Charitable Remainder Annuity Trusts (CRATs)

Shawn Plummer

CEO, The Annuity Expert

In the vast labyrinth of financial planning, a charitable remainder annuity trust (CRAT) is an intriguing solution. It combines the spirit of philanthropy with astute financial strategies. CRATs are not merely tools for making charitable contributions; they also offer remarkable tax benefits and a reliable income stream for beneficiaries.

What is a Charitable Remainder Annuity Trust (CRAT)?

A CRAT is a tax-exempt irrevocable trust designed to reduce the taxable income of individuals by first dispersing income to the beneficiaries of the trust for a specified period and then donating the remainder of the trust to the designated charity. It’s a legal vessel that not only promises fixed annuity payments but also ensures your chosen cause benefits in the long run.

Charitable Remainder Trust Annuity

How does a CRAT work?

Imagine planting a seed today, knowing you’ll harvest a predictable yield annually and, after many seasons, the remaining produce will benefit your chosen cause. That’s CRAT in action.

Here’s a simplified breakdown:

  • You establish a CRAT and transfer assets into it. These assets are then invested, aiming to grow tax-free.
  • The trust then provides you, or your specified beneficiaries, with a fixed annual income. This annuity is dependable; it doesn’t fluctuate with the market’s whims.
  • After the term of the trust expires (either a set number of years or upon the beneficiaries’ passing), the remaining assets in the trust are granted to your chosen charitable organization(s).
Charitable Annuity Trust

Why consider a CRAT?

The allure of a CRAT is woven from various threads of benefits, each appealing to the prudent philanthropist, the savvy investor, and the strategic planner.

  • Tax Efficiency: Upon funding a CRAT, you can claim a charitable income tax deduction spread over five years, reducing your tax burden.
  • Income Stream: It offers a predictable income, a boon, especially during retirement.
  • Philanthropic Impact: Ultimately, it assures a significant contribution to your charity, imprinting your legacy.

Who is best suited for a CRAT?

CRATs are not one-size-fits-all; they are tailored for individuals meeting specific criteria:

  • Those in higher income tax brackets seeking to mitigate their tax liability.
  • Older individuals wanting a fixed income stream, favoring stability over market whims.
  • Donors wishing to make substantial long-term contributions to charity, beyond their lifetimes.
Charitable Remainder Annuity Trust

Charitable Remainder Trust vs. Charitable Gift Annuity

Venturing deeper, we encounter a crossroads: choosing between a Charitable Remainder Trust (CRT) and a Charitable Gift Annuity (CGA). Both avenues lead to philanthropic fulfillment, yet the journey differs.

  • A CGA is an agreement where you make a donation and, in return, receive a fixed annuity, part of which is tax-free. The charity guarantees this income stream, backed by its entire assets, and benefits immediately from your generosity.
  • Conversely, a CRAT is a type of CRT offering more control and potentially greater benefits but with added complexity. You can contribute various types of assets (not just cash or securities), have the potential for a higher income stream based on trust performance, and enjoy a more significant initial tax deduction.


Let’s illustrate with John’s journey. John, 70, a recently retired executive, wants to support his alma mater’s research programs. He establishes a CRAT, funding it with $500,000 in stock, and sets an annuity rate of 5%. John enjoys a consistent $25,000 annual income, irrespective of market conditions, and a sizeable tax deduction spread over five years, reducing his tax liability during his high-income retirement years. Upon his passing, the remaining assets in the CRAT (grown significantly due to prudent investments) go directly to his alma mater, providing substantial support to their research endeavors.

Next Steps

In conclusion, a Charitable Remainder Annuity Trust is more than a financial instrument; it’s a testament to the foresight, a bridge between present pragmatism and future altruism. It offers a symphony of benefits, harmonizing your financial needs and charitable intents. As you contemplate this path, consider not just the legal and financial implications but the lasting impact of your legacy. May this guide serve not as a mere manual but as a lantern, illuminating your path to informed, impactful decisions.

Charitable Remainder Annuity Trusts

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Shawn Plummer

CEO, The Annuity Expert

Shawn Plummer is a licensed insurance agent and annuity broker with over a decade of first-hand experience. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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