How do Charitable Remainder Annuity Trusts (CRATs) work?
Key Takeaways
- A Charitable Remainder Annuity Trust (CRAT) is a type of transaction in which a donor contributes assets to a charitable trust which subsequently pays a fixed distribution to a designated beneficiary, which is typically an individual.
- Beneficiaries receive income from the CRAT in the form of an annuity, which is typically calculated as a fixed percentage of the initial value of trust assets.
- The minimum annuity distribution value is 5%.
- CRATs last until the end of the trust term, which could be a term of years or your life, at which time any funds that remain in the trust are then donated to the donor’s chosen charity.
People look at Charitable Remainder Trusts (CRTs) for a variety of reasons: they may want to sell and diversify away from an appreciated asset, create a reliable income stream, or donate to charity. There are two categories of Charitable Remainder Trust: Charitable Remainder Annuity Trusts (CRATs) and Charitable Remainder Unitrusts (CRUTs).