CRUTs vs. CRAT: Which Charitable Remainder Trust Is Best?

If you’ve explored options for eventually passing some of your assets to charitable organizations, you’ve almost certainly come across the charitable reminder trust (CRT): a trust that pays out an income to noncharitable beneficiaries for a period of time before eventually sending the remainder along to one or more charities.

And if so, you know the decision to fund a charitable remainder trust is immediately followed by another decision: Which type of CRT best suits your needs?

There are two types of CRT: charitable remainder annuity trusts (CRATs) and charitable remainder unitrust (CRUTs). And while they share most of the same traits, their differences are meaningful in terms of their regular income payouts, the remainder that goes to charity, and even the tax deduction you get for funding the trust.

Want to learn more about CRUTs vs. CRATs? Read on and I’ll explain the basics of charitable remainder trusts, show you how CRATs and CRUTs are similar (and how they’re different), and even provide practical examples to help you better understand how your decision would play out in the real world.

The information and analysis contained within this article appears for your consideration, but it does not constitute individualized financial advice. Always act at your own discretion.

How Do Charitable Remainder Trusts Work?

When you open a charitable remainder trust, you transfer cash, property, or other assets into the trust. That CRT will then provide income to one or more living beneficiaries, which can include yourself. You decide whether these payments will last for a predetermined term (of up to 20 years) or the life of one or more of the noncharitable beneficiaries.

When the trust expires (be it the end of the term, or the death of the last listed noncharitable income beneficiary), the remainder is given to one or more qualified U.S. charitable organizations, which typically must be 501(c)(3) organizations. Whatever you eventually donate upon the trust’s expiration must be at least 10% of the initial net fair market value of everything placed in the trust.

Importantly, CRTs are irrevocable trusts. While you and other beneficiaries can receive an income from these trusts, you generally cannot take out any of the assets you contributed.

You will also receive an immediate (albeit partial) tax deduction when you contribute to the trust. A few things to know:

• The deduction is based on the expected charitable remainder.
• The deduction is subject to AGI limits based on how the CRUT is funded—60% for cash, 30% for long-term appreciated property)
• The maximum deduction is limited to 35% if you’re in the top 37% tax bracket.
• Starting in 2026, you can only claim charitable deductions on donations that exceed 0.5% of your annual AGI. (So, if your AGI is $100,000, you can only deduct amounts over $500.)
• Unused charitable deductions can carry forward for up to five consecutive years before expiring.

Importantly, are two types of charitable remainder trusts, both of which can be made while the donor is still living or upon death: charitable remainder annuity trusts (CRATs) and charitable remainder unitrusts (CRUTs).

What Is a Charitable Remainder Annuity Trust (CRAT)?

A charitable remainder annuity trust (CRAT) …

• Pays a specific dollar amount every year to noncharitable beneficiaries.
• Must pay at least 5%, but no more than 50%, of the fair market value of the trust’s property when the trust is established. 
• Does not allow for additional contributions.

Thus, unlike CRUTs, the amount of income paid out by a CRAT isn’t affected by the trust’s investment performance (because it’s a fixed dollar amount, not percentage) nor future contributions (because you can’t make them).

Also, lifetime CRATs need to clear a hurdle called the “5% exhaustion probability test” to ensure that there’s something left over for the charity when the trust expires. The test determines whether there’s less than a 5% chance that the designated level of payments will completely exhaust the corpus (principal) before the trust terminates and sends its remainder to the designated charity(ies).

Example

Gertrude is a 60-year-old single filer who creates a single-life CRAT in August 2026 and funds it with $1.5 million in cash. She names herself a noncharitable beneficiary and opts for $75,000 annual payments, or 5% of the initial value. Her payments would not change from one year to the next.

When the term is over, the remainder is donated to the charity of her choice.

Here’s a look at what her payments might look like depending on four different growth scenarios for the CRAT.

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What Is a Charitable Remainder Unitrust (CRUT)?

A charitable remainder unitrust (CRUT) …

• Pays a fixed percentage of the value of the trust every year to noncharitable beneficiaries. 
• Must pay at least 5%, but no more than 50%, of the fair market value of the assets, valued annually.
• Does allow you to make additional contributions. 

Because CRUT payouts are based on a percentage of the trust’s value, the amount of income provided can vary depending on investment performance. And because the CRUT only ever pays out a percentage of its value, it cannot run out, and thus it does not have to pass the same exhaustion test required for lifetime CRATs.

Example

Meryl is a 60-year-old single filer who creates a single-life CRUT in August 2026 and contributes $1.5 million in cash. She names herself a noncharitable beneficiary and opts for a 5% annual payout. Meryl would receive $75,000 in the first year. Her payments would very likely change from one year to the next as the value of her trust changed.

When the term is over, the remainder is donated to the charity of her choice.

Here’s a look at what her payments might look like depending on four different growth scenarios for the CRUT, all of which include a contribution a few years down the road.

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Tax Deductions for CRTs Broadly

Contributing to a charitable remainder trust of any sort provides you with a partial but immediate tax deduction. A few things to note about the deduction:

• The deduction is based on the expected charitable remainder.
• The deduction is subject to AGI limits based on how the CRT is funded—generally, it’s 60% of AGI for cash, 30% for long-term appreciated property.
• Starting in 2026, you can only claim charitable deductions on donations that exceed 0.5% of your annual AGI. (So, if your AGI is $100,000, you can only deduct amounts over $500.)
• Unused charitable deductions can carry forward for up to five consecutive years before expiring.
• The maximum tax benefit of your deduction is limited to 35% if you’re in the top 37% tax bracket.

That said, the deductions are calculated differently depending on whether it’s a CRUT or a CRAT, and depending on the type (term, single-life, etc.) that you select.

Let’s look at how the deduction would be calculated for both Gertrude and Meryl.

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Gertrude (CRAT) Deduction Calculation

What would Gertrude’s deduction look like? 

Like I mentioned above, Gertrude is a 60-year-old single filer who has contributed $1.5 million in cash to a lifetime CRAT in August 2026. She has decided to make herself the sole noncharitable beneficiary and collect annual payments of $75,000 (5% of the initial value).

Also, Gertrude has $750,000 in AGI, putting her in the 37% tax bracket. And because we can’t deduct contributions until they exceed 0.5% of her AGI ($3,750), we’ll use $1,496,250 as the contribution basis for our calculations. 

Let’s run through the steps together:

1. We get the Section 7520 rate for August 2026, which is 5.2%.
2. We plug Gertrude’s Section 7520 rate (5.2%) and age (60) into Table S (2010CM), which gives us an annuity factor of 12.4284.
3. We then plug Gertrude’s Section 7520 rate (5.2%) and the payment frequency (annually) into Table K to get her adjustment factor, which is 1.0.
4. We then multiply the annual dollar amount ($75,000) by the annuity factor (12.4284), then multiply that result by the Table K adjustment factor (1.0), to get the present value of the annuity, which is $932,130.
5. We subtract the present value of the annuity ($932,130) from the initial contribution less the 0.5% in AGI ($1,496,250) to get the charitable deduction amount of $564,120.
6. Because it’s a cash gift, the deduction is limited to 60% of Gertrude’s AGI. So we would multiply her AGI ($750,000) by 60% (0.60), which is $450,000. 
7. Because the charitable deduction amount of $564,120 is greater than that, her actual 2026 deduction will be $450,000, and she can carry the remaining $114,120 over into 2027.

• • Because Gertrude is in the 37% tax bracket, her maximum tax benefit is capped at 35%. So we multiply the deduction ($450,000) by 35% (0.35) to get her actual tax reduction for 2026, which is $157,500.
  • If Gertrude made no other charitable contributions in 2027, she would multiply the carryover deduction ($114,120) by 35% (0.35) to get her 2027 tax benefit, which is $39,942.

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Meryl (CRUT) Deduction Calculation

Like I mentioned above, Meryl is a 60-year-old single filer who has contributed $1.5 million in cash to a single-life CRUT in August 2026. She has decided to make herself the sole noncharitable beneficiary and collect annual payments of 5%.

Also, Meryl has $750,000 in AGI, putting her in the 37% tax bracket. And because we can’t deduct contributions until they exceed 0.5% of her AGI ($3,750), we’ll use $1,496,250 as the contribution basis for our calculations. 

Let’s run through the steps together:

1. We get the Section 7520 rate for August 2026, which is 5.2%.
2. We plug Meryl’s Section 7520 rate (5.2%) and payment frequency (annually) into Table F to get her adjustment factor, which is 1.0.
3. We multiply Meryl’s payout rate (5%) by the adjustment factor (1.0) to get the adjusted payout rate, which is 5%.
4. We plug Meryl’s adjusted payout rate (5%) and age (60) into Table U(1) (2010CM) to get our unitrust remainder factor, which is 0.34995.
5. We multiply the initial contribution less the 0.5% in AGI ($1,496,250) by the unitrust remainder factor (0.34995) to get the charitable deduction amount of $523,612.69.
6. Because it’s a cash gift, the deduction is limited to 60% of Meryl’s AGI. So we would multiply her AGI ($750,000) by 60% (0.60), which is $450,000.
7. Because the charitable deduction amount of $523,612.69 is greater than that, her actual 2026 deduction will be $450,000, and she can carry the remaining $73,612.69 over into 2027.

• • Because Meryl is in the 37% tax bracket, her maximum tax benefit is capped at 35%. So we multiply the deduction ($450,000) by 35% (0.35) to get her actual tax reduction for 2026, which is $157,500.
  • If Meryl made no other charitable contributions in 2027, she would multiply the carryover deduction ($73,612.69) by 35% (0.35) to get her 2027 tax benefit, which is $25,764.44.
  • If Meryl made additional charitable contributions in 2027, she would need to go through the above steps again (including using an updated Section 7520 rate), to calculate the charitable deduction amount for the new contribution.

Related: How Much Should I Save Each Month?

CRUTs vs. CRATs: Core Differences

Like I mentioned above, charitable remainder annuity trusts and charitable remainder unitrusts share a lot of similarities, but there are a few key differences:

Again, the 5% exhaustion probability test only applies to lifetime CRATs.

Which Is Better? A CRAT or a CRUT?

Charitable remainder unitrusts are generally preferred over CRATs because of the ability to make additional contributions down the road, which provides more flexibility and can increase the size of the trust’s income payments. The fact that organic growth in the trust can improve payouts over time is another part of the appeal.

However, if income stability is your main priority, a CRAT is a better vehicle.

It’s generally best to talk to a financial advisor to determine which kind of CRT is best for you.

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Pros and Cons of CRTs

I go into more detail in my primer on charitable remainder trusts, but here are a few advantages and disadvantages of these vehicles.

The Pros

• They provide an income stream that can last for years if not the rest of your/your beneficiary’s life.
• They provide an immediate, partial tax deduction.
• They allow you to defer capital gains on the sale of assets transferred to the trust.
  • This feature can be used to diversify from a highly concentrated portfolio outside the trust to a diversified portfolio inside the trust in a tax-advantaged manner.
• They allow you to support charities you believe in.

The Cons

• While CRTs aren’t subject to federal income tax, they’re still subject to unrelated business taxable income (UBTI). In fact, CRTs must pay a 100% excise tax equal to the full amount of the UBTI.
• Some states tax CRTs.
• These are irrevocable trusts and thus generally can’t be altered later.
• They can be costly to set up initially, and they’re an ongoing obligation.
• Setup is complex; you should talk to a financial advisor before setting up a CRT.

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A Tax Note on All CRTs

If you establish a lifetime CRT, whether it’s a CRAT or a CRUT, and you name a noncharitable beneficiary other than you or your spouse, your contribution may be considered a gift for federal gift tax purposes.

For 2026, the annual federal gift tax exclusion is $19,000 per recipient. Spouses can combine exclusions to gift up to $38,000 per recipient, though this requires electing gift-splitting on IRS Form 709.

The lifetime gift and estate tax exemption, meanwhile, is currently $15 million per individual (or $30 million for married couples).

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