Charitable Remainder Annuity Trust (CRAT)

What Is a Charitable Remainder Annuity Trust (CRAT)?

A charitable remainder annuity trust, or CRAT, is an irrevocable trust that pays a fixed annuity amount to one or more noncharitable beneficiaries for life or for a term of years, with the remaining trust assets going to one or more charities when the annuity term ends. It is a split-interest charitable trust because one interest supports a private beneficiary first and the remainder supports charity later.

The annuity structure matters. The payout is a fixed dollar amount or a fixed percentage of the trust's initial fair market value, not a payment that changes every year with the trust's market value. That fixed-payment design makes a CRAT different from a charitable remainder unitrust.

Key Takeaways

• A CRAT pays a fixed annuity to a noncharitable beneficiary first and charity receives the remainder later.
• The trust is generally an irrevocable trust.
• The annuity amount is fixed at funding rather than recalculated annually.
• A CRAT can provide a predictable payment stream for life or for a stated term.
• Additional contributions generally are not made after the trust is funded.

How a CRAT Works

The grantor transfers assets into the trust and names the annuity recipient or recipients. The trustee then pays the required annuity amount on the schedule described in the trust instrument. When the payment period ends, the remaining trust assets pass to the designated charitable organization or organizations.

This means the trust has the opposite flow of a charitable lead annuity trust (CLAT). In a CRAT, the private beneficiary gets the fixed payment stream first, and charity receives what is left at the end.

How a CRAT Supports Income and Charitable Planning

CRATs usually come up when someone wants to make an eventual charitable gift while also keeping a predictable stream of payments for life or for a limited term. The trust can be attractive when funded with appreciated assets because the trust can sell those assets inside the CRAT structure and continue supporting the annuity stream, even though the beneficiary still has to pay tax on distributed income under the trust's ordering rules.

That makes a CRAT different from simply donating assets outright. The donor is not giving up the entire economic benefit immediately. Instead, the donor or another named beneficiary keeps a defined annuity stream, and charity receives the remainder later.

CRAT Versus CLAT

This is the cleanest way to distinguish the two annuity-trust labels. A CRAT is private-income first and charity later. A CLAT is charity first and private remainder later.

How the Fixed-Payment Feature Shapes a CRAT

Because the annuity is fixed, the beneficiary knows the payment amount from the outset. That predictability can be useful, but it also means the payment does not automatically rise if the trust performs exceptionally well. It also means the trust has to support that fixed obligation regardless of whether returns are strong or weak.

The same fixed-payment feature also makes CRAT funding a one-time event in most cases. Once the trust is established and funded, the structure is generally closed to later additions. That is a major operational difference from some other charitable vehicles.

Tax and Planning Considerations

A CRAT can support both charitable and tax planning, but it is not a tax-free wrapper around investment gains. The trust follows detailed rules for qualification, payout limits, charitable-remainder value, and beneficiary taxation. The annuity recipient may receive payments characterized through the trust's tier system, and the donor may be eligible for a partial charitable deduction based on the present value of the charitable remainder.

Those rules make CRATs planning tools for specific situations rather than broad default accounts. They are most relevant when someone wants a charitable remainder arrangement with a defined payout instead of a fluctuating one.

Where Readers Encounter the Term

Most readers encounter CRAT in estate-planning, charitable-giving, or closely held asset-planning discussions. The term also appears when someone is comparing a fixed-payment charitable remainder trust with a unitrust structure or trying to understand how a charitable plan can still support a current income beneficiary.

The acronym refers to a specific charitable trust design, not just to any trust that eventually benefits charity.

Example Fixed Lifetime Payments First and Charity Receiving What Remains

Suppose a donor transfers appreciated securities into a CRAT and names herself as the lifetime annuity recipient. The trustee sells the securities and invests the proceeds. The donor then receives the fixed annuity amount each year, and when she dies, the remaining trust assets go to the named charity. If the trust performs well, the remainder for charity may be larger. If the trust performs poorly, the fixed annuity still has to be paid while the trust lasts.

The example shows why a CRAT is best understood as a charitable-remainder trust with fixed payments, not as a generic trust payout arrangement.

The Bottom Line

A charitable remainder annuity trust is an irrevocable split-interest trust that pays a fixed annuity to noncharitable beneficiaries first and passes the remaining assets to charity later. It is most useful when someone wants a predictable payment stream and an eventual charitable gift inside one formal trust structure.