CRUTs are a powerful planning tool for retirement due to the tax-exempt status of the trust. Like qualified retirement plans, CRUTs are not liable for capital gains or earned income incurred by the unitrust. This allows the trusts to compound their earnings without the burden of taxes. A standard CRUT distributes a fixed percentage of the value of all assets in the trust, typically in quarterly installments. As the value of the trust changes over time, the payments will correspondingly adjust. And as with most retirement plans (Roth IRAs excluded), the income received from the trust is taxable, although the taxable portion of the payments will vary based upon a variety of factors. Quite often, the taxation of payments from CRUTs is less than from other retirement plans.
Unlike retirement plans, there is no limit on the quantity of assets that may be transferred into a CRUT and many types of assets, like real estate, may be contributed. This allows people to transfer assets in larger increments to more effectively plan for retirement. For many people, one of the greatest financial benefits of establishing a CRUT is contributions to unitrusts are tax deductible. Based on the specific terms of the CRUTs and the timing of the gift, contributions are tax deductible as a fraction of the face amount of the asset, and the tax deduction is often helpful in alleviating current income tax liabilities. In addition, because CRUTs are separate legal entities, assets placed into the trusts are not taxable in the donor's estate.