Quick answer
What is the difference between a charitable lead trust and a remainder trust?
A charitable remainder trust pays you an income stream for life or up to 20 years, and charity gets what is left. A charitable lead trust reverses that: charity is paid first, and the remainder goes to your heirs or back to you. CRTs suit sellers of appreciated stock who want income; CLTs suit families moving wealth to heirs.
Key takeaways
- 01CRT: you get the income stream, charity gets the remainder.
- 02CLT: charity gets the income stream, your heirs get the remainder.
- 03A CRT's remainder must be worth at least 10% of the contribution, and a CRAT must also pass the 5% probability test.
- 04CRT payouts are taxed under the four-tier system: gain is deferred and spread, not erased.
| CRT term | Life, or up to 20 years |
|---|---|
| CRT payout | 5% to 50% a year |
| Remainder test | At least 10% to charity |
| CLT term | No limit |
| Key rate | Section 7520 rate for the month of the gift or either prior month |
| Annual filing | Form 5227 |
The Short Answer
What is the difference between a charitable lead trust and a remainder trust?
A charitable remainder trust (CRT) pays you (or other non-charitable beneficiaries) an income stream for life or up to 20 years, and charity receives what is left. A charitable lead trust (CLT) flips it: charity receives the income stream first, and the remainder passes to your heirs or back to you. CRTs suit sellers of appreciated stock who want income; CLTs suit families moving wealth to heirs at a low gift-tax cost.
This article is part of our guide to donating appreciated stock. If you are weighing a CRT against keeping your shares, read CRT vs Embark; for the simpler route, see donor-advised funds for appreciated stock.
| Feature | Charitable Remainder Trust (CRAT / CRUT) | Charitable Lead Trust (CLAT / CLUT) |
|---|---|---|
| Who gets the income stream | You or named individuals | One or more charities |
| Who gets the remainder | Charity | Your heirs (non-grantor) or you (grantor) |
| Term | Life(s) or a term of up to 20 years | Any term of years or life(s); no 20-year cap |
| Payout limits | 5% to 50% per year | No statutory minimum or maximum |
| Trust's own tax status | Exempt from income tax (§664); 100% excise tax on UBTI | Taxable trust (non-grantor) or taxed to you (grantor) |
| Sells your stock tax-free inside the trust? | Yes; gain is deferred and flows out through the tiers | No; a CLT's gains are taxable |
| Main tax payoff | Income tax deduction for the remainder + no tax at sale | Gift/estate tax deduction for the lead interest (or income tax deduction if grantor) |
The Four Types
CRAT vs CRUT vs CLAT vs CLUT: annuity or unitrust?
Each trust comes in two flavours. An annuity trust pays a fixed dollar amount set on day one. A unitrust pays a fixed percentage of the trust's value, revalued every year. The choice decides who carries investment risk.
| Type | How the payout works | Who it suits |
|---|---|---|
| CRAT | Fixed dollar annuity, 5–50% of the initial value; no additional contributions | Older donors who want certainty and accept that growth goes to charity |
| CRUT | Fixed % (5–50%) of each year's value; additional contributions allowed; NIMCRUT/FLIP variants for illiquid assets | Donors who want the payout to grow with the portfolio |
| CLAT | Fixed annuity to charity; can be 'zeroed out' so the taxable gift is near $0 | Families moving growth to heirs when they expect returns above the §7520 rate |
| CLUT | Fixed % of each year's value to charity | Donors who want charity to share in growth; less efficient for transfer to heirs |
"Annuity trusts reward growth above the §7520 rate to whoever holds the remainder. Unitrusts share growth with whoever holds the income stream."
Run Your Numbers
How much income and deduction would a CRT give you?
The charitable deduction for a CRT equals the present value of what charity is expected to receive. For a term-of-years trust that depends on the payout rate, the term and the §7520 rate. The calculator below uses simplified formulas: CRUT remainder ≈ (1 − payout)years; CRAT remainder = 1 − payout × annuity factor at the §7520 rate. The IRS tables in Publication 1457/1458 add timing adjustments, so your attorney's figure will differ.
Calculator
CRT income and estimated deduction
Enter the stock you would contribute, the payout rate, the term (max 20 years) and the §7520 rate for the month of the gift (5.6% for October 2026).
Year-1 payout to you
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Est. CRUT deduction
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Est. CRAT deduction
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Illustrative only; not tax advice. Simplified present-value math that ignores IRS payment-timing adjustment factors, the 10% remainder test and the 5% probability test. Your deduction is also subject to the 30%-of-AGI limit for appreciated stock to a CRT, the 2026 0.5%-of-AGI floor and the 35% benefit cap for top-bracket filers. Use a qualified attorney's IRS-table calculation before funding.
Chart
Estimated CRUT deduction on $2M over 20 years, by payout rate
The IRS Tests
What are the 10% remainder test and the 5% probability test?
The 10% remainder test (CRATs and CRUTs)
Under IRC §664(d)(1)(D) and (d)(2)(D), the present value of the charity's remainder must be at least 10% of the value put into the trust, measured on the contribution date. High payouts, long terms and young beneficiaries all push a trust below 10%. A CRUT that fails can sometimes be fixed by a qualified reformation; a CRAT that fails is simply not a CRT.
The 5% probability test (CRATs only)
Rev. Rul. 77-374 disallows the deduction for a life-based CRAT if there is more than a 5% probability the fixed annuity will exhaust the trust before the beneficiary dies. Because the test is computed at the §7520 rate, it bites hardest when rates are low. Rev. Proc. 2016-42 offers a sample early-termination provision that lets a CRAT avoid the test. CRUTs are exempt because a percentage payout can never empty the trust.
The 5%–50% payout band
Every CRT must pay at least 5% and no more than 50% each year. CLTs have no such band, which is why a CLAT can be designed to 'zero out'.
Rates move every month.: The §7520 rate is 120% of the federal mid-term AFR, rounded to the nearest 0.2%. It was 5.6% for October 2026 (IRS Rev. Rul. 2026-19). You may elect the rate for the month of the gift or either of the two prior months. Higher rates increase CRAT deductions and make the 5% test easier, and reduce the gift-tax deduction for a CLAT.
Chart
Estimated CRAT deduction on $2M (6% payout, 20 years) by §7520 rate
Where Embark fits
A trust gives the remainder or the income away. Price the version where you keep both.
CRTs and CLTs are irrevocable. Enter your ticker and see what the same shares could target in income if you keep them.
- Split-interest trusts are irrevocable; Embark keeps the position yours
- Both avoid an immediate capital-gains hit at transfer; §721 contribution is $0 tax
- Targets 10%+ annual income without a 5%–50% payout rule or a 10% remainder test
Run the numbers
Live prices · takes under a minute · no obligation
How Payouts Are Taxed
How is CRT income taxed under the four-tier system?
A CRT pays no tax when it sells your stock, but the gain does not disappear. Under §664(b) every distribution is characterised in a fixed order, using the trust's cumulative history, so the deferred gain reaches you as the trust pays out:
Ordinary income
Current and undistributed interest, non-qualified dividends and other ordinary income come out first, taxed at up to 37% plus 3.8% NIIT. Qualified dividends are carried within this tier at their lower rate.
Capital gains
Next comes capital gain, short-term first, then long-term. This is where the gain on the stock you contributed lands: a large one-time sale can feed tier 2 for many years.
Other income
Tax-exempt income such as municipal bond interest.
Return of corpus
Tax-free only once all ordinary, capital gain and exempt income has been distributed.
In practice, a trust funded with low-basis stock pays out mostly long-term capital gain for years. The gain is deferred and spread out, not eliminated. Compare this with an outright gift, which removes the gain entirely, covered in charitable deduction limits for 2026.
Lead Trusts
Grantor or non-grantor CLT: which one fits?
| Feature | Grantor CLT | Non-grantor CLT |
|---|---|---|
| Upfront deduction | Income tax deduction for the PV of charity's lead interest in year one (30%-of-AGI limit for gifts 'for the use of' charity) | No personal income tax deduction; gift/estate tax deduction for the lead interest |
| Who pays tax on trust income | You, every year, with no further deduction | The trust, which takes an unlimited §642(c) deduction for amounts paid to charity |
| Recapture | Yes, if you die or lose grantor status early | None |
| Typical use | A large income year (liquidity event, RSU vest) needing a big deduction now | Passing growth to children or grandchildren at a reduced gift-tax cost |
A zeroed-out CLAT pays charity an annuity whose present value at the §7520 rate equals the contribution, so the taxable gift to heirs is close to zero. If the trust earns more than the §7520 rate, the excess passes to heirs gift-tax-free. With the rate at 5.6%, that hurdle is higher than it was in 2020–2021. See estate planning with concentrated stock.
Do
- Use a CRT when you want lifetime income, have real charitable intent, and need to diversify a low-basis position
- Use a CRUT for a stock you expect to grow, and a CRAT if you want a fixed check
- Use a non-grantor CLAT to move expected growth to heirs
- Run the 10% and 5% tests before you sign
Don't
- Don't fund a CRT with stock under a binding sale agreement; the gain can be taxed to you (assignment of income)
- Don't expect a CLT to sell your stock tax-free; it isn't tax-exempt
- Don't ignore the fees and Form 5227 filings every year
- Don't treat the trust as reversible; it is not
If You Want Income, Not a Gift
Where Embark fits next to a split-interest trust
Both trusts are irrevocable. If your real goal is income from a concentrated position and charity is secondary, there is a different route: Embark contributes your shares in kind to an SPV under Section 721, so there is $0 tax at contribution, targets 10%+ annual income, and keeps your upside. It is for accredited investors, income is targeted rather than guaranteed, contributed shares have a 3-year lock-up, and it provides no charitable deduction. Many families split a position: give part through a CRT or DAF and keep the rest working. Then use the donate vs sell vs keep checklist to divide it.
FAQ
Frequently asked questions
What is the Section 7520 rate for October 2026?
5.6%, according to IRS Rev. Rul. 2026-19. For a split-interest gift you may use the rate for the month of the gift or either of the two prior months, whichever is most favourable.
Can a CRT last longer than 20 years?
Only if it is measured by lives. A term-of-years CRT is capped at 20 years. CLTs have no term limit.
Does a CRT avoid capital gains tax?
The trust pays no tax when it sells. You pay tax as distributions carry the gain out under the four-tier rules, so the tax is deferred and spread out rather than avoided.
Why would anyone choose a CLAT over a CRT?
A CLAT is a wealth-transfer tool. Charity is paid first, and appreciation above the §7520 rate passes to heirs with little or no gift tax. It suits donors who don't need the income.
Can I contribute restricted or private stock to a CRT?
Sometimes, but the deduction is generally limited to basis for non-publicly-traded stock given to a private-foundation-type remainder, a qualified appraisal is required, and illiquid assets often call for a NIMCRUT or FLIP design. See donating restricted or private stock.
Can I be the trustee of my own CRT?
Often yes, though many donors use an independent trustee for hard-to-value assets so the trust's valuations stand up to scrutiny.
Can a CRT hold my concentrated stock and diversify it?
Yes. That is the classic use: the trust sells inside its tax-exempt wrapper and reinvests, while you receive payouts.
What happens if a CRT fails the 10% test?
It does not qualify as a CRT, so there is no deduction and no tax exemption. Shorten the term or lower the payout until it passes.
Sources
Primary sources
Sources
Cite this article
Embark Funds Research. “Charitable Lead Trust vs. Remainder Trust.” Embark Funds, updated October 15, 2026. https://www.embarkfunds.com/insights/charitable-lead-trust-vs-remainder-trust
Not tax, legal or securities advice: This article is educational. Charitable, securities and tax rules depend on your facts and your company's policies. Work with a CPA, an estate attorney and, for insiders, securities counsel before acting. Embark income figures are targets, not guarantees, and contributed shares have a 3-year lock-up.
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Want the Income Stream Without Giving Away the Remainder?
CRTs and CLTs are irrevocable. Embark contributes your concentrated stock to an SPV in a §721 in-kind partnership contribution, $0 tax at contribution, and targets 10%+ annual income while you keep the upside. Accredited investors only; income is targeted, not guaranteed, and contributed shares have a 3-year lock-up.