Choosing Between CRATs and CRUTs: How to Maximize Giving, Income, and Tax Savings
What Is a Charitable Remainder Trust and Why It Matters Now
A Charitable Remainder Trust (CRT) is not just a tax planning tool—it’s a vehicle for transforming financial success into lasting impact. Structured as a split-interest trust, a CRT allows individuals to convert highly appreciated assets into a steady stream of income while ultimately supporting charitable causes they care about. The most common types are the Charitable Remainder Annuity Trust (CRAT) and the Charitable Remainder Unitrust (CRUT), each offering distinct advantages based on the donor’s goals.
But what makes CRTs especially powerful in today’s planning environment isn’t just their tax efficiency—it’s their timing. Recent legislative changes like the SECURE Act have compressed the ability to stretch retirement accounts across generations. At the same time, volatility in markets, real estate appreciation, and concentrated stock positions are creating unique liquidity and capital gains challenges for affluent households.
A CRT offers a way to sidestep these pitfalls. By donating appreciated assets to a CRAT or CRUT, donors can defer capital gains taxes, reduce current income taxes through a charitable deduction, and create an income stream that lasts for life or a term of years. It’s a strategy that aligns purpose with performance, offering peace of mind in an uncertain tax landscape.
For those with philanthropic values and complex balance sheets, CRTs can accomplish what few other strategies can: reduce taxes, generate income, and leave a meaningful legacy—all in one elegant structure.
The Core Problem: Giving Smart in a Complex Tax Environment
For high-income individuals and retirees with appreciated assets, the desire to give generously often clashes with a harsh financial reality: unnecessary taxes. Whether it’s capital gains on low-basis stock, exposure to income taxes from retirement accounts, or estate tax liabilities, many well-meaning donors find themselves stuck between their charitable goals and the tax bill that comes with achieving them.
The default approach? Too often, it’s parking assets in basic donor-advised funds (DAFs). While DAFs offer simplicity, they rarely optimize for long-term income needs or capital gains deferral. They also don’t provide income to the donor or their family, which limits their strategic value for retirement planning or multigenerational legacy building.
Meanwhile, few people realize that a charitable trust—particularly a Charitable Remainder Trust—can deliver a much more tailored solution. CRTs are uniquely positioned to convert highly appreciated assets into income streams, offset income tax with a charitable deduction, and ultimately benefit charity in a controlled, strategic way.
The problem is, most donors and even some advisors fail to recognize the opportunity cost of not planning more creatively. This results in missed deductions, rushed donations at year-end, and overreliance on simplistic tools like DAFs.
In today’s complex tax environment—shaped by legislation like the SECURE Act and potentially shrinking estate exemptions—integrated strategies matter more than ever. The IRS itself outlines how split-interest trusts work in its guidance on Charitable Remainder Trusts, but implementation requires deeper planning than a checkbox on a tax return.
CRAT vs. CRUT: The Simple Breakdown
When considering a CRT, choosing between a Charitable Remainder Annuity Trust (CRAT) and a Charitable Remainder Unitrust (CRUT) is one of the most critical decisions. Both structures allow donors to contribute appreciated assets, receive income, claim a charitable deduction, and defer capital gains taxes—but the mechanics and ideal use cases differ significantly.
A CRAT pays a fixed dollar amount each year, regardless of the trust’s investment performance. This predictability makes it attractive for individuals seeking stable income in retirement or those who want to budget around a consistent cash flow. However, CRATs are irrevocably locked: no additional contributions can be made once the trust is established. Also, if the required 10% charitable remainder test isn’t met—especially during low IRS Section 7520 rate environments—the CRAT may be disqualified.
By contrast, a CRUT pays a fixed percentage of the trust’s annually revalued assets. This offers growth potential, as distributions increase if the trust’s value grows. CRUTs also allow for additional contributions, making them ideal for donors who want to fund the trust in stages or expect liquidity events over time.
Each trust has its risks and advantages. CRATs work well in high-interest rate environments and for donors who value certainty. CRUTs excel for long-term planning, especially when paired with growth-oriented investment strategies or used with illiquid assets like real estate or closely held business interests.
Ultimately, the best choice depends on whether a donor values income stability or long-term flexibility—and how they want their gift to evolve alongside their financial life.
Going Deeper: Advanced CRUT Types You Need to Know
While standard Charitable Remainder Unitrusts (CRUTs) offer flexibility and tax efficiency, several specialized variations allow donors to customize income timing, asset selection, and liquidity—especially useful when dealing with illiquid or unpredictable investments. These include the Net Income with Makeup CRUT (NIMCRUT), the Flip CRUT, and the emerging Walk-In CRT.
A NIMCRUT only pays out the trust’s actual net income each year, up to a stated unitrust percentage. If net income is lower than the target payout, the trust tracks the shortfall and can “make up” the difference in future years when income exceeds the target. This makes it ideal for donors who want to defer income—for example, until retirement or a move to a lower-tax state. It’s also beneficial when funding the trust with low-yield or illiquid assets.
A Flip CRUT begins as a NIMCRUT but converts to a standard CRUT upon a triggering event—like the sale of a closely held business or appreciated real estate. This allows income deferral during asset illiquidity, with regular distributions beginning only after monetization.
The Walk-In CRT, a new concept gaining interest, offers access to a pre-established CRUT managed by a sponsoring organization. Donors contribute to a partnership that owns an interest in the CRT, reducing setup costs and complexity. It’s a way to “walk in” to CRT benefits without custom drafting or administration, making it especially appealing for moderate-sized gifts.
Each of these advanced CRUTs solves a different challenge—whether it’s income timing, liquidity constraints, or administrative burden—offering tailored solutions for increasingly sophisticated charitable planning.
Top Fears and How to Address Them
Despite the powerful benefits of a Charitable Remainder Trust, many donors hesitate to move forward. These concerns are common—and valid—but each has a clear, practical solution.
“I don’t want to lose control of my assets.”
This is one of the most common fears. While the assets must be transferred to the trust, many donors retain control by naming themselves (or a trusted advisor) as trustee. This allows continued oversight of investment decisions and trust management, provided all actions comply with IRS regulations.
“It sounds complicated. I don’t want a headache.”
Yes, CRTs involve technical rules and compliance, but the complexity is front-loaded. Once established, the trust operates with relative simplicity and the annual maintenance can be outsourced to a CPA or institutional trustee.
“What if I change my mind about the charity?”
You can retain the right to change charitable beneficiaries, as long as replacements are qualified under IRC §170(c). This flexibility ensures your charitable impact can evolve over time.
“Will this hurt my children’s inheritance?”
A CRT can reduce what passes to heirs—but it also unlocks strategic opportunities. Many donors use a portion of the tax savings or CRT income to fund an irrevocable life insurance trust (ILIT), effectively replacing the value for heirs with tax-free insurance proceeds.
“Is this something the IRS audits?”
CRTs are well-established under federal law. As long as the trust is drafted and administered correctly—including meeting the 10% remainder requirement and the 5%-50% payout rules—it’s unlikely to raise IRS concerns.
The Perfect Outcome: What This Strategy Can Achieve
A well-structured CRT delivers more than just tax savings—it creates a dynamic strategy that aligns financial strength with lasting purpose. When executed properly, this planning vehicle solves multiple challenges at once.
First, it generates a significant tax deduction at the time of funding. This deduction is based on the actuarial value of the future charitable remainder interest and can be used to offset ordinary income, subject to Adjusted Gross Income limitations under IRS Publication 526.
Second, it provides immediate relief from capital gains tax when appreciated assets—such as low-basis stocks or real estate—are sold within the trust. Because the CRT is a tax-exempt entity under IRC §664(c), it can sell assets without triggering capital gains, preserving more value for income payouts.
Third, the trust delivers a reliable stream of income for life or a fixed term. Whether it’s a CRAT with fixed annual payments or a CRUT that grows with the market, this strategy transforms illiquid or volatile assets into structured, tax-efficient income.
Finally, the remainder passes to a chosen charity, foundation, or donor-advised fund—establishing a charitable legacy that reflects the donor’s values and strengthens their impact long after their lifetime.
What makes this outcome so powerful is that it’s not an either/or proposition. With a CRT, individuals can provide for themselves or their families, avoid unnecessary taxes, and give generously to causes that matter—all from the same bucket of assets. For many, this is the rare financial strategy that delivers both emotional satisfaction and long-term financial efficiency.
How to Choose the Right CRT for You
Choosing the right Charitable Remainder Trust (CRT)—whether a CRUT, CRAT, or a more advanced variation—requires more than just a desire to be generous. It starts with aligning the trust structure to your financial, tax, and legacy goals.
Step 1: Clarify Your Priorities
Are you looking for steady, predictable income? A CRAT may be your best option. If you’re more focused on growth potential and long-term income flexibility, a CRUT or one of its variants like a NIMCRUT or Flip CRUT might offer a better fit.
Step 2: Identify the Right Asset to Fund the Trust
Low-basis stock, real estate, or even business interests are ideal funding sources for a CRT. These assets allow you to maximize the capital gains tax deferral benefit and unlock a sizable charitable deduction.
Step 3: Run the Numbers
Work with a tax advisor to model different scenarios. Compare payout streams, deductions, and charitable remainder projections across CRATs and CRUTs. Factor in the IRS Section 7520 rate to determine if the trust will pass the required 10% remainder test.
Step 4: Design for Flexibility
If you anticipate future contributions or illiquid funding assets, choose a CRUT structure. If you want to delay income, consider a NIMCRUT or Flip CRUT with a triggering event.
Step 5: Choose Your Charity and Your Team
Name remainder beneficiaries that reflect your values. Be sure to involve an estate planning attorney and CPA experienced in CRTs to ensure compliance and proper administration.
When chosen carefully, a CRT doesn’t just reduce taxes—it transforms giving into a lasting, income-generating legacy.
Frequently Asked Questions About Charitable Remainder Trusts
1. What is a Charitable Remainder Trust (CRT)?
A CRT is an irrevocable trust that allows you to donate assets to charity while retaining an income stream for life or a set term. After the income period ends, the remaining assets go to a qualified charitable organization. It offers tax benefits like income tax deductions and capital gains tax deferral.
2. What is the difference between a CRAT and a CRUT?
A CRAT (Charitable Remainder Annuity Trust) pays a fixed dollar amount annually and does not allow future contributions. A CRUT (Charitable Remainder Unitrust) pays a fixed percentage of the trust’s annual value and allows additional contributions. CRUTs offer more flexibility, while CRATs offer predictable income.
3. What assets can I use to fund a CRT?
Common CRT funding assets include appreciated stocks, real estate, business interests, and mutual funds. CRTs are especially useful for low-basis assets that would otherwise trigger capital gains tax upon sale.
4. Can I fund a CRT with my IRA?
Not during your lifetime. However, you can name a testamentary CRUT as the beneficiary of your IRA. This allows your heirs to receive income over time while satisfying IRS rules under the SECURE Act.
5. How do I choose between a CRAT, CRUT, and other variations like a Flip CRUT?
It depends on your financial goals, funding assets, and desired income flexibility. CRATs are better for fixed income needs. CRUTs are preferable for long-term growth and additional contributions. Flip CRUTs are ideal when selling an illiquid asset like a business or real estate.
Your Legacy Deserves More Than a Guess
You’ve worked hard to build a legacy—don’t let taxes, guesswork, or generic advice erode what you’ve earned. The truth is many successful investors overpay in capital gains taxes or settle for basic giving vehicles because they assume more advanced strategies are too complicated or only for the ultra-wealthy.
But missed opportunities are costly. Without the right guidance, you risk leaving heirs with a tax-heavy inheritance, giving less to the causes you care about, or losing control over how your wealth is distributed.
A Charitable Remainder Trust can solve all of these problems—if it’s designed with your specific goals in mind. Whether you’re weighing a CRAT, a CRUT, or a more advanced solution like a Flip CRUT or Testamentary CRUT, you shouldn’t be navigating it alone.
Let’s take the guesswork out of giving. Schedule an initial consultation, to have a confidential call to discuss your goals, run the numbers, and find the strategy that fits. Your wealth can do more—let’s design a plan that makes it happen.
