What Is a Charitable Remainder Annuity Trust?

Charitable Remainder Annuity Trust Explained

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A charitable remainder annuity trust (CRAT) is an option for estate planning that allows a trustee to hold assets for one or more beneficiaries.

A charitable remainder annuity trust is a type of trust fund that provides a regular income stream for you and your beneficiaries, either during your lifetime or after your death. Once the terms of the trust are fulfilled, the remaining balance is donated to the charity of your choice.

If you wish to leave a legacy for both your family and a charity of your choice, and receive  an immediate tax deduction, a charitable remainder annuity trust may be a good option. To help you decide if it’s right for you, here’s some more information about this type of charitable gift.

Definition and Example of a Charitable Remainder Annuity Trust

A charitable remainder annuity trust (CRAT) is an option for estate planning. This type of trust is a financial arrangement that allows a trustee to hold assets for one or more beneficiaries. When you set up a charitable remainder annuity trust, you may be eligible for some personal tax deductions for your charitable gift.

  • Acronym: CRAT
  • Alternate name: Split-interest trust

For example, if you contribute $100,000 to a CRAT with a payout percentage of 5%, you and any income beneficiaries will receive $5,000 each year until the trust terminates. The remainder of the trust will be donated to charity.


Charitable remainder annuity trusts are irrevocable trusts. This means you can’t modify, change, or cancel your CRAT once you open it, except in very rare cases. Make sure you understand the benefits and drawbacks of this type of charitable gift before you create one.

How Charitable Remainder Annuity Trusts Work

Creating a charitable remainder annuity trust can help you leave a legacy behind and provide you with an income stream while alive. The amount you receive is either a stated dollar value or a certain percentage of your trust’s fair market value on the day that you established the trust. The payment amount can’t be less than 5% or greater than 50% of the CRAT’s initial value, according to the IRS.

With a CRAT, your payment won’t change based on the value of the assets in the trust. Whether the account gains money or loses money, your payment remains the same.

While it’s recommended you find a trusted financial planner to help you set up one, here’s a quick look at how CRATs work.

Choose the Charity

You can select a single charity or multiple charities when you set up the trust, and you may change this distinction at a later date.


Only IRS-approved charities qualify for donations from a CRAT. If you aren’t sure of the status of your chosen charity, use the IRS’ Tax Exempt Organization Search Tool to check. If you make a change to your designated charity, you may incur additional legal fees.

Fund the Trust

The first step in the process is to fund your trust. You can use appreciated assets for this part; cash and securities are common options. You can’t contribute to this type of trust later on, so you’ll need to carefully consider the amount of your initial contribution. The goal is to ensure your trust has enough value to accomplish your financial goals.

Use it as an Income Source

During this step, you and any named beneficiaries will receive regular payments. You’ll set up the terms when you create the account, and payments will begin right away. Trusts with fixed terms can have payments for up to 20 years, but you also have the option of selecting lifetime payments in the event that you or your beneficiaries live longer than 20 years after you open the trust. Your beneficiaries can receive payments together with you, or you can set it up so that payments for certain beneficiaries (such as your children) start after the death of the immediate beneficiaries (such as you and your spouse).


Naming beneficiaries other than you or your spouse may trigger a gift taxable transfer, in which those beneficiaries must pay taxes on the amounts they receive.

The present value of the charitable remainder in your trust must always be 10% of the assets you started with. When setting up your account, you may need to limit the number of beneficiaries or reduce the length of time they’ll receive payments to ensure the charitable amount meets the 10% requirement.

Give to Charity

When the payment term ends, the money left in the trust goes to the charity or charities of your choice, provided it is a public charity or a private foundation that meets IRS standards.


If you decide not to name a beneficiary, the funds go directly to your chosen charity after you die.

How Charitable Remainder Trusts Benefit You

During the setup phase, you reduce your tax burden because you get an income-tax deduction for part of your contribution. The deduction amount changes based on the terms of the trust.

Also, you don’t pay capital gains tax on any appreciated assets you donate. For example, say you have stock in a tech company that you bought at $5 per share in 2010. Your shares are now worth $25. If you donate that stock to your CRAT, you won’t pay capital gains taxes on the $20 each share earned.

The charitable remainder annuity trust provides a stable income for you and your beneficiary. This can bring peace of mind, knowing you and your loved ones are taken care of financially.

You also have the opportunity to give generously. The money remaining in the trust after payment period ends goes to the charity you selected to help further its cause.

Charitable Remainder Annuity Trusts (CRATs) vs. Charitable Remainder Unitrusts (CRUTs)

There are two types of charitable remainder trusts: charitable remainder annuity trusts and charitable remainder unitrusts. Both CRATs and CRUTs allow you to give money to charity after your and your beneficiaries’ payments end. You also can’t modify many of the terms in the trusts once they’re set up. While they’re similar in many ways, there are some key differences between the two:

  Charitable Remainder Annuity Trusts Charitable Remainder Unitrusts
Is it an irrevocable trust? Yes Yes
Can I make additional contributions? No Yes
Will assets be valued each year? No Yes
Will it provide fixed income? Yes No

Among the key differences between a charitable remainder annuity trust and a charitable remainder unitrusts is that you’re allowed to contribute more money to the unitrust over time. This way, you can add to it if the funds start to get low.

Additionally, the funds in a CRUT are valued each year to assess its current worth. This means if the market is doing well and the trust fund has grown, your payments will be higher. But if the market is down, your payments will be lower. The amount of money you and your beneficiaries get each year depends on the unitrust. If you prefer predictable, fixed income, this one might not be a good option for you.

Key Takeaways

  • Charitable remainder annuity trusts (CRATs) offer you an immediate tax deduction as well as a steady income stream for a fixed number of years (or one’s lifetime) to you and your named beneficiaries.
  • The income from the CRAT comes in the form of an annuity, which is usually calculated as a fixed percentage of the initial value of trust assets.
  • Once you and your beneficiaries pass away, the remaining value of the trust is donated to the charity (or charities) of your choice.
  • The IRS has certain rules about how much money you can take from a CRAT each year, along with the minimum value of the trust.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. IRS. “Audit Technique Guide for Charitable Trusts – IRC Sections 4947(a)(1) and 4947(a)(2).”

  2. IRS. "Audit Technique Guide for Charitable Trusts – IRC Sections 4947(a)(1) and 4947(a)(2)," Page 8.

  3. Endowment Development Services. “Charitable Remainder Trusts.”

  4. The Wright Firm. “Nitty-Gritty Details About Charitable Remainder Trust Participants.”

  5. Fidelity Charitable. “Charitable Remainder Trusts.”

  6. California Society of CPAs. “Considering CRTs.”

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