CHARITABLE REMAINDER ANNUITY TRUST
Back to GlossaryDefinition
A trust in which a noncharitable beneficiary receives the income interest and a charitable organization receives the remainder interest.
Summary
A Charitable Remainder Annuity Trust (CRAT) is an irrevocable trust arrangement where a donor transfers assets to the trust and receives fixed annual payments for life or a specified term (up to 20 years). After the donor's death or the end of the term, the remaining assets go to designated charities. The annual payment amount is determined when the trust is created and never changes, regardless of the trust's investment performance. This creates predictable income for the donor while providing significant tax benefits, including an immediate charitable deduction and potential reduction in capital gains taxes.
Usage Context
Essential for understanding advanced estate planning strategies, charitable giving techniques, tax-advantaged wealth transfer methods, and retirement income planning for high-net-worth individuals.
Common Confusions
- Confusing CRAT with CRUT - CRAT pays fixed amounts while CRUT pays variable amounts based on annual trust value
- Thinking the payments can be adjusted over time - CRAT payments are fixed at creation
- Assuming all charitable remainder trusts work the same way
- Not understanding that this is irrevocable - assets cannot be returned to the donor
- Believing the charity gets money immediately - they only receive remainder after the term ends
