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Ohio State University Extension


New Bulletin Available: The Charitable Remainder Trust Strategy for Retiring Farmers

By:Robert Moore, Friday, May 10th, 2024
Legal Groundwork

One of the primary challenges for a retiring farmer is the large tax burden that retirement may cause.  Throughout their farming careers, farmers do a good job of managing income taxes, in part, by delaying sales and prepaying expenses.  This strategy works well while the farm is operating but can cause significant tax liability upon retirement.  The combination of a large increase in revenue from the sale of assets and little or no expenses to offset the revenue can cause a retiring farmer to be pushed into high tax brackets.  It is not unusual for 40% or more of the sale proceeds from a retirement sale to go to taxes.  One strategy to reduce income tax liability at retirement is a Charitable Remainder Trust (CRT).  A CRT can be an effective way of managing income taxes at retirement, but it is not for everyone. 

A CRT is a charitable trust because at least some of the assets in the CRT must eventually pass to a qualified U.S. charitable organization such as a church or 501(c)(3) corporation.  This charitable nature of the CRT is central to the CRT strategy.  As a charitable trust, the CRT may sell assets without paying tax on the sale.  So, instead of the retiring farmer selling assets in their own name, they donate the assets to the CRT and then the CRT sells the assets.  The retiring farmer then receives an income stream from the CRT.  After a period of time, the income stream stops and the remaining trust assets are contributed to the named charity.  The following are the steps of the CRT strategy:

  1. Assemble a team of advisors and develop a CRT strategy.
  2. Donor establishes a CRT.  The trust document declares the income beneficiaries and the charitable beneficiaries. 
  3. Donor determines the assets to be contributed to the CRT.
  4. Donor contributes assets into the CRT, typically grain, machinery and/or livestock.
  5. The CRT sells the assets but does not pay tax.
  6. The Trustee of the CRT uses the sale proceeds to establish an annuity.  The annuity must be designed to provide at least 10% of the sale proceeds to the charity.
  7. The annuity pays out to the Donor over a number of years.  The Donor pays income tax on the annuity distributions.
  8. When the trust is terminated, the charity is paid the remaining assets.

CRTs are best used in situations where the retiring farmer does not have a successor and must sell all operating assets.  CRTs should generally not be used when the farming operation is to be passed along to the next generation.  A CRT can be an excellent strategy to help a retiring farmer reduce income tax liability and provide a charitable donation but it is not for everyone.  Be sure to consult with your team of advisors before deciding upon or implementing a CRT.

For a detailed discussion of CRTs, including advantages and disadvantages, see the new publication Charitable Remainder Trusts as a Retirement Strategy for Farmers available on