From Kiplinger · · 3m
Stop Hoarding Retirement Savings With a CRUT
Wealthy retirees often spend far less than they can afford. A charitable remainder trust can turn longevity from a risk into an advantage.
In brief
Wealthy retirees often spend far less than they can afford. A charitable remainder trust can turn longevity from a risk into an advantage. A CRUT lets you receive lifetime income from appreciated assets while getting a tax deduction and eventually supporting charity, turning the fear of outliving your money into a…
Quick answers
- What is a CRUT?
- A charitable remainder unitrust lets you transfer appreciated property to an irrevocable trust. The trust sells and reinvests without paying capital gains tax, then pays you a percentage of assets annually for life.
- What is the key takeaway from Stop Hoarding Retirement Savings With a CRUT?
- A CRUT lets you receive lifetime income from appreciated assets while getting a tax deduction and eventually supporting charity, turning the fear of outliving your money into a potential benefit.
The underspending problem
Retirees, especially wealthy ones, draw down savings slowly and often die with substantial wealth remaining. Research shows they consume only about 80% of lifetime income but just half of available savings.
Why people underspend
Retirees withdraw only 2.1% from savings annually, far below the 4% rule. People spend income more readily than savings because a pension check feels renewable, while a brokerage withdrawal feels like depletion.
Longevity anxiety drives caution
Financial plans stress-test spending through age 95 or beyond to guard against outliving savings. This sensible caution creates a second problem: people hoard wealth out of fear rather than actual need.
Converting savings to income
Annuities have existed since the 1330s when Barcelona sold life annuities. Modern insurers offer products that let retirees convert assets into income they cannot outlive.
The annuitization puzzle
Despite solving the exact risk retirees fear, relatively few voluntarily annuitize much wealth. People who do buy annuities tend to live longer than average, creating a selection problem for insurers.
“people always live for ever when there is an annuity to be paid them”
What is a CRUT?
A charitable remainder unitrust lets you transfer appreciated property to an irrevocable trust. The trust sells and reinvests without paying capital gains tax, then pays you a percentage of assets annually for life.
CRUT tax benefits
You get a current charitable income-tax deduction when funding the trust. When you die, the remainder goes to charity. The IRS values the charitable portion using a standard mortality table and Section 7520 interest rate.
The mortality table mismatch
The IRS uses general population mortality to value the charitable remainder. But wealthy retirees actually live longer than average. One study found death by age 85 was 65.5% under IRS tables but only 45.8% under annuitant tables.
How longevity becomes an advantage
With a regular portfolio, living longer means your savings must stretch further. With a lifetime CRUT, living longer means more years receiving payments from the trust. Longevity shifts from pure risk to part of your return.
CRUT payments are flexible
Unlike annuities, CRUT payments are not guaranteed. Because the trust pays a percentage of annually revalued assets, payments rise or fall with market performance. The arrangement is irrevocable and remainder goes to charity.
When CRUTs make economic sense
CRUTs work best for those holding concentrated or highly appreciated assets who want lifetime income, a tax deduction, and eventual charitable giving. The economics depend on your actual longevity and the trust's investment performance.
In short
A CRUT lets you receive lifetime income from appreciated assets while getting a tax deduction and eventually supporting charity, turning the fear of outliving your money into a potential benefit.
