CHARITABLE REMAINDER ANNUITY TRUST (CRAT)
Back to GlossaryDefinition
A trust that provides a fixed annuity to the donor (usually for life) for an amount that is greater than or equal to 5% of the initial net fair market value of the property contributed to the trust. The remainder interest of the trust passes to a named charitable organization.
Summary
A Charitable Remainder Annuity Trust (CRAT) is a tax-advantaged estate planning tool where someone transfers assets into a trust and receives a guaranteed fixed payment (at least 5% of the initial value) for life or a set period. After the donor dies or the term ends, whatever remains in the trust goes to charity. Think of it as a way to generate steady income while also supporting a cause you care about, with potential tax benefits.
Usage Context
This term is crucial when studying advanced estate planning strategies, charitable giving techniques, tax-advantaged wealth transfer methods, and trust administration. Understanding CRATs is important for comprehensive estate planning and philanthropic planning.
Common Confusions
- Confusing CRAT with CRUT - CRAT pays a fixed amount while CRUT pays a percentage of current trust value
- Thinking you can add more assets later (you cannot with a CRAT)
- Assuming the charity gets a guaranteed amount (they only get what's left)
- Believing the annuity payment can be less than 5% (it cannot)
- Thinking the trust can be revoked or modified once established
