Charitable Remainder Unitrust · Promissory Note Strategy · Wealth Preservation
A promissory loan repayment generates $1,160,000 in interest income. Without a strategic structure, nearly half disappears to the IRS.
Total estimated federal + state tax liability
A CRUT is an irrevocable, tax-exempt "split-interest" trust under IRC §664. It splits your asset between two beneficiaries: you (income for life or term) and charity (the remainder).
Immediate deduction based on present value of charity's future remainder — up to 35¢/dollar (2026 OBBBA), 60% AGI limit, 5-year carryforward.
Receive ≥5% of trust's annual value as personal payout. As trust grows, your payout grows too — a self-increasing income engine.
The CRUT is a tax-exempt entity. All interest, dividends, and gains compound at 100% — eliminating the 40.8% "tax drag" every single year.
Funds CRUT with promissory note or cash interest income
Tax-exempt entity. Invests & compounds 100% of earnings tax-free
Annual payout ≥5% of trust value. Grows as trust value grows.
Receives trust remainder. Also receives CRUT loan for mission capital.
One structure. Three simultaneous benefits. No trade-offs between tax savings, personal wealth, and charitable impact.
The Tax Drag Advantage: When the CRUT earns $92,800 in interest (8% on $1.16M), it keeps the full amount. A personal brokerage account retains only ~$55,000 after 40.8% taxes. That's $37,800 extra per year compounding inside the trust — year after year.
The most powerful version: the CRUT itself issues a market-rate loan to an independent 501(c)(3). Charity gets capital; trust earns tax-free interest that compounds for your benefit.
Transfer $1.16M → immediate tax deduction triggered
Arms-length, market-rate loan to independent 501(c)(3) with collateral
Funds real estate, endowment, or mission project. Pays interest to CRUT.
CRUT retains 100% of interest. 5% payout grows as trust grows annually.
Since the 501(c)(3) is independent, the harshest self-dealing rules don't apply. But these five safeguards are mandatory:
Market Interest Rate — Loan rate must match AFR + spread. Below-market rate violates fiduciary duty to charity remainder beneficiary.
Collateral Required — Fiduciary duty demands securing the loan with real property, accounts, or tangible assets to protect trust principal.
Annual Independent Appraisal — Private notes have no market price. IRS requires third-party annual valuation for Form 5227.
No UBTI Contamination — Avoid debt-financed investments inside the CRUT. Unrelated Business Income destroys tax-exempt status.
No Disqualified Persons — Cannot lend to self, spouse, parents, children, or controlled entities. Must be truly independent borrower.
| Metric | No Strategy | CRUT Strategy | Advantage |
|---|---|---|---|
| Federal Tax Year 1 | −$450,000+ | ~$0–$50K | Save $400K+ |
| Net Cash Retained (Yr 1) | $628,720 | $1,102,000+ | +$473K |
| Annual Personal Income | $0 | $58K–$93K | New stream |
| Trust Value (Year 5) | — | ~$1.42M | +22% growth |
| Trust Value (Year 10) | — | ~$1.86M | +60% growth |
| Year 10 Annual Payout | — | ~$93,000 | +60% vs Yr1 |
| 10-Yr Cumulative Payout | — | ~$720,000 | Pure income |
| Tax Rate on Growth | 40.8%/yr | 0% (exempt) | 40.8% edge |
The Charitable Remainder Unitrust is the only IRS-recognized vehicle that simultaneously eliminates the tax bill, preserves a personal income stream, enables tax-free compounding, and creates meaningful charitable impact — all in one structure.