What is a charitable remainder annuity trust? Your complete guide

A charitable remainder annuity trust (CRAT) is a type of charitable remainder trust that enables a donor to support a charity while receiving a fixed income stream during their lifetime or for a set period of time, up to 20 years.

Whatever is left after the specified time period is donated to one or more charitable organizations of the donor’s choosing. What sets this type of trust apart is the one-time ability to contribute assets. After the trust is funded, it is valued annually but no additional assets can be added or removed.

To better understand this concept, let’s explore an example: 

A donor is nearing retirement and would like to supplement her retirement income while also leaving a legacy to her alma mater. She decides to establish a charitable remainder annuity trust with a payout rate of 5% during her lifetime. The donor gives highly appreciated assets valued at $2 million and receives an income stream of $100,000 annually from the CRAT. Following her death, the funds remaining in the trust transfer to her alma mater.

How do charitable remainder annuity trusts work?

It is important to note that there is only one opportunity to fund a charitable remainder annuity trust — when the trust is initially funded. Every year after, a fixed annuity amount is distributed based on the initial value of the trust.  

The fixed amount cannot be less than 5% or more than 50% of the value of the initial contribution to the trust. Also at the donor’s discretion is the term of the CRAT — either for the lifespan of the named beneficiaries or any number of years up to 20. The 10% qualification test and 5% probability test must be passed to qualify as a CRAT.

At the end of that period, any remaining assets are distributed to a qualified charity or charities of the donor’s choosing.

Because of the fixed nature of these trusts, they are much preferred by older income beneficiaries who are not concerned about loss of purchasing power over time.

CRAT vs. Charitable remainder unitrust trust (CRUT)

To choose the best charitable giving option, take a look at the following variations of charitable trusts:

Charitable remainder annuity trusts distribute a fixed annuity amount each year to beneficiaries based on the value of the assets that are initially contributed to the trust. CRATs may only be funded once and do not allow future additional contributions to the trust.

Charitable remainder unitrusts allow for additional contributions after the trust is established. A fixed percentage of the value of the trust assets is calculated each year to determine the annual distribution amount. The trust assets are revalued annually so the annual distribution amounts can increase or decrease with the value of the trust. 


  • Fixed annuity amount
  • No additional contributions 
  • Stable income stream


  • Distribution amount based on the value of the trust at the beginning of each year
  • Contributions can be made at any time
  • Distributions can fluctuate year-to-year


  • Potential income deduction
  • Potential capital gains deferral
  • Assets are bequeathed to a charitable organization 

Pros and cons of charitable remainder annuity trust

As with all means of giving, there are pros and cons to the CRAT, including:


  • Steady income due to fixed annuity rate
  • Immediate charitable income tax deduction
  • Avoid capital gains tax if you sell any appreciated assets included in the trust
  • Diversify your assets by contributing cash, stocks, real estate, or other investments
  • Reduce the size of your taxable estate while benefiting loved ones and charities
  • Option to name a donor-advised fund (DAF) as a beneficiary 


  • Irrevocable trust
  • Inflation or changing financial needs diminish purchasing power of the fixed annuity amount over time
  • Initial setup and ongoing administration fees

It’s essential to partner with a qualified financial expert to decide whether a CRAT is the right charitable vehicle for your client. Our team at Ren is committed to providing all the information you’re looking for and handling long-term logistics for charitable accounts such as endowments, DAFs, all types of charitable trusts, and more.

Is a donor-advised fund the right choice for your client?​

Get the answers to the most frequently asked questions about donor-advised funds in our free eBook — 12 Questions to Ask Before Setting Up a Donor-Advised Fund.