Conscientious Estate Planning For Oregonians

CRAT vs. CRUT: What to know about these trusts

On Behalf of | Oct 8, 2024 | Estate Planning

Do you want to leave a philanthropic legacy for the future – and simultaneously ensure that you’re leaving something behind for your loved ones?

Two popular options that can help with both goals (and offer some significant tax benefits) include Charitable Remainder Annuity Trusts (CRATs) and Charitable Remainder Unitrusts (CRUTs). Here are the basics.

How do CRATs and CRUTs work?

Both CRATs and CRUTs are different types of Charitable Remainder Trusts (CRTs). CRTs are designed to provide an income to an individual (such as yourself) or group of beneficiaries (such as your heirs) for a set period. Once that period ends, the assets that remain in the trust are then gifted to one or more charities of your choice. There are key difference between them.

A CRAT provides the beneficiary with a fixed income each year, regardless of the value of the trust’s assets, and assets cannot be added to it after its creation. These are good if you want a predictable income and do not have a lot of tolerance for risk, but you could be frustrated if the trust’s investments perform particularly well.

A CRUT pays the beneficiary a percentage of the trust’s value each year, so the payment amount will change depending on how well the trust’s investments perform. In addition, you can continue to add new assets to the trust over time. These offer enhanced flexibility, but you sacrifice some stability.

In both cases, you may be able to receive a charitable tax deduction for at least part of those assets. You may avoid paying capital gains taxes on appreciated assets.

Ultimately, CRATs and CRUTs are just some of the possible estate planning and wealth management tools at your disposal. Learning more can help you make informed decisions that will benefit your future.