Charitable Remainder Annuity Trust – CRAT

A Charitable Remainder Annuity Trust -  CRAT - is a type of gift transaction in which a donor contributes assets to a charitable trust which pays an annuity designed to leave a substantial proportion of the funds to charity upon termination of the annuity. The tax consequences of this transaction may be advantageous for contributing appreciated assets due to differences involved in the taxation of charitable trusts.

"Charitable remainder annuity trusts have become a popular planned giving and estate planning vehicle," according to Accounting Today. "It involves a donor putting a large amount of money, or a piece of property, into a trust, which then pays a specified amount of income annually to the donor, or to a beneficiary identified by the donor. When the donor passes away, the remainder of the trust is donated to the charity chosen by the donor. A trustee, such as an accountant, financial advisor, attorney or bank, generally administers the CRAT."

To open a CRAT, you must irrevocably transfer cash, securities, or other property to a trust. The donor gets an income tax deduction for the entire amount in the year the trust is opened and pays no capital gains tax. During the term of the trust, the donor or a named beneficiary is paid a fixed amount each year. When the donor dies or when the trust ends, the remaining principal passes to the nonprofit organization such as a university or charity.

These trusts are typically for a term that equals the lives of an individual or couple, though other terms are possible. An annuity trust can have a term  for more than two lives, or a specific number of years not to exceed 20 years, or for a combination of lives and years.
This information is not intended to be tax or legal advice, and it may not be relied 
on for the purpose of avoiding any federal tax penalties. You are encouraged to seek 
tax or legal advice from an independent professional advisor.