Introduction
Choosing between a Charitable Remainder Trust (CRT) and a Donor‑Advised Fund (DAF) requires weighing tax goals, control preferences, timing, and administrative complexity. Both vehicles let donors support charities while receiving tax benefits, but they are built for different use cases. This guide compares how each works, tax and legal considerations, typical costs, and practical decision steps — drawing on IRS guidance and years of advisory work.
How the vehicles work
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Charitable Remainder Trust (CRT): A donor transfers appreciated assets (stocks, real estate, or other property) into an irrevocable trust. The trust sells or manages the assets without immediate capital‑gains tax at the donor level, then pays an income stream to the donor or named beneficiaries for a term (typically life or a set number of years). After the income period ends, the remaining trust corpus goes to one or more qualified charities. (See IRS, Charitable Remainder Trusts: https://www.irs.gov/charities-non-profits/charitable-remainder-trusts.)
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Donor‑Advised Fund (DAF): A donor contributes cash or other assets to a sponsoring public charity that operates the DAF. The donor receives an immediate charitable deduction and can recommend grants from the fund to qualified charities over time. The sponsoring organization holds, invests, and administers the assets. (See IRS, Donor‑Advised Funds: https://www.irs.gov/charities-non-profits/donor-advised-funds.)
Key differences at a glance
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Tax timing and treatment: CRTs can avoid immediate capital gains tax on appreciated non‑cash assets because the trust sells the assets; the donor gets an income tax deduction based on the present value of the charitable remainder. DAFs give an immediate charitable deduction when assets are donated, but selling appreciated assets inside the DAF typically does not create tax consequences for the donor because the sponsoring charity is tax‑exempt.
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Control over assets and grants: CRTs are irrevocable and structurally lock the charitable remainder; the donor may name remainder charities and beneficiaries for income, but cannot later reclaim the donated principal. DAFs allow donors to recommend grants and change grant timing; ultimate legal control rests with the sponsoring charity, though most follow donor recommendations.
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Income versus immediate grant flexibility: CRTs provide an income stream (fixed annuity CRT or unitrust paying a percentage of trust value). DAFs do not provide an income stream to the donor — they’re for directing grants.
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Complexity and costs: CRTs require trust documents, trustee selection, valuations, potentially Form 5227 reporting, and often higher setup and ongoing legal/accounting fees. DAFs are quick to set up through a sponsoring charity with lower fees and administrative burden.
When a CRT typically makes sense
- You hold highly appreciated assets you don’t want to sell personally (stock positions, real estate, business interests) and want to avoid immediate capital gains taxes.
- You want an income stream for life or a set term and plan to name charities as the ultimate beneficiary.
- You are comfortable with the complexity, trust administration, and irrevocability.
In my practice I frequently recommend CRTs for clients who face concentrated stock positions and need retirement income without triggering a large capital gains tax bill at sale. A CRT can both diversify concentration risk and create predictable cash flow while preserving a charitable legacy.
When a DAF typically makes sense
- You want an immediate tax deduction but prefer to decide which charities to fund over months or years.
- You value ease of setup and low administrative overhead.
- You want to pool donations, involve family in grant recommendations, or use the fund as a philanthropy “checkbook.”
DAFs are commonly recommended for donors who want to bunch several years of giving into one tax year for a larger deduction, then recommend grants annually from the fund. See our practical guide on setting up and using a DAF for implementation details and succession planning: Donor‑Advised Funds: How They Work (https://finhelp.io/glossary/donor-advised-funds-how-they-work/).
Tax mechanics and limits (practical details)
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CRTs: The donor receives a charitable income tax deduction equal to the present value of the remainder interest, calculated using IRS discount rates and actuarial tables. The income stream to beneficiaries is partly taxable depending on character (ordinary income, capital gains, tax‑free income) and the trust must file Form 5227 for split‑interest trusts when required (see IRS guidance: https://www.irs.gov/charities-non-profits/charitable-remainder-trusts and Form 5227 details). CRTs also affect estate tax planning because the trust assets are out of the donor’s estate.
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DAFs: Donors get an immediate deduction subject to adjusted gross income (AGI) limits (cash gifts up to 60% of AGI; appreciated publicly traded securities generally up to 30% of AGI for individuals — check current limits with your advisor and IRS rules). Since the DAF is a public charity, the tax benefit for donating appreciated assets is generally the fair market value without capital gains tax for the donor.
Assets you can donate
- CRTs commonly accept illiquid or highly appreciated assets— closely held stock, real estate, artwork — which the trust can later sell. Some assets require special handling or valuations.
- DAFs accept cash and many sponsoring charities accept public securities and sometimes complex assets; acceptance policies vary by sponsor. If you plan to donate real estate or private company stock, confirm acceptance rules ahead of time.
Costs and administration
- CRT setup and annual administration are more expensive: legal drafting, trustee fees, investment management, tax return preparation, and potential appraisal costs. Setup costs typically start in the low thousands and can be higher for complex assets.
- DAFs usually charge an initial administrative fee and an annual fee (percentage‑based, often 0.6%–1.5% depending on balance and sponsor) plus underlying investment fees. They’re lower cost and easier for most donors.
Practical examples (realistic scenarios)
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Example 1 — CRT: A client with 40% of net worth in highly appreciated company stock needs retirement income. Selling would trigger a large capital‑gains tax. We established a unitrust CRT, transferred the stock, the trust sold the shares free of immediate capital gains tax at the donor level, and the client receives a 5% unitrust payment annually. When the client’s life income ends, remainder goes to named charities.
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Example 2 — DAF: A family wants to teach children philanthropy and give $100,000 this year while preserving the option to spread grants to different charities over time. They funded a DAF, took the immediate deduction, and now recommend grants yearly while involving their children in the grant process.
Succession and legacy planning
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CRTs: Because CRTs are irrevocable and tied to the donor or beneficiary lifetimes, you should coordinate them with your estate plan to avoid unintended consequences. CRTs can work with family wealth transfer strategies but require careful drafting to consider successor beneficiaries and tax implications.
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DAFs: Many sponsoring organizations allow successor advisors (spouse, children, a family committee) or even advisory boards to continue recommendations. If long-term family philanthropy is a goal, confirm the sponsor’s succession policy.
How to decide — a practical checklist
- Primary objective: income for life or tax-efficient giving? Choose CRT for income + charitable remainder; DAF for flexible grantmaking.
- Asset type: Do you plan to donate closely held stock or real estate? CRTs handle complex assets well; DAFs may accept them but policies vary.
- Complexity tolerance and cost: If you want low admin and quick setup, choose a DAF; if you accept higher costs for tax planning and income, consider a CRT.
- Control and flexibility: Need to change grant timing? DAF. Need guaranteed income? CRT.
- Estate implications: Coordinate CRTs with estate counsel; ensure DAF successor planning aligns with family goals.
Common mistakes to avoid
- Treating a DAF as a private foundation substitute without checking charitable distribution expectations. DAFs have limits on grants to certain entities and cannot be used for personal benefit.
- Assuming CRTs eliminate all taxes — they defer and shift tax character, but beneficiaries may still owe tax on income received.
- Failing to confirm asset acceptance rules with a DAF sponsor.
Where to read more and internal resources
- For practical setup and strategies on CRTs, see our Charitable Remainder Trust primer: Charitable Remainder Trust (https://finhelp.io/glossary/charitable-remainder-trust/).
- For tactical advice on donating appreciated securities and noncash assets, see Giving Through Stock: A How‑To Guide for Donors (https://finhelp.io/glossary/giving-through-stock-a-how-to-guide-for-donors/).
Authoritative sources cited
- IRS: Charitable Remainder Trusts. https://www.irs.gov/charities-non-profits/charitable-remainder-trusts
- IRS: Donor‑Advised Funds. https://www.irs.gov/charities-non-profits/donor-advised-funds
Professional perspective and closing
In my practice advising clients over 15 years, I find CRTs and DAFs are complementary rather than mutually exclusive. High‑net‑worth clients often use CRTs to convert concentrated positions into lifetime income and then use a DAF to manage ongoing grants from liquid proceeds. Both tools require coordination with tax, estate, and investment advisors to execute correctly.
This entry is educational and does not replace personalized legal or tax advice. Consult a qualified tax advisor or estate planning attorney before establishing a CRT or funding a DAF to confirm current tax rules and how they apply to your situation.
