Charitable remainder annuity trusts (CRAT) allow a grantor to create a trust that generates income until the beneficiary dies, then later transfers the assets to a charity. These trusts are popular for grantors because they receive tax benefits after creating the trust such as deductions and delayed capital gains taxes while still generating income. CRATs give the grantor or the grantor’s chosen beneficiary a fixed percentage of the trust’s assets periodically, and the trust cannot be changed by the grantor including adding more assets to the trust. Federal law requires the percentage to be at least 5% every year. In contrast, charitable remainder unitrusts (CRUT) generate income from the trust which can vary based on the trust’s performance and allow contributions by the grantor after its creation.
[Last updated in November of 2021 by the Wex Definitions Team]