of beneficiaries, or a fixed term up to 20 years Cost: $15,000 via Zelle — payable to csmulvaney@gmail.com (cell: 425-786-3470). Irrevocable Trusts are not covered by MetLife Legal Plans.

What is the difference between a CRT and a CRUT?

There are two main types of Charitable Remainder Trusts: Charitable Remainder Annuity Trust (CRAT): • Pays a fixed dollar amount each year — determined at the time the trust is created • The payout does not change regardless of how the trust assets perform • No additional contributions can be made after the initial funding • Better for donors who want predictable, fixed income Charitable Remainder UniTrust (CRUT): • Pays a fixed percentage of the trust's value, recalculated annually • If the trust grows, the payout increases; if it declines, the payout decreases • Additional contributions can be made after the initial funding • Better for donors who want income that keeps pace with inflation and market growth For most clients, the CRUT is the preferred structure because it allows the income to grow over time and permits additional contributions.

Which Washington charities accept CRUTs?

Many Washington institutions will draft the legal documents and manage the trust's investments at no charge if they are named the ultimate beneficiary: Educational institutions: • University of Washington Office of Gift Planning • Washington State University Foundation • Whitman College Community foundations: • The Seattle Foundation — can administer CRUTs that seed a Donor-Advised Fund, allowing heirs to distribute gifts locally over time Local non-profits: • Northwest Harvest • Hopelink • YMCA of Greater Seattle Federal Gift & Estate Tax: contributions to a CRUT with you as income beneficiary do not count against the $30 million per couple Unified Federal Gift and Estate Tax exemption. Income taxation: the CRUT itself pays no capital gains tax on sales — income beneficiaries pay income tax on distributions at their marginal rate at the time of receipt.

How does a Charitable Remainder Trust interact with Washington's 7% capital gains tax?

Washington State enacted a 7% capital gains tax effective January 1, 2022, on the sale of long-term capital assets above $262,000 (indexed for inflation). This tax applies to gains from the sale of stocks, bonds, and other capital assets — but not to real estate. A Charitable Remainder Trust is a tax-exempt entity under IRC § 664. When the CRUT sells appreciated assets, it pays no capital gains tax — federal or Washington State. The full proceeds are reinvested in the trust, generating a larger income stream for the beneficiaries. Example: • You own $1 million in appreciated stock with a cost basis of $100,000 • If you sell directly: $900,000 gain × 7% WA tax = $63,000 WA tax + federal capital gains tax • If you transfer to a CRUT and the CRUT sells: $0 capital gains tax — full $1 million reinvested • The CRUT then pays you 5% annually = $50,000/year, growing as the trust grows This is one of the most compelling reasons for Washington residents with highly appreciated assets to consider a CRUT.

Christopher S. Mulvaney, Esq. — Attorney-and-Counselor-at-Law — Professionalism with Integrity — WSBA#33595 — Licensed Only in Washington State

[email protected]Bellevue, WA

Irrevocable Charitable Remainder Trusts

Trusts Overview

Giving & Tax Planning

Convert appreciated assets into lifetime income — tax-free — while giving back.

A Charitable Remainder Trust (CRT) converts low-cost-basis assets into diversified income — without triggering immediate capital gains tax — while reducing your taxable estate and making a significant future gift to charity. It is a particular kind of Irrevocable Trust that combines the benefits of charitable giving with asset protection and estate tax planning.

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