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
CRAT (Charitable Remainder Annuity Trust) is an irrevocable trust arrangement where a donor contributes assets to a trust, receives fixed annual payments for a specified period or lifetime, and designates a charity to receive the remaining assets. Unlike a CRUT, the CRAT pays a fixed dollar amount each year (not a percentage), making payments predictable but not inflation-adjusted.
Usage Context
Essential when studying charitable giving strategies, estate planning techniques, and tax-advantaged wealth transfer methods. Important for understanding how clients can balance charitable goals with income needs.
Common Confusions
- Confusing CRAT with CRUT - students often mix up fixed payments vs. percentage payments
- Thinking additional contributions can be made after establishment
- Misunderstanding that payments continue even if trust value decreases
- Confusion about who can be the income beneficiary
- Not understanding the irrevocable nature of the trust
