What is a Charitable Remainder Annuity Trust?

Charitable Remainder Annuity Trust or CRAT


Definition

A charitable remainder annuity trust, or CRAT, is a trust with both charitable and noncharitable beneficiaries. Every year for the term of the CRAT, the noncharitable beneficiary receives a payment (the annuity amount) from the trust property. At the end of the trust term, the remaining property passes to the charity. For this reason, the charity's interest is described as a remainder interest.


Prerequisites

• A desire to donate to charity
• A substantial asset to donate to charity


Key Strengths

• Provides income tax deduction
• Provides an income tax haven for assets that have appreciated substantially
• Pays out fixed income every year
• Exists with fairly simple administration
• Reduces potential federal estate tax liability


Key Tradeoffs

• Requires an irrevocable commitment
• Requires the annuity to be paid each year, regardless of whether there is sufficient trust income available
• Inflation may cause CRAT to lose some of its value
• Prohibits the additional contribution of assets


Variations from State to State

• Community property states may affect any gift tax due


How Is It Implemented?

• Consult a legal professional to draft the CRAT
• Select a noncharitable beneficiary, a charitable beneficiary, and a trustee
• Select the assets you want to use to fund the CRAT
• Set the term of the CRAT and establish the annual payment amount

For more information, contact us at Annuity Liberty.