CRT vs installment sale: How to Know Which Is Better

The one question that decides it

Did you already plan to leave money to charity at death?

If YES, the CRT (Charitable Remainder Trust) almost always wins on $2M+ sales. The IRS gives you full capital-gains-tax elimination in exchange for the eventual charitable gift you were going to make anyway.

If NO, the installment sale (Structured Installment Sale) almost always wins. You spread the gain across years, compress brackets, and keep 100% of the principal in your family.

Everything else (income level, age, asset type, complexity tolerance) is a tiebreaker for edge cases. The charitable-intent question is the gate.

Side-by-side mechanics

Mechanic	INSTALLMENT SALE · IRC §453	CRAT · IRC §664
Who sells the asset	You sell directly to the buyer	The TRUST sells (after you donate the asset)
Tax treatment	Spread: pro-rata gain recognition each year payments are received	Eliminated: the trust is a tax-exempt §664 entity, so the sale is non-taxable
Who pays you	The assignment company (funded by a fixed annuity from a highly rated life insurer)	The trust pays you (from invested proceeds)
Payment type	Fixed annuity, locked at funding, 5-40 year term	Fixed % of initial trust value (CRAT) or current value (CRUT)
Upfront tax deduction	None	YES: charitable deduction ~34-50% of asset value
What happens at death	Remaining payments go to heirs (taxable to them)	Trust remainder goes to charity (NOT heirs)
Estate-attorney complexity	Low: one extra addendum to the Purchase Agreement	High: trust document, ongoing trust accounting, Form 5227 annual filing
Setup cost (legal/admin)	$0-$5K (escrow handles assignment paperwork); the insurer’s one-time commission of about 4% is built into the annuity pricing	$8K-$25K (attorney + ongoing trustee fees)
Liquidity / commutability	Non-commutable; payment schedule locked	Non-commutable; trust corpus stays in trust until death
§453A >$5M issue	Interest charge applies on deferred tax liability	No §453A; the trust is not a taxable person
Best fit profile	Sellers with no/low charitable intent, $500K-$5M gain	HNW sellers with charitable intent, $2M+ gain, $300K+ income

Side-by-side math: $5M California sale, $500K ordinary income, age 65

Same seller, same property, same year. What each structure produces:

Cash sale baseline (the "do nothing" path)

• Capital gains tax: $1,895,000 (federal 20% + NIIT 3.8% + CA 13.3% + Mental Health 1%)
• After-tax proceeds: $3,105,000
• Annual income from 5% MYGA: ~$155,000 (taxed annually)
• To heirs at death: ~$3,105,000 (depleted)

Installment sale: 20-year structure

• Capital gains tax over 20 years: ~$1,250,000 (compressed brackets, no NIIT, lower CA marginal)
• §453A interest charge: ~$30K-$60K/year (premium >$5M triggers it)
• Annual income from carrier: ~$310,000 (mixed gain/interest/return-of-principal)
• Total to you over 20 years: ~$6.2M nominal
• To heirs (if you die mid-term): remaining payments, taxable to them
• Total economic value: ~$6.2M to you, $0 to charity

CRT + GUL: donate first, sell tax-free

• Capital gains tax: $0 (trust is §664 tax-exempt entity)
• Charitable deduction: $1,700,000 → ~$680,000 cash value at $500K AGI
• Annual CRT payout: $250,000 gross → ~$195,000 after-tax
• GUL premium (funded from CRT income): ~$45,000/yr → $5M guaranteed death benefit
• Illustrative net spendable: ~$150,000/yr × 25 yrs = $3.75M
• To heirs (GUL): $5,000,000 tax-free
• To charity: ~$3,500,000
• Total economic value created: ~$12.25M

The honest scoreboard

Outcome	Cash sale	Installment sale	CRT + GUL
Tax paid Year 1	~$1,895,000	$0 (spread)	$0 (eliminated)
Annual income	~$155K	~$310K	~$150K (net of GUL)
Total to you over life	~$3.1M	~$6.2M	~$3.75M
To heirs at death	$3.1M (depleted)	Remaining payments	$5M tax-free (GUL)
To charity	$0	$0	$3.5M
Total economic value	~$3.1M	~$6.2M	~$12.25M

The CRT typically wins on TOTAL economic value for this profile ($12.25M vs $6.2M). But notice: the installment sale typically wins on cash to you personally ($6.2M vs $3.75M). If the seller has no charitable intent, the installment sale’s extra $2.45M to them is worth more than the CRT’s charitable + heir component they didn’t want.

The decision tree

Cases where each typically wins

Installment sale typically wins

• No charitable intent at all (you want everything to family)
• Capital gain under $2M (CRT cost not justified)
• Ordinary income under $200K (CRT deduction can’t be absorbed)
• Age under 55 (CRT actuarial table favors older sellers; the installment sale works at any age)
• You want low complexity (one assignment vs trust + Form 5227 every year)
• You want maximum cash to YOU personally (not split with charity)

CRT typically wins

• Existing charitable intent (the trust isn’t a cost; it’s the gift you were going to make)
• $5M+ capital gain where §453A interest charge erodes installment sale advantage
• Estate above the federal exemption ($13.6M individual); CRT removes the asset from your estate
• $500K+ ordinary income that needs the deduction
• Age 60+ with healthy GUL underwriting (combo gets all three: family + charity + tax)
• Long-tenure highly-appreciated asset (CA real estate held 20+ years with massive recapture)

What if you’re close to the line?

For sellers genuinely in the middle (modest charitable intent, $2-4M gain, $200K-$400K income), both structures produce reasonable outcomes. Three tiebreakers:

1. How much do you care about the heir inheritance? If a lot → installment sale (heirs get remaining payments). If not much → CRT (charity gets remainder).
2. How comfortable are you with ongoing trust complexity? Trust accounting, Form 5227 annually, dealing with the trustee. If low tolerance → installment sale.
3. How important is the upfront tax deduction? CRT gives you a big income-tax deduction in Year 1 (worth ~$170K cash on a $2M sale). The installment sale gives nothing upfront.

Frequently asked questions

CRT vs installment sale: which one should I pick?

One question decides it: did you already plan to leave money to charity at death? If yes, the charitable remainder trust almost always wins on $2M+ sales. If no, the structured installment sale almost always wins, because you spread the gain and keep 100% of the principal in the family.

Do my heirs get anything from a charitable remainder trust?

Not from the trust itself. The remainder goes to the charity you named at funding. Many sellers fund a guaranteed universal life policy from the trust income so a tax-free death benefit replaces that inheritance.

What happens to an installment sale when the seller dies?

The remaining payments go to your heirs. They are taxable to the heirs as income in respect of a decedent.

What does each cost to set up?

On this page's comparison, a structured installment sale costs about $0 to $5K in paperwork, with the insurer's one-time commission of about 4% built into the annuity pricing. A CRT runs about $8K to $25K for the attorney plus ongoing trustee fees and an annual Form 5227.