Charitable remainder trusts (CRTs) are useful estate planning tools for people who want to balance out their desire for financial security with their desire to support their favorite charities. CRTs come in two primary forms: charitable remainder annuity trusts (CRATs) and charitable remainder unitrusts (CRUTs).
Both CRATs and CRUTs are irrevocable and permit their grantors to retain the income generated by their donated assets for a set period (usually life), while any assets left over then go to the designated charity. However, there are some distinct differences between the two.
Charitable remainder annuity trusts
CRATs provide a fixed annual income to the beneficiaries, regardless of how the trust’s investments perform.
The fixed payment structure provides a predictable income, which can be particularly beneficial for retirees or anybody seeking a stable flow of cash. However, once a CRAT is funded, no additional contributions are permitted, and beneficiaries may be frustrated if the trust’s investments perform exceptionally well and they cannot access them.
Charitable remainder unitrust
A charitable unitrust, in comparison, provides beneficiaries with a variable annual income based on a fixed percentage of the trust’s total value, recalculated annually.
While the income from a CRUT can fluctuate greatly from year to year, beneficiaries stand to benefit from its growth if the trust’s investments are particularly lucrative. Donors can also continue to add to the CRUT after its creation, which can maximize both its benefits and philanthropic uses.
Choosing between a CRAT and a CRUT isn’t always easy. A lot depends on your financial goals and your tolerance for risk. Both types of charitable remainder trusts ultimately allow you to enjoy significant tax benefits and generate income while supporting your favorite causes – but it’s always wisest to explore your options with someone who is familiar with both your unique circumstances and objectives.