HomePersonal FinanceCharitable Remainder Annuity Trust (CRAT)

Charitable Remainder Annuity Trust (CRAT)

Last updated 22nd Sep 2022
Disclosure

Definition

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.

Explanation

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.

Related Terms

alimony trust, accumulation trust, naked trust, charitable lead trust

Moneyzine Editor

Moneyzine Editor