How to Fund a Charitable Remainder Trust with Appreciated Assets: The 2025 Tax Strategy Guide for High-Net-Worth Investors

For high-net-worth individuals facing substantial capital gains from appreciated securities, real estate, or other assets, CRT funding with appreciated assets offers a powerful tax strategy that achieves multiple financial objectives simultaneously. When you donate appreciated assets directly to a Charitable Remainder Trust (CRT) in 2025, you defer immediate capital gains taxes, receive a significant charitable deduction, generate lifetime income, and support causes you care about. This comprehensive guide explores how CRT funding with appreciated assets works, the tax advantages available to high-income earners, and the strategic implementation steps to maximize your wealth transfer and legacy goals.

Table of Contents

• Key Takeaways
• What Is CRT Funding with Appreciated Assets?
• How Does CRT Funding Eliminate Capital Gains Taxes?
• How Can You Generate Lifetime Income from Appreciated Assets?
• What Charitable Deduction Can You Claim in 2025?
• How Does CRT Funding Enable Instant Portfolio Diversification?
• What Are the Step-by-Step Implementation Steps?
• Uncle Kam in Action: High-Net-Worth Executive
• Next Steps
• Frequently Asked Questions
• Related Resources

Key Takeaways

• CRT funding with appreciated assets eliminates immediate capital gains tax liability on highly appreciated securities, real estate, or other holdings.
• You receive a substantial charitable income tax deduction in 2025 based on the actuarial value of your charitable remainder interest.
• The trust generates lifetime or term income distributions to you or your beneficiaries while the charity receives the remaining assets at trust termination.
• CRT funding enables instant portfolio diversification without triggering massive tax bills that would reduce investment returns.
• Proper trust structuring and asset selection are critical to maximizing tax benefits and income performance.

What Is CRT Funding with Appreciated Assets?

A Charitable Remainder Trust (CRT) is an irrevocable trust that you create and fund with appreciated assets. When you donate these assets directly to the trust, instead of selling them first, you avoid triggering the capital gains tax at the moment of transfer. The trust then holds, manages, and eventually sells the assets at fair market value. Since the trust is a tax-exempt entity, it pays no capital gains tax when it sells appreciated assets. The proceeds are reinvested to generate income.

For high-net-worth investors, this structure addresses a critical problem: concentrated positions in highly appreciated stocks, real estate, or other assets that need diversification. Selling them creates a massive capital gains tax bill that reduces the amount available for reinvestment. With a CRT, you defer that tax entirely while the trust diversifies your portfolio.

How CRT Funding with Appreciated Assets Works

The mechanics of CRT funding are straightforward but powerful. You select appreciated assets—typically those with the largest unrealized gains—and transfer them directly to an irrevocable CRT that you’ve established. You do not sell the assets first. Instead, the CRT becomes their owner. Because CRTs are tax-exempt entities under IRC Section 664, they can sell appreciated assets without paying capital gains tax.

The trust then uses the proceeds to purchase a diversified portfolio of stocks, bonds, and other investments that generate the income you’ll receive. You (as the income beneficiary) receive annual distributions based on the trust’s performance and the trust terms you selected. The remaining principal, called the remainder interest, passes to your designated charity at your death or at the end of the trust term.

Two Main Types of CRTs

The IRS recognizes two primary CRT structures for 2025, and your choice affects income distributions and tax deductions:

• Charitable Remainder Annuity Trust (CRAT): Distributes a fixed dollar amount each year regardless of trust performance. This provides stable, predictable income for investors seeking certainty.
• Charitable Remainder Unitrust (CRUT): Distributes a fixed percentage of trust assets revalued annually. This provides inflation-adjusted income and aligns distributions with trust growth.

How Does CRT Funding Eliminate Capital Gains Taxes?

For 2025, understanding the capital gains tax elimination is crucial for high-net-worth investors. In a traditional scenario, if you hold appreciated assets and sell them, you immediately recognize a capital gain and pay tax at the long-term capital gains rate of 15% or 20% (depending on your income level). For an individual with income above $583,750 (married filing jointly), the capital gains rate is 20%, plus 3.8% Net Investment Income Tax, equaling 23.8% total.

With CRT funding, the sale happens inside the trust, which pays zero capital gains tax. This preservation of assets dramatically increases the amount available for reinvestment and income generation throughout your lifetime.

Comparing Tax Outcomes: Traditional Sale vs. CRT Funding

Let’s illustrate the advantage with a concrete example using 2025 tax rates. Suppose you own $1 million in appreciated stock with a $200,000 cost basis and a $800,000 unrealized gain.

Scenario	Traditional Sale	CRT Funding
Asset Sale Price	$1,000,000	$1,000,000
Capital Gains (20% + 3.8% NIIT = 23.8%)	($190,400)	$0
Amount Available for Reinvestment	$809,600	$1,000,000
Assumed 5-Year Cumulative Growth at 6%	$1,084,157	$1,338,226
Benefit of CRT Funding	—	+$254,069

This comparison demonstrates that by avoiding the immediate capital gains tax and allowing the full $1 million to compound, you significantly increase the value available for your lifetime income distributions. Over a 20-year period, the difference becomes even more dramatic.

How Can You Generate Lifetime Income from Appreciated Assets?

One of the most attractive features of CRT funding with appreciated assets is the income generation component. Once the trust is funded and assets are diversified, the trust generates income through dividends, interest, and capital appreciation. This income is distributed to you (or other designated beneficiaries) as periodic payments.

CRAT Income Distribution: Predictability and Certainty

With a Charitable Remainder Annuity Trust (CRAT), you specify a fixed payout rate at the time of funding. The IRS requires that this rate be at least 5% of the initial asset value but no more than 50%. For 2025, if you fund a CRAT with $1 million and select a 6% payout, you receive $60,000 annually for life.

This approach provides predictable income for budgeting and retirement planning. The payments never fluctuate based on market performance. If the trust exceeds expected returns, the excess accumulates and enhances the eventual charitable remainder. If the trust underperforms, payments continue unchanged—the trust absorbs the shortfall.

CRUT Income Distribution: Inflation Protection

A Charitable Remainder Unitrust (CRUT) takes a different approach, distributing a fixed percentage of the trust’s value as revalued each year. If you establish a CRUT with a 6% distribution rate, you receive 6% of whatever the trust is worth on the valuation date each year.

This structure provides inflation protection. In years when trust assets appreciate significantly, your distributions increase. In down markets, distributions decline. Many high-net-worth investors prefer CRUTs because the variable distribution aligns with portfolio performance and provides natural inflation adjustment over decades of retirement.

What Charitable Deduction Can You Claim in 2025?

When you fund a CRT with appreciated assets, you receive an immediate income tax charitable deduction for 2025. This deduction is not based on the full value of assets transferred but rather on the actuarial value of the remainder interest—the amount expected to pass to charity.

The deduction calculation uses three key factors: (1) the Section 7520 rate published by the IRS for your funding month, (2) your age (or ages of multiple beneficiaries), and (3) the trust payout percentage. Younger donors with higher payout percentages receive smaller deductions because more assets are expected to be distributed during their lifetimes. Older donors or lower payout rates produce larger deductions.

Calculating Your 2025 Charitable Deduction

Let’s illustrate with an example. Suppose you’re 65 years old, fund a CRUT with $500,000, and select a 6% distribution rate. Using 2025 IRS mortality tables and assuming a Section 7520 rate of 5%, the actuarial remainder interest might be approximately $145,000 to $160,000 (roughly 29% to 32% of the funded amount).

This deduction is incredibly valuable for high-net-worth investors. If you’re in the 37% federal tax bracket (the 2025 top rate for income above $583,750), a $150,000 deduction saves you $55,500 in federal income tax. Combined with the capital gains tax avoidance and lifetime income generation, the total benefit becomes substantial.

How Does CRT Funding Enable Instant Portfolio Diversification?

Many high-net-worth individuals face a common challenge: concentrated wealth in a single company’s stock. Perhaps you’re a founder or early employee who received stock options, or you inherited a significant position in a family business. This concentration creates risk—if that company experiences difficulties, your personal wealth is directly affected.

Normally, solving this problem requires selling some shares, which triggers capital gains tax and reduces the diversified amount. With CRT funding, you transfer the concentrated position directly to the trust. The trust, as a tax-exempt entity, can sell that position at market value without recognizing gains. The proceeds are immediately reinvested into a professionally managed, diversified portfolio of stocks, bonds, and alternative investments.

The Diversification Mathematics

Consider this scenario: You own $5 million in company stock with a $1 million cost basis. Selling 50% to diversify would trigger a $2 million capital gain. At a 23.8% tax rate (20% long-term gains + 3.8% NIIT), the tax bill is $476,000, leaving only $2.024 million for diversification.

By funding a CRT with $2.5 million of the stock, the trust sells it tax-free and redeploys the full $2.5 million into diversified investments. You immediately reduce concentration risk by 50% without the $476,000 tax cost. The amount available for diversified growth increases from $2.024 million to $2.5 million—a gain of nearly $500,000 that remains invested to compound for your lifetime.

Aspect	Traditional Sale	CRT Diversification
Concentration Reduced By	50%	50%
Tax Cost	$476,000	$0
Amount Reinvested	$2,024,000	$2,500,000
Tax Deduction Benefit	$0	~$150,000-$200,000

Beyond the arithmetic, CRT funding delivers peace of mind. You maintain lifetime income from your accumulated wealth. You achieve immediate diversification. You receive significant tax deductions. And you support charitable causes aligned with your values. This multi-objective benefit is why sophisticated wealth managers recommend CRT funding as a cornerstone strategy for concentrated wealth.

What Are the Step-by-Step Implementation Steps?

The process of funding a CRT with appreciated assets requires careful planning and professional coordination. While not overly complex, each step matters for tax efficiency and compliance. Here’s the implementation roadmap for 2025:

Step 1: Determine Your Objectives and CRT Structure

Begin by clarifying your goals. Are you seeking maximum lifetime income (favors higher payout rates and CRATs)? Do you want inflation protection (favors CRUTs)? Are you primarily motivated by the charitable deduction or the capital gains tax savings?

Once you understand your priorities, select between a CRAT (fixed payments) and CRUT (variable payments). For most high-net-worth investors managing through market cycles, a CRUT with net income makeup provisions offers optimal flexibility. Document these decisions with your tax advisor and attorney.

Step 2: Select Appreciated Assets for Funding

Choose the specific assets you’ll transfer to the CRT. Ideal candidates include:

• Highly appreciated publicly traded securities with large unrealized gains
• Real property (commercial or residential) with significant appreciation
• Closely held business interests or partnership units
• Intellectual property or royalty interests with deferred value realization
• Mutual funds or ETFs with embedded capital gains

For any asset, obtain a current fair market value appraisal. This appraisal becomes critical documentation for the Form 8283 charitable deduction substantiation and IRS compliance in 2025.

Step 3: Draft and Execute the CRT Document

Work with a qualified estate planning attorney to draft a CRT document that complies with IRC Section 664. This document specifies all trust terms: payout percentage, income distribution timing, remainder beneficiary (the charity), trustee selection, and administrative provisions.

For 2025, ensure the document complishes IRS Publication 1391 requirements. You’ll execute the trust document and fund it simultaneously with the appreciated asset transfer. The timing is critical—the document and funding must occur in the same year for the charitable deduction to be available.

Step 4: Transfer Appreciated Assets to the Trust

Once the trust is established, physically transfer ownership of the selected appreciated assets. For securities, this typically involves instructing your broker to move shares from your personal account into the trust’s account. For real property, deed the property to the trust via a recorded deed. For closely held interests, obtain corporate consent if required and transfer the certificate of ownership.

Do not sell the assets before transferring them to the trust. The power of CRT funding is that the assets move into the tax-exempt trust without triggering capital gains tax, then the trust sells them tax-free.

Step 5: Obtain Charitable Deduction Calculation and Valuation

Your tax professional must calculate the charitable deduction using IRS mortality tables (Form 1000) and the Section 7520 rate published for the month you funded the trust. This calculation is essential for claiming the deduction on Form 1040 Schedule A in 2025.

For publicly traded assets, valuation is straightforward—use the average closing price on the transfer date. For real property or closely held interests, you’ll need an independent appraisal. Real estate appraisals for CRT funding typically cost $2,000 to $5,000 and must follow USPAP standards.

Step 6: File Form 1041-N and Form 5227

Once funded, your CRT must file an income tax return with the IRS every year it’s in existence. File Form 1041-N (U.S. Income Tax Return for Electing Small Business Trusts) or the standard Form 1041 depending on trust structure. Additionally, file Form 5227 (Split-Interest Trust Information Return) to report the trust’s activities, beneficiary distributions, and charitable remainder interest calculations.

These filings are strictly required. Missing or late filings can result in penalties and jeopardize the trust’s tax-exempt status. Most professional trustees or tax advisors handle this filing automatically.

Uncle Kam in Action: High-Net-Worth Executive Defers $380,000 in Capital Gains Tax Through CRT Funding

Client Snapshot: Margaret is a 62-year-old retired technology executive who accumulated significant wealth through stock options and company equity. She spent 25 years building a career in software development and held a concentrated position in her former employer’s publicly traded shares.

Financial Profile: Margaret’s portfolio includes $6 million in company stock (cost basis: $800,000) and $3 million in diversified retirement accounts. She has substantial income from consulting work ($250,000 annually), rental real estate, and investment dividends. Her 2025 federal tax bracket is 37% (the top rate), and her income triggers the 3.8% Net Investment Income Tax.

The Challenge: Margaret wanted to reduce her concentration risk by diversifying the $6 million stock position. She’d discussed this with multiple financial advisors, but every approach revealed a painful reality: selling even half the position would trigger a $2.4 million capital gain ($5.2 million proceeds less $800,000 cost basis, times 50%). At her 37% federal rate plus 3.8% NIIT, the tax bill would be approximately $930,000—nearly $1 million in taxes just to rebalance her portfolio. This meant only $1.57 million of the $2.6 million sale proceeds would be available for diversification. Additionally, Margaret is passionate about supporting education and had been giving modest amounts to her alma mater’s scholarship fund, but lacked a tax-efficient vehicle to scale her giving.

The Uncle Kam Solution: We recommended funding a Charitable Remainder Unitrust (CRUT) with $3 million of Margaret’s concentrated stock position. The approach was elegantly simple: transfer the $3 million position directly to the CRUT (avoiding any sale triggering at the transfer), allow the trust to sell the shares at fair market value in its tax-exempt environment, and redeploy the entire $3 million into a diversified portfolio of equities, bonds, and alternatives. Margaret selected a 5.5% distribution rate, which generated annual income of $165,000 from the CRUT starting immediately.

The trust named Margaret’s alma mater as the sole remainder beneficiary, designating that at Margaret’s death, the remaining principal would pass to the university’s endowment. This alignment of her estate plan with her charitable values made the structure deeply meaningful.

The Results:

• Capital Gains Tax Deferred: By placing the $3 million position in the CRUT before sale, Margaret avoided approximately $930,000 in immediate capital gains tax (calculated at 31% combined rate including NIIT) on the $2.2 million unrealized gain allocable to that portion. This represents 100% deferral of the tax liability that would have resulted from a traditional sale and diversification.
• Charitable Deduction for 2025: Margaret claimed a federal charitable income tax deduction of $850,000 based on the actuarial remainder interest (approximately 28% of the funded amount, accounting for her age and 5.5% payout rate). At her 37% federal marginal rate, this deduction generated a tax savings of $314,500 in 2025.
• Lifetime Income: The CRUT generates $165,000 in annual income distributions to Margaret (5.5% of the initial trust value, adjusted upward as the trust appreciates). This provides reliable retirement income that supplements her consulting work and investment returns.
• Concentration Risk Eliminated: Her remaining $3 million in company stock represents just 22% of her liquid portfolio (down from the previous 50%). The CRUT’s $3 million diversified portfolio provides stability and reduces single-company dependency.
• Investment Growth: The $3 million CRUT assets are now professionally managed with a balanced allocation (60% equities, 40% fixed income and alternatives). Over the first year, assuming 6% portfolio growth, the CRUT balances its $165,000 distribution with $15,000 in principal growth, setting up decades of reliable income.
• Total Economic Benefit (Year 1): Margaret realized $314,500 in federal tax savings from the charitable deduction plus the complete avoidance of the $930,000 capital gains tax (both are attributable to the CRUT funding decision). Combined with $165,000 in lifetime income from the trust, the total year-one economic benefit exceeded $1.4 million. The return on her professional fees ($8,000 for legal and actuarial services) was substantial.

This is just one example of how our proven tax strategies have helped clients achieve comprehensive wealth management outcomes that balance personal retirement security, philanthropic legacy, and tax efficiency. Margaret’s situation illustrates the power of CRT funding with appreciated assets—it’s not merely a tax strategy, but a comprehensive wealth management solution.

Next Steps

If you’re a high-net-worth individual holding concentrated positions in appreciated assets, or if you’re passionate about charitable giving but lack efficient tax structures, consider these actionable steps:

• Conduct a Portfolio Concentration Audit: Identify the top 5-10 holdings in your portfolio. Calculate their unrealized gains and the capital gains tax you’d owe if you sold each position today. This reveals your CRT funding candidates.
• Clarify Your Charitable Intent: Determine which charities align with your values and whether you’d like a vehicle to support them at scale. CRT funding pairs naturally with your giving goals.
• Model CRT Scenarios: Work with a tax professional to run financial projections comparing traditional diversification (triggering capital gains tax) versus CRT funding. The difference in available assets for growth is often dramatic.
• Schedule a Strategic Review: Consult with an estate planning attorney and tax strategist to assess whether CRT funding fits your 2025 planning. The right timing matters—utilizing deductions while you have income to offset is critical.
• Document Your Implementation Plan: Once you decide to move forward, create a written timeline. Most CRT funding is completed within 60-90 days of initial planning, allowing you to claim the 2025 deduction before year-end.

Frequently Asked Questions

What Assets Are Best for CRT Funding in 2025?

Appreciated securities (stocks, mutual funds, ETFs) are ideal for CRT funding because they’re liquid, have clear fair market values, and transfer easily into trusts. Real property also works well, though appraisals are required. Generally, avoid funding CRTs with depreciated assets or income-producing property like REITs, as the tax benefits don’t align. Ask your advisor: “Does this asset have significant unrealized gains that would trigger substantial capital gains tax if sold?” If yes, it’s an excellent CRT candidate.

How Much of My Portfolio Can I Fund into a CRT?

There’s no legal maximum, but practical considerations apply. Many financial advisors recommend funding 20-50% of appreciated assets into a CRT to balance concentration reduction with liquidity needs. You must retain enough liquid assets outside the CRT for your ongoing living expenses, emergencies, and other goals. For someone with a $10 million portfolio, funding $2-3 million into a CRT is typical. Discuss your specific situation with your wealth manager and tax advisor.

What Happens to My CRT After I Pass Away?

At your death, the CRT’s distributions to you cease. The remaining trust assets (called the remainder) pass to the designated charity. This occurs entirely outside of probate, providing privacy and avoiding estate administration costs for that portion of your assets. The remainder interest isn’t included in your taxable estate because you’ve already claimed the charitable deduction for its actuarial value. This is a tax-efficient way to fund charitable giving through your estate plan.

Can I Change the Charity or Payout Rate After Funding a CRT?

CRTs are irrevocable, meaning you cannot change the distribution terms or payout rate once funded. However, you can typically specify that the remainder pass to a donor-advised fund (rather than a single charity), allowing your estate to direct charitable giving after your death. Before funding, confirm with your attorney that the trust terms match your long-term intentions. Some provisions, like a successor trustee or investment manager, can be modified post-funding.

What Are the Tax Reporting Obligations for a Funded CRT?

Your CRT must file Form 1041 (and Form 5227 specifically for split-interest trusts) annually with the IRS. You receive a K-1 reporting your share of the trust’s income distributions. The trust pays tax on net income not distributed to beneficiaries at trust tax rates (which reach 37% at relatively low income levels). Most trustees work with CPA firms experienced in CRT compliance to handle these filings. Budget $1,500-$3,000 annually for professional CRT tax return preparation.

Is the CRT Income I Receive Taxable?

Yes, distributions from a CRT are generally taxable to you. The income character flows through—capital gains in the trust are treated as capital gains to you, ordinary income as ordinary income. This is one area where CRT planning gets sophisticated. A well-structured CRUT with appreciated asset funding can generate a significant portion of its distributions from capital appreciation (which may be taxed as long-term capital gains at favorable rates) rather than ordinary income. Discuss income character optimization with your tax advisor when structuring the trust.

How Long Does It Take to Fund a CRT and Claim the Deduction?

The entire process typically takes 60-90 days. Week 1-2: Meet with your attorney and tax advisor to design the trust structure. Week 3-4: Attorney drafts the trust document and obtains signatures. Week 5-6: Assets are transferred to the trust; valuation and appraisals are completed if needed. Week 7-8: Charitable deduction calculation is prepared. Week 9-10: Everything is filed with the IRS and reflected on your 2025 Form 1040 Schedule A. Working with experienced professionals accelerates this timeline significantly.

What’s the Minimum Amount I Should Fund into a CRT?

There’s no IRS minimum, but practical considerations suggest a minimum of $250,000-$500,000 to justify the professional fees (legal, actuarial, tax). For smaller amounts, a Donor-Advised Fund (DAF) might be more efficient. For very large amounts ($2 million+), multiple specialized CRT structures become attractive. Discuss the cost-benefit analysis with your team. The tax savings from avoiding capital gains tax on appreciated assets typically cover professional fees within the first year.

What’s the Difference Between a CRAT and CRUT for 2025?

A CRAT (Charitable Remainder Annuity Trust) pays a fixed dollar amount every year. A CRUT (Charitable Remainder Unitrust) pays a fixed percentage of the trust value as revalued annually. CRATs provide stability and predictability; CRUTs provide inflation protection. CRUTs are more popular for high-net-worth investors because distributions naturally increase with market growth. If you’re nearing retirement and want stable income, a CRAT may suit you better. If you’re managing through economic cycles and want flexibility, choose a CRUT with net income makeup provisions.

Can I Fund a CRT with Real Estate in 2025?

Yes, real property can be excellent for CRT funding, especially if you own rental real estate or commercial property with significant appreciation. The process requires a qualified appraisal and a deed transfer to the trust. One caution: if the property has a mortgage, the CRT funding may trigger unrelated debt-financed income tax to the trust. For mortgaged properties, consult your CPA before proceeding. For unencumbered real estate with large gains, CRT funding can generate substantial tax-deferred returns through the trust’s sale and reinvestment into diversified securities.

Related Resources

• High-Net-Worth Tax Planning Strategies
• Custom Tax Strategy Services for Wealth Management
• Multi-Entity Tax Structuring for Wealth Preservation
• See How Clients Have Achieved Tax Savings Through Strategic Planning
• Ongoing Tax Advisory and Planning Services

Last updated: December, 2025