Charitable Remainder Annuity Trust (CRAT)
The term charitable remainder annuity trust refers to an irrevocable trust that provides a reliable source of income to a beneficiary and assets to a charitable organization. Charitable remainder annuity trusts are frequently funded with highly-appreciated assets.
Also referred to as a CRAT, charitable remainder annuity trusts are frequently established by a donor / grantor that has highly-appreciated assets. This irrevocable trust provides the beneficiary with a long-term source of annuitized income, while allowing the donor / grantor to also provide a significant monetary gift to a charitable organization when the beneficiary passes away.
With a charitable remainder annuity trust, the donor is typically the beneficiary too. Highly-appreciated assets, such as real estate, are placed into the trust and sold by the trustee. The funds from this sale are then used to purchase income-producing assets, which provide the beneficiary (which is also the donor) with a reliable source of income until their death. After the donor passes away, a charitable organization has complete ownership of the assets remaining in the trust.