What restriction and costs apply when I withdraw principal from a charitable reminder trust (CRT)?

Question

If I set up my CRT as a revocable trust, I should have legal rights to change my mind and revoke/change the trust anytime. So the money shouldn't get stuck forever as long as I'm still alive. However, the IRS may want a bite from any principal withdrawal. If so, how much penalty or tax would I need to pay?

Answer 1

First of all a CRT can't be set up as a revocable trust. It would either be a corporation or an irrevocable trust. This is because in order to have a legal CRT at least 10% of what you put into the trust is the minimum amount that should go to charity at the end of the trust term, generally at your death.
The order of distributions from a CRT are ordinary income first, then long term capital gain, then tax exempt income and finally principle. The principle is not taxed to you or the trust.
You should look at the trust document in order to determine the distribution provisions of the trust. There are different ways to structure these payments and your document will tell you how this is to be done in your case.