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Published on: 04/30/2025 • 8 min read

CRAT vs. CRUT: How to Leverage Charitable Remainder Trusts

Charitable remainder trusts (CRTs) represent a powerful estate planning tool for high-net-worth individuals seeking to balance philanthropic goals with income needs. These irrevocable trusts allow you to contribute assets, generate income during your lifetime, and ultimately support the charitable causes you value most — all while potentially securing significant tax advantages.

CRTs come in two primary forms — charitable remainder annuity trusts (CRATs) and charitable remainder unitrusts (CRUTs) — each offering distinct advantages depending on your financial objectives. To leverage these, careful consideration must be given to your income requirements, asset appreciation potential, tax situation, and philanthropic goals.

For personalized guidance on implementing CRATs vs. CRUTs within your comprehensive wealth strategy, schedule a conversation with Avidian Wealth Solutions. Our experienced advisors can help you maximize both the personal and charitable impact of your assets while navigating the complexities of trust administration and tax optimization.

Please note: Charitable remainder trusts are sophisticated estate planning tools that carry legal, tax, and investment risks and may not be suitable for all investors. These trusts are irrevocable and require ongoing administration. The tax advantages and income outcomes mentioned depend on individual circumstances and current laws, which are subject to change.

What is a charitable remainder trust (CRT)?

A charitable remainder trust (CRT) is an irrevocable trust designed to generate income for you or your designated beneficiaries while ultimately supporting charitable organizations of your choice. 

When you establish a CRT as part of your charitable gifting strategies, you transfer assets into the trust, receive an immediate tax deduction based on the present value of the future charitable gift, and retain the right to income payments for a specified period — typically your lifetime, the lifetime of your beneficiaries, or a term not exceeding 20 years. These charitable trust benefits can help to create a strategic approach to managing wealth while aiming to advance philanthropic goals.

The fundamental structure works in two phases: 

  1. The income phase in which payments flow to you or your named beneficiaries;
  2. The remainder phase in which the remaining trust assets transfer to your selected charitable organizations upon termination of the income period. 

This dual-benefit approach has the potential to create a powerful vehicle for tax-efficient wealth transfer and philanthropic planning.

Learn more: Do charitable donations reduce taxable income?

Charitable trust types

As mentioned above, there are two primary types of charitable remainder trusts, each with distinctive characteristics:

Charitable remainder annuity trusts (CRAT)

CRATs provide fixed income payments throughout the trust term, established as a percentage (between 5% and 50%) of the initial fair market value of the contributed assets. This percentage must be at least 5% of the initial trust value and is locked in at the trust’s creation. Key features include:

  • Consistent, predictable payment amounts regardless of trust performance
  • No additional contributions permitted after initial funding
  • Lower complexity in administration and accounting
  • Ideal for those seeking income stability and predictability

Charitable remainder unitrusts (CRUT)

CRUTs provide variable income payments based on a fixed percentage (also between 5% and 50%) of the trust’s assets as valued annually. This creates a more dynamic income stream that can grow with successful trust investments. Key features include:

  • Payment amounts that fluctuate with trust performance
  • Ability to make additional contributions throughout the trust’s existence
  • Greater potential for income growth in appreciating markets

Several specialized variations including:

  • Net Income with Makeup CRUT (NIMCRUT)
  • Flip CRUT
  • Net Income CRUT (NICRUT)

Each trust type offers distinct advantages depending on your financial goals, risk tolerance, and philanthropic objectives. The selection between a CRAT vs. CRUT represents a fundamental decision point that can shape the trust’s operation and benefits throughout its existence.

When to use a CRAT vs. a CRUT?

Consider choosing a CRAT if you…

  1. Prefer fixed income payments regardless of market fluctuations
  2. Have immediate and defined income needs
  3. Or anticipate declining interest rates

CRATs can serve as a potentially effective estate planning strategy for older donors who value payment stability over growth potential and want simpler trust administration. The fixed payment structure makes CRATs ideal for scenarios where dependable cash flow is essential to meet regular expenses.

Conversely, a CRUT typically serves your needs better when you seek long-term growth potential and can tolerate some income variability. CRUTs are advantageous during periods of inflation or in appreciating markets, as payment amounts can increase alongside trust value. If you plan to make additional contributions over time or want the flexibility to adjust to changing economic conditions, the CRUT structure accommodates these needs.

Younger donors with longer time horizons can also benefit from CRUTs’ potential for payment growth, especially when funded with high-growth assets. Your current tax situation, projected income requirements, and philanthropic timeline should all factor into this important decision. 

Consulting with financial advisors and trust specialists can help determine which structure best balances your personal financial needs with your charitable giving objectives.

How to set up a charitable trust

Setting up a charity trust requires navigating a structured process to establish a legally sound and effective framework for giving. This structured approach helps create a trust that upholds your philanthropic vision for years to come.

  1. Clarify your goals for both income generation and charitable impact
  2. Based on your objectives, determine whether a CRAT or CRUT better serves your needs
  3. Identify both the income beneficiaries (typically yourself, spouse, or other family members) and the charitable remainder beneficiaries
  4. Work with experienced legal counsel to create a trust document that complies with all IRS requirements while reflecting your specific intentions
  5. Transfer selected assets into the trust
  6. Secure an employer identification number (EIN) for the trust from the IRS
  7. Appoint trustees with the appropriate expertise to manage trust assets and administration
  8. Develop and execute an investment approach that balances income production for beneficiaries with growth potential for charitable remainders

Strategic philanthropy requires thoughtful implementation as the decisions made during trust establishment will significantly impact both the financial benefits you receive and the ultimate charitable impact of your giving. Professional guidance is essential to navigate the complexities of trust creation and ensure compliance with all applicable regulations.

How to leverage CRATs and CRUTs

1. Convert appreciated assets into income

Transferring appreciated assets — such as stocks, real estate, or business interests — into a CRT creates an opportunity to transform these holdings into income streams without triggering immediate capital gains tax. This strategy works particularly well for assets that have substantially increased in value since acquisition but produce little or no income. 

By contributing these assets to a CRT, you avoid the capital gains tax that would otherwise be due upon sale, effectively preserving the full market value to generate future income. The trust can then sell these assets tax-free and reinvest the proceeds in diversified, income-producing investments that align with your financial objectives.

2. Enhance retirement planning

CRTs are often used as a powerful tool to enhance retirement income planning, functioning as complementary vehicles alongside traditional retirement accounts. Establishing a CRT before retirement can create a supplemental income stream that activates when needed. This approach typically provides strategic income timing, allowing you to receive an immediate tax deduction when establishing the trust while potentially deferring income until retirement years when you may be in a lower tax bracket. 

The flexibility of CRUTs in particular allows for variations such as a “flip CRUT,” which can be designed to help maximize growth during working years and then convert to higher distributions during retirement, typically creating an effective private pension alternative.

3. Reduce estate tax burden

Assets transferred to a CRT are immediately removed from your taxable estate, potentially generating significant estate tax savings for high-net-worth individuals. This reduction occurs while still maintaining income benefits during your lifetime. A complementary strategy involves using a portion of the income tax savings or CRT distributions to fund life insurance policies held in an irrevocable life insurance trust (ILIT), effectively replacing the asset value that will ultimately go to charity rather than to heirs. This “wealth replacement” approach allows you to support charitable causes while still providing for beneficiaries, often resulting in greater total benefits than outright inheritance due to the tax advantages involved.

4. Support multiple charitable causes

CRTs offer sophisticated approaches to philanthropic planning beyond simply naming a single charity as the beneficiary. You can designate multiple charitable organizations to receive portions of the remainder interest, supporting diverse causes aligned with your values. The remaining interest can also be directed to a donor-advised fund (DAF) or private foundation, creating ongoing charitable giving vehicles that extend your philanthropic legacy. 

When considering DAF vs. charitable trust options, remember that the CRT offers income during your lifetime while a DAF offers immediate tax benefits without income streams. For those interested in creating a foundation for charity, the CRT remainder can serve as the founding contribution.

The strategic implementation of these approaches should be tailored to your specific circumstances. Additional considerations may include donating retirement assets to charity through beneficiary designations (which can be more tax-efficient than including these assets in a CRT) and bunching charitable donations in certain years to maximize tax deductions.

Elevate your giving strategy with Avidian Wealth Solutions

When considering CRATs vs. CRUTs, the right choice ultimately depends on your specific financial situation, income needs, and philanthropic objectives. Since this decision involves analyzing your asset portfolio, tax implications, and long-term objectives, professional guidance can be invaluable.

At Avidian Wealth Solutions, we work with high-net-worth individuals across Houston, Austin, Sugar Land, and The Woodlands to develop sophisticated charitable giving strategies that align with their comprehensive wealth management plans. Our team of experienced advisors understands the nuances of charitable trust planning and can help you navigate the complexities of implementation, administration, and optimization.

To explore how a charitable remainder trust might enhance both your financial strategy and philanthropic impact, schedule a conversation with our team today. We’ll offer personalized insights tailored to your unique circumstances and help you build a giving strategy that aims to maximize benefits for both you and the charitable causes you value most. 

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