How to Benefit From a Charitable Remainder Annuity Trust (CRAT) – Part 2

A specified percentage of the initial value of the trust assets, or a fixed sum, must be payable at least annually to a non-charitable beneficiary or beneficiaries, who are living at the time the trust comes into being. The payments should be made for a specified number of years not greater than 20 years, or the life or lives of the beneficiary or beneficiaries. Also, the value of the charitable remainder interest must be at least 10% of the fair market value of the property contributed, valued at the date of the contribution. In addition, taxpayers may not make additional contributions after the initial contribution.

The rules for a CRAT do not provide any hedge for inflation, especially when a fixed sum is set for the annual payment. However, a CRAT can be preferable if the assets contributed are difficult to value, such as with closely held stock, because the assets need to be valued only once, at the time of funding. This single valuation of the stock asset also makes the CRAT less expensive to administer than a trust that requires repeated annual valuations, such as a charitable remainder unitrust (CRUT).

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