How a Charitable Remainder Unitrust Works for New York Donors

Reviewed by Albert Goodwin, Esq., a New York estate and trust attorney admitted in New York and Florida and a member of the New York State Bar Association. This article focuses on how a Charitable Remainder Unitrust (CRUT) interacts with New York's estate tax “cliff” and how New York donors with appreciated assets actually use these trusts. Last updated for 2025.

A Charitable Remainder Unitrust (CRUT) is an irrevocable, split-interest trust under Internal Revenue Code § 664(d)(2) that lets a New York donor turn a highly appreciated, low-basis asset into a lifetime income stream while delivering an eventual gift to charity. For New Yorkers, the planning conversation is rarely just about the income tax deduction. It is just as often about the New York estate tax cliff under NY Tax Law § 952, which can tax an entire estate — not just the excess — once it grows slightly past the New York exclusion amount.

This page is written for that New York context. Below we walk through how the deduction is actually calculated with the current Section 7520 rate, a worked New York estate-tax cliff example, a Flip CRUT scenario built around NYC real estate, and how a CRUT compares to a CRAT and other vehicles. For the related fixed-payment vehicle, see our discussion of advanced New York estate planning techniques and charitable bequests by will.

What Makes a CRUT Different From a CRAT

The single most important distinction for a New York donor is how the income is measured:

• A CRAT (annuity trust) pays a fixed dollar amount set at funding and frozen for the life of the trust.
• A CRUT (unitrust) pays a fixed percentage — at least 5% and no more than 50% — of the trust assets revalued every year.

Because the CRUT revalues annually, the payout (and the donor's income) rises and falls with the portfolio. That gives the CRUT two practical advantages a CRAT lacks: an inflation hedge, and the ability to accept additional contributions after creation. A CRAT can never be added to. For many New York clients with multiple appreciated positions to unwind over time, this flexibility is decisive.

Core Section 664 Requirements (all must be satisfied)

• Annual payout of at least 5% but not more than 50% of the trust assets, revalued each year.
• The present value of the charitable remainder must be at least 10% of the value of property contributed (IRC § 664(d)(2)(D)).
• The remainder must pass to one or more organizations qualified under IRC § 170(c).
• Payments run for the life of one or more individuals living at creation, or for a fixed term of up to 20 years.
• The trust is irrevocable.

How the Charitable Deduction Is Actually Calculated

The donor's income tax deduction equals the present value of the charitable remainder interest, computed with IRS actuarial tables and the Section 7520 rate in effect for the month of funding (or one of the two prior months, donor's choice). The 7520 rate changes monthly; for example, it has hovered in the range of roughly 4.5%–5.5% during 2024–2025, well above the historic lows of a few years ago. A higher 7520 rate generally produces a larger remainder deduction for a CRUT, which makes current rates relatively favorable for unitrust planning.

Illustrative deduction example

Suppose a 65-year-old Manhattan donor funds a standard CRUT with $1,000,000 of appreciated publicly traded stock, choosing a 5% payout for her life. Using IRS Publication 1457 factors and an assumed 7520 rate in the mid-5% range, the present value of the charitable remainder would commonly fall in the neighborhood of $400,000–$450,000 — comfortably above the required 10% minimum — producing a charitable income tax deduction of roughly that amount, subject to AGI limits.

The deduction is capped by AGI limitation rules: generally 30% of AGI for gifts of appreciated long-term capital gain property to public charities (60% for cash), with a five-year carryforward of any unused deduction. These figures are illustrative only; the actual number depends on the donor's exact age, payout rate, term, and the 7520 rate in the funding month. We model the real numbers with your accountant before you commit.

The New York Estate Tax “Cliff” — Worked Example

This is where New York planning diverges sharply from federal-only analysis. New York has its own estate tax (NY Tax Law Article 26) that is decoupled from the federal system and is far less forgiving. The New York basic exclusion amount for 2025 is approximately $7.16 million per person, indexed for inflation. Critically, the exclusion is phased out between 100% and 105% of that amount. Once a New York taxable estate exceeds 105% of the exclusion, the exclusion disappears entirely and the estate is taxed on the whole amount from the first dollar. Estates in the phase-out band can face an effective marginal rate well above 100% on the dollars inside the cliff.

Cliff illustration

Assume the 2025 exclusion is $7.16 million, so 105% is roughly $7.52 million. A New York decedent with a $7.4 million estate is inside the cliff zone: a relatively small reduction in the taxable estate — for instance, moving $300,000 of value out via lifetime planning — can drop the estate back under the exclusion and eliminate New York estate tax that would otherwise apply to far more than the $300,000 moved. A CRUT contribution permanently removes the contributed asset from the donor's gross estate (apart from any retained interest passing to a non-spouse), which can be exactly the tool that pulls a borderline New York estate back below the cliff. Because the figures are indexed annually, we verify the current exclusion at the time of planning.

Flip CRUT for NYC Real Estate — A Common New York Scenario

Illiquid New York real estate is one of the most frequent reasons New York donors choose a CRUT structured as a Flip CRUT. Consider a frequently seen pattern (described in general terms, not a guaranteed result): a couple owns a Brooklyn investment building bought decades ago for $400,000 that is now worth $3 million. Selling it outright would trigger New York State and City taxes on top of federal capital gains on $2.6 million of appreciation.

Instead, the building can be contributed to a Flip CRUT that begins as a net-income-with-makeup unitrust (NIMCRUT) and “flips” to a standard unitrust on the first day of the year following the sale of the property. Because the trust — not the donor — holds the building at sale, the gain is realized inside a tax-exempt trust and the full pre-tax proceeds can be reinvested for the income beneficiaries. The donor receives a current charitable deduction for the remainder value and an income stream for life.

The critical New York caveat: there must be no pre-arranged, binding sale in place when the property is transferred, or the IRS will attribute the gain to the donor under the step-transaction doctrine. Mortgaged real estate raises additional unrelated business taxable income (UBTI) and self-dealing concerns under IRC §§ 512 and 4941 and frequently must be restructured before contribution. These are the issues that make experienced drafting and pre-funding due diligence essential.

Types of CRUTs and When Each Fits

Standard CRUT

Pays the fixed percentage of annually revalued assets regardless of income; principal is invaded if income falls short. Best for liquid, income-producing portfolios.

Net Income CRUT (NICRUT)

Pays the lesser of the unitrust percentage or actual net income. Useful when funded with non-income-producing assets such as raw land or closely held stock.

Net Income with Makeup CRUT (NIMCRUT)

Like a NICRUT, but shortfalls in lean years can be made up in later high-income years. Often used by professionals and business owners as a supplemental retirement vehicle.

Flip CRUT

Starts as a NICRUT/NIMCRUT and converts to a standard CRUT upon a defined triggering event — typically the sale of illiquid property. The dominant choice for New York real estate and closely held business interests.

Which Assets Fund a CRUT Well — and Which Cause Problems

• Publicly traded appreciated securities — the cleanest funding asset, with readily ascertainable value.
• C corporation stock and certain LLC interests — workable; S corporation stock cannot be held by a CRUT without terminating the S election, so it must be addressed before funding.
• Unencumbered New York real estate — strong fit for a Flip CRUT, provided there is no pre-arranged sale.
• Pre-IPO stock — funding before a liquidity event can be highly efficient.
• Art and collectibles — possible, but deduction timing and “related use” rules require care.

Mortgaged real estate, S corporation stock, and debt-financed partnership interests can generate UBTI or self-dealing problems that defeat the trust's tax exemption. Non-cash gifts other than publicly traded securities generally require a qualified appraisal under Treasury Reg. § 1.170A-17 to support the deduction.

Who Should Consider a CRUT in New York

• Owners of highly appreciated, low-basis assets facing large capital gains on sale.
• New York residents whose estates sit near or inside the New York estate-tax cliff.
• Business owners contemplating the sale of a closely held company.
• Individuals approaching retirement who want a charitable gift and a supplemental income stream.
• High-income taxpayers seeking a meaningful current-year charitable deduction with a five-year carryforward.

Choosing a Trustee Under New York Law

The trustee handles annual revaluation, distribution math, investment management under the New York Prudent Investor Act, and tax filings. Options include the donor (with limits for hard-to-value assets), a New York bank or trust company, the remainder charity itself (many large New York institutions will serve, sometimes at no cost), or co-trustees combining individual control with professional administration. New York trust administration is governed by the Estates, Powers and Trusts Law (EPTL), and the New York Attorney General's Charities Bureau may have an interest in modifications affecting the charitable remainder.

Common Pitfalls We Help New York Clients Avoid

• Failing the 10% remainder test or the 5% probability-of-exhaustion test, which voids the trust from inception.
• Pre-arranged sales of contributed property, triggering capital gains attribution to the donor.
• Contributing S corporation stock or mortgaged real estate without restructuring first.
• Inadequate qualified appraisals for non-cash contributions.
• Self-dealing under IRC § 4941, or improper trustee-fee arrangements.
• Missing the annual Form 5227 filing or issuing incorrect K-1s to beneficiaries.

CRUT Compared to Other Charitable Vehicles

• CRAT — fixed payments; no additional contributions allowed. See our overview within advanced New York estate planning techniques.
• Charitable Lead Trust — the inverse: charity is paid first, remainder to family; used to transfer wealth at reduced gift-tax cost.
• Donor-Advised Fund — simpler and cheaper, but provides no income stream to the donor.
• Private Foundation — maximum family control and legacy, with higher cost and lower deduction limits.
• Charitable bequest by will — a deferred option with no lifetime income or deduction; see charitable wills in New York.

Frequently Asked Questions

What is the difference between a CRUT and a CRAT?

A CRAT pays a fixed dollar amount frozen at funding; a CRUT pays a fixed percentage of assets revalued every year, so the income fluctuates. Only a CRUT can receive additional contributions after it is created, and only a CRUT offers a built-in inflation hedge.

Can S corporation stock fund a CRUT?

No. A CRUT is not a permitted S corporation shareholder, so contributing S corporation stock would terminate the company's S election. The stock generally must be addressed or restructured before any CRUT funding.

What is the New York estate tax cliff threshold?

For 2025 the New York basic exclusion is approximately $7.16 million, indexed annually. The exclusion phases out between 100% and 105% of that amount; once the New York taxable estate exceeds about 105% of the exclusion, the exclusion is lost entirely and the whole estate is taxed. We confirm the current figure at the time of planning.

Does a CRUT reduce New York estate tax?

Yes, potentially. Assets contributed to a CRUT are removed from the donor's gross estate (apart from any retained interest passing to a non-spouse). For an estate sitting just inside the cliff, that reduction can eliminate New York estate tax on far more than the value transferred.

How is the income from a CRUT taxed?

Distributions carry out income to the beneficiary under the four-tier accounting system of IRC § 664 — ordinary income first, then capital gain, then other income, then tax-free return of corpus. New York generally conforms to this characterization for state income tax purposes.

Can I serve as trustee of my own CRUT?

Often yes, but where the trust holds hard-to-value assets, an independent party may be required to perform the annual valuations, and self-dealing rules under IRC § 4941 strictly limit transactions between you and the trust.

Speak With a New York Charitable Planning Attorney

If you are contemplating the sale of an appreciated asset, planning for retirement, or trying to pull a borderline estate back under the New York estate-tax cliff, a CRUT may fit — or another vehicle may serve you better. We model the actual deduction, income, and remainder figures with your accountant and financial advisor before any commitment, and we draft to the strict requirements of IRC § 664, the Treasury Regulations, and New York's EPTL and Prudent Investor Act.

To discuss your assets, family situation, and charitable goals, contact our New York office at 212-233-1233 or by email at [email protected].

This article is provided for general informational purposes and does not constitute legal or tax advice. Tax figures, exclusion amounts, and the Section 7520 rate change frequently; verify current numbers with counsel before acting.