How Missouri and Illinois Families Can Reduce Taxes Today With a CRAT or CRUT
At Crowder & Scoggins, we often work with families who want their estate plan to create a legacy—not only for their loved ones, but also for the charitable causes they care about. What many people do not realize is that a properly structured charitable trust can also create significant tax benefits during life, not just after death.
Whether you’re preparing for retirement, planning to sell an appreciated asset, or simply looking for ways to reduce your income tax burden, a charitable trust may be one of the most effective tools available in modern estate planning.
Below, we explain how charitable trusts work and the powerful immediate tax advantages available to individuals and families in Missouri and Illinois.
What Is a Charitable Trust? (CRAT vs. CRUT)
A “charitable remainder trust” (CRT) is a type of irrevocable trust that allows you to receive income for life (or a term of years), while ensuring a charitable organization ultimately receives the remaining trust assets.
There are two primary options:
1. Charitable Remainder Annuity Trust (CRAT)
- Pays a fixed dollar amount each year
- Payment never changes
- Charity receives whatever remains at the end of the trust term
2. Charitable Remainder Unitrust (CRUT)
- Pays a fixed percentage of the trust’s value each year
- Payments rise or fall based on investment performance
- Offers flexibility and potential inflation protection
Both are “split-interest” trusts:
you receive the income now, and the charity receives the remainder later.
Tax Benefit #1: An Immediate Income Tax Deduction
When you fund a CRAT or CRUT, you receive an up-front charitable income tax deduction—even though the charitable organization won’t receive the money until years later.
The deduction is calculated based on:
- The expected remainder value passing to charity
- Your age
- The trust design and payout percentage
- The IRS §7520 rate at the time of funding
What This Means for You
You may be able to deduct tens or even hundreds of thousands of dollars from your taxable income in the year you establish the trust.
You may generally deduct:
- Up to 30% of your AGI for appreciated assets, with
- A 5-year carryover for any unused deduction
This is one of the most advantageous current-year tax planning tools available.
Tax Benefit #2: Avoiding Capital Gains on Appreciated Assets
Many clients come to Crowder & Scoggins with:
- Highly appreciated stock
- Farmland with a low basis
- Rental real estate
- A business interest they plan to sell
- Cryptocurrency with large unrealized gains
If you sell these assets outright, you may face a substantial capital gains tax bill.
However, if the asset is first placed into a charitable trust:
✔ The trust can sell the asset without triggering immediate capital gains tax
✔ 100% of the sale proceeds remain inside the trust to generate income
✔ Your income payments are based on the full, untaxed value of the asset
Example
You own $750,000 of stock with a $150,000 basis.
- Selling outright: you could owe around $100,000 in capital gains tax
- Funding a CRUT: $0 in capital gains tax at the time of sale
This allows your money to work harder for you—while also supporting a charity of your choosing.
Tax Benefit #3: Removing Assets From Your Taxable Estate
Once assets are transferred into a charitable trust, they are generally removed from your taxable estate.
This matters because:
- The federal estate tax exemption is scheduled to drop in 2026
- Families with life insurance, retirement assets, and real estate may unexpectedly find themselves in taxable territory
- Missouri and Illinois families with business and farm assets can be hit particularly hard
A charitable trust is a proactive way to reduce or eliminate future estate tax exposure while you’re still alive and planning.
Tax Benefit #4: A Reliable, Tax-Efficient Income Stream
Many families are surprised to learn that a charitable trust can actually improve their cash flow compared to selling an asset outright.
Benefits include:
- Income based on the full, untaxed value of contributed assets
- Internal, tax-deferred growth within the trust
- Flexible payout structures (especially with a CRUT)
- The ability to pair the trust with life insurance to “replace” the charitable gift for your heirs
This creates a strategy where:
- You receive steady income today
- Your family receives an inheritance
- Your preferred charity receives a future gift
It is one of the few planning tools that achieves all three objectives simultaneously.
Tax Benefit #5: Reduced Medicare Premiums and Other AGI-Linked Taxes
Because a charitable trust generates an immediate income tax deduction, it can reduce your adjusted gross income (AGI) for the year the trust is funded and any carryover years.
This can help lower:
- Medicare IRMAA surcharges
- Taxable Social Security benefits
- AGI-based phaseouts and credit limitations
For retirees, these reductions can add up to significant annual savings.
When a Charitable Trust Makes Sense
A CRAT or CRUT is especially beneficial if you have:
✔ Appreciated stock or real estate
✔ A business interest you intend to sell
✔ A large IRA or retirement account
✔ A desire to leave a charitable legacy
✔ Concerns about the 2026 estate tax changes
✔ A significant income year (bonus, stock vesting, asset sale)
For Missouri and Illinois families who want to reduce taxes now and create long-term impact, a charitable trust can be an exceptionally powerful estate planning tool.
Crowder & Scoggins Can Help You Evaluate Your Options
Because charitable trusts involve a mix of tax law, estate planning, and financial analysis, it’s important to work with attorneys who regularly structure these types of trusts for clients.
Crowder & Scoggins assists clients throughout:
- Monroe County
- St. Clair County
- Madison County
- And the greater Metro East
Our attorneys can help you determine:
- Whether a CRAT or CRUT is appropriate for your goals
- The deductions you may qualify for
- Strategies to protect your family while maximizing tax benefits
- How a charitable trust might integrate with your overall estate plan
No responses yet