Charitable Remainder Trust: What Happens If It Runs Out of Money?

Imagine setting up a charitable remainder trust (CRT) thinking it’s a win-win. You get an income stream for years, and your favorite charity gets what’s left at the end. But what if that trust just plain runs out of money before it’s supposed to? That’s actually more common than people think, and it’s not just a headache for you—it hits the charity, too.

If you’re counting on a CRT to support your retirement or give some windfall to an organization you care about, a vanishing payout is a nightmare scenario. The rules are pretty clear: if a CRT goes broke, the payouts just stop—there’s no backup fund swooping in. Beneficiaries lose income, and the charity may end up with nothing.

Most people don’t realize that anything from wild market swings to bad investment choices can cause this. Monitoring the trust’s health is a must, not a maybe. It’s not just about checking balances—it’s about knowing who gets left out in the cold if there’s nothing left in the pot.

• How a Charitable Remainder Trust Works
• Why a CRT Might Run Out of Money
• What Happens to Payouts and the Beneficiary
• How Does This Impact the Charity?
• Legal Steps and Trustee Duties
• Practical Tips to Protect Your CRT

How a Charitable Remainder Trust Works

A charitable remainder trust, or charitable remainder trust (CRT), is basically a way to give to charity and get something back for yourself or a loved one at the same time. You put assets like cash, stocks, or real estate into the trust. The trust then pays you (or someone you choose) income every year for a set number of years, or for life.

After that period ends—or when the beneficiary dies—whatever’s left in the trust goes to the charity or charities you chose. So it’s like splitting the pie: you (or someone you pick) get a slice over time, and the charity gets the rest at the end.

Here’s how the steps usually look:

• You fund the trust with your chosen assets.
• The trust sells what you put in, and those funds get invested based on a plan.
• You or your chosen beneficiary get a fixed dollar amount (called an annuity trust) or a percentage of the trust’s value each year (called a unitrust).
• After the term or the beneficiary passes away, the leftover assets go straight to the charity.

This setup gives you some perks: you can avoid immediate capital gains taxes if you’re donating appreciated assets, and you get a partial tax break up front for the charitable portion. In the U.S., the IRS says that at least 10% of the trust’s starting value must go to charity—or it doesn’t count as a charitable remainder trust.

On paper, CRTs are flexible, and you don’t have to choose just one charity—sometimes folks pick a handful. It all comes down to the trust document, which should spell out the specific payment rules, charity choices, and what the trustee is allowed to do. The trustee, by the way, is the person or institution that manages all the investing and makes sure rules get followed.

The biggest thing people miss? These payouts aren’t guaranteed by anyone but the trust itself—if the assets run out, nobody is stepping in to cover the difference.

Why a CRT Might Run Out of Money

When a charitable remainder trust dries up before it’s meant to, there’s always a reason—or honestly, a few. CRTs aren’t magic money machines. Real amounts have to cover yearly payouts, fees, and market risk. If those numbers don’t line up, the trust can go broke faster than you’d expect.

The two big killers are poor investment returns and too-high payouts. If the trust’s investments tank—think about huge market dips like 2008 or 2020—the funds can shrink quickly. Add those losses to a payout rate that’s too generous, and you’re burning through cash at both ends. Some trusts are set up with payout rates as high as 10%, but if the investments only earn 3%, it’s like bailing water with a hole in the bucket.

Trust fees can also eat into the balance. Annual legal and accounting costs are part of running any CRT. If these are high, they’ll chip away at what’s left for both you and the charity. Plus, inflation makes everything more expensive year by year, including the costs of running the trust.

Sometimes, it’s just how long everyone lives. A trust set up for a couple expected to live to age 85, but they make it to 100? That’s 15 extra years of payouts without more money going in.

The IRS actually bars CRTs from starting with a payout rate over 50%, but plenty of trusts push up near the minimum required 5%, and that’s still dangerous if the market tanks. Remember, if the annual payout eats into the principal, then over time, you run the trust dry. Always keep an eye on investment performance, payout rate, and costs—those are the three big red flags.

What Happens to Payouts and the Beneficiary

If a charitable remainder trust runs dry, the biggest shock falls on the person—or people—getting the payouts. Here’s the straight answer: when the trust has no money left, payouts stop immediately. There’s no insurance safety net or lender that steps in. The terms of the trust don’t allow for dipping into some outside fund or asking the charity to help cover losses. It’s a simple system: no assets in the trust, no cash out for the beneficiary.

Take a standard CRT: they’re either set up as an annuity trust (CRAT) or a unitrust (CRUT). With a CRAT, the beneficiary gets the same dollar payout every year, while with a CRUT, the payout is a percentage of the trust’s value annually. So, if a CRUT’s investments tank and the value drops, the yearly payments get smaller and might eventually hit zero. Annuity trusts are even riskier; if they run out of cash before the term ends, the checks just stop showing up.

Here’s a quick breakdown of how both trust types react if accounts drain dry:

This situation is tough because lots of folks set up CRTs expecting stable payouts, maybe even using them to cover retirement expenses or pay for a grandkid’s college.

• If the payouts stop, there’s no option to ask the charity for a refund or to replace lost income. That’s why it’s risky for someone to depend 100% on their CRT distributions.
• IRS rules clearly state that the charitable remainder trust is not guaranteed to pay out forever. Payments only come from what’s actually in the trust—even if that runs out before the trust’s original end date.
• If you smell trouble early on (like poor investment returns for a few years in a row), you should talk to the trustee about next steps. Sometimes, there are small tweaks allowed, but you can’t “refill” a CRT.

The bottom line: as soon as the money’s gone, beneficiaries are out of luck. Less common, but still important—if you’re a secondary or successor beneficiary, you might get nothing if the trust is wiped out before your turn begins.

How Does This Impact the Charity?

So what actually happens to the charity if a charitable remainder trust runs dry? The short version: the charity gets nothing at all. The whole point of a CRT is that after years of sending income to the chosen person (or people), whatever’s left goes out as a final gift to a nonprofit. If there’s no money left, there’s no gift. No safety net, and no second chance for the charity to collect.

This isn’t just theory. Some large charities keep track of projected CRT payouts in their planning and budgets. When a trust collapses early, it can mess up those budgets and even affect how much support the charity can promise in the future.

Big organizations may take the loss in stride, especially if they’re used to surprises. But smaller nonprofits that rely more on these gifts can feel the sting. They sometimes spend years cultivating relationships and planning for the money, only to see it evaporate. There’s no insurance or government program to step in if a CRT fails.

Charities also don’t get a say in how the trust’s investments are managed during the payout years. They basically have to trust that the trustee and income beneficiaries keep things smart and legal. If risky investments or high spending drain the pot, the charity is just out of luck.

Bottom line: when a CRT fizzles out early, the charity loses what could have been a big source of funding. That’s why some charities offer to help with CRT planning up front—they want to increase the odds they actually get the gift in the end.

Legal Steps and Trustee Duties

If a charitable remainder trust runs out of money, the trustee can’t just wing it. There are legal rules and a clear step-by-step process that must be followed. Trustees have a fiduciary duty, which means they’re legally required to act with care, loyalty, and honesty. Basically, they need to do what’s best for both the income beneficiary and the charity named in the trust.

First things first: trustees are supposed to monitor the trust’s assets and performance. If they see trouble brewing—maybe the investments are tanking or payouts are eating up the principal—they have to act fast. Sitting around and hoping for the best isn’t an option.

It’s not just about smart money management, though. If the trust is about to run dry, trustees have to alert both the people receiving income and the charity, usually in writing. State laws usually require this, and many trust documents spell it out as well.

Here’s how a typical process goes when funds run low:

• Trustee realizes payouts may not last through the trust’s term.
• Trustee verifies numbers and documents everything.
• Formal written notice is sent to all beneficiaries and the listed charity.
• In some cases, the trustee consults an attorney to see if a court order is needed to formally terminate the trust.
• Trust officer or CPA prepares a final accounting, showing exactly what happened to the trust assets.
• Trust distributions end when the money's all gone.

A trust running out of cash is a big deal, legally and financially. If the trustee screws up—maybe by investing recklessly or not warning anyone—the trustee could be held liable. According to the American Bar Association, “Trustees have a duty to act prudently and proactively protect interests of all trust beneficiaries if a shortfall is looming.”

“A trustee who fails to communicate or manage assets carefully, especially in a charitable remainder trust, may face legal liability if a shortfall harms the intended recipients.”
— American Bar Association Guidance, 2022

One thing to remember: if the trust goes broke naturally (say, from economic shifts and not from trustee mistakes), no one is legally forced to pitch in more money. When the trust dollars are gone, so is the trust—end of story.

Practical Tips to Protect Your CRT

Keeping a charitable remainder trust in good shape takes more than setting it and forgetting it. Lots of folks assume someone else is on top of it, but in reality, beneficiaries and trustees have to stay alert.

Here’s the problem: according to the IRS, about 7% of CRTs either dissolve early or don’t have enough left to give anything to charity. That’s not just bad for your legacy—it’s a lose-lose.

“A charitable remainder trust is not a one-and-done affair. You have to stay involved and review investment performance every year.”
— Thomas J. Pauloski, National Managing Director, Bernstein Private Wealth

If you want your CRT to actually deliver, here’s what you need to do:

• Regular Checkups: Make sure your trustee is providing annual statements. Review investment returns to see if they’re in line with your payout rate. If the trust assets drop below expected levels, act fast.
• Choose the Right Payout Rate: Don’t get greedy. Most experts suggest a rate between 5% and 7%—anything higher can drain your CRT faster than you think, especially if markets dip.
• Mind the Investments: Trustees should balance growth and income investments. Too risky, and you could lose big in a downturn. Too safe, and the trust might not keep up with inflation or annual payouts.
• Use Professional Management: The IRS recommends having an experienced trustee or investment manager run the CRT. Bad management is one of the top reasons trusts run out early.
• Keep an Eye on Fees: High administrative or investment fees can eat away at your CRT. Ask for regular breakdowns so you know exactly where the money’s going.
• Adjust and Re-Evaluate: If you spot trouble, there’s sometimes a chance to reduce distributions or swap out investments with the trustee’s help—don’t wait until things go sideways.

Here’s what can really make or break things for your trust:

Stay proactive and ask questions. The best way to avoid nasty surprises is to treat your CRT like any other important asset: review it, ask about performance, and don’t be afraid to make changes if something seems off. A little attention now can mean all the difference for your income—and for the charity you want to support.