CRAT vs. CRUT: What’s The Difference?

If Google search traffic is any guide, many people beginning to dig into tax planning know that Charitable Remainder Trusts (CRTs) can help them sell and diversify appreciated assets while minimizing their taxes. They might even know that there are different types of CRTs. But the apparent differences between CRAT vs. CRUT are elusive.

That confusion shouldn’t last long, though, because there is an obvious case for CRUTs as the tax mitigation tool for most people with appreciated assets who want to maximize their returns over the long haul. This article will discuss the differences between CRAT and CRUT and some trade-offs these two structures have.

CRTs Overview

Let’s recap three things you need to know about CRTs (or Charitable Remainder Trust):

  • It is a tax-exempt irrevocable trust designed to reduce individuals’ taxable income.
  • It distributes income to the trust beneficiaries annually for a specified period — up to 20 years or your lifetime. When that period is over, donate the remainder — everything that hasn’t been distributed yet — to your chosen charity.
  • Plus, it is the best of all worlds. It allows you to stash your assets in the trust, receive an up-front tax deduction, and defer your taxes on any gains you realize inside the trust. For example, when you sell appreciated assets), put the trust’s income to use for yourself and then donate a portion of the assets to charity at the end of the trust’s term.

All of these features apply to CRAT or CRUT. To put it another way, CRUTs and CRATs are each a subspecies of CRTs. So what’s the difference between the two?

CRAT vs. CRUT: What’s The Difference?

There’s not all that much to differentiate the structures between CRAT vs. CRUT, but one main difference can significantly affect your returns. Why? Because one of them distributes the trust annually, and the other doesn’t. Therefore, a CRAT is an Annuity Trust, and a CRUT is a Unitrust.

What does that mean?

  • An annuity is a fixed amount of money that a person receives for a specified period, usually in exchange for a lump-sum payment upfront. Similarly, an Annuity Trust is a trust that provides a fixed income stream for the trust’s term — either a person’s lifetime or a specified period. That static income amount guides from the initial value of the assets placed into the trust when you set it up. So, for example, If you put $1 million in startup equity into your Annuity Trust and chose a 10% payout rate, you’d receive $100,000 per year, no matter how the trust performs — whether the equity grows 100x or not at all, you’re getting that $100,000 per year.
  • A Unitrust, by contrast, is a trust that pays out a fixed percentage of trust assets every year rather than a fixed amount. Since the fair market measures the value of the trust’s assets every year, the amount you receive from the trust will change yearly. For instance, if you put the $1 million in cryptocurrency into your Unitrust and chose a 10% payout rate, you’d receive $100,000 in the first year. But if your investments do very well and the trust grows to $2 million the following year, you’d receive 10% of that new value, or $200,000. Other key differences are Charitable Remainder Unitrusts:
    • You can set it up for more extended periods such as multiple people’s lifetime (the longer the trust lasts, typically the higher the returns are)
    • If set up for the same time, a Charitable Remainder Unitrust can have a higher annual payout rate than CRATs, e.g., entitling you to a higher distribution percent of the trust assets
      • This is very technical but due to the IRS’s accounting methods and their charitable remainder trust 10 percent rule (which requires that the Charitable Remainder Trusts are estimated to leave behind 10% of the present value of contributed assets to charity)
    • Have a variety of distribution methods. Multiple distribution options enable you to control and defer distributions if you prefer.
    • Assets can be added at any time to a CRUT but cannot be added to a CRAT after you’ve set it.

When Does Each Type of Charitable Remainder Trust Make Sense?


The primary reason to choose an annuity trust is that you want certainty with your annual payments from the trust.

Want a higher ROI from the structure — that is, more total distributions. To check out the ROI of a CRUT, check out our online model here.

You are pessimistic about your future potential investments growth rates over the length of your trust.

Want more flexibility with the timing and amount of distributions.

Want the trust to run for a more extended period.
CRAT vs CRUT Comparison

Why are CRUTs “particularly suited for appreciated property”?

With a CRUT, you will receive distributions that are a percentage of trust assets. In some cases, the trust’s value and these payouts will grow over time; in other circumstances, they will go down. (You are entitled to distributions equal to a fixed percentage of trust assets every year, though we offer a variety of distribution methods to suit your needs.

With a Charitable Remainder Annuity Trust, you’re signing up for a fixed payout every year, no matter how the trust does. This can bring welcome certainty. But probably, your returns are lower than with a CRUT since your assets might grow over time. And most of those gains will remain in the trust and revert to the charitable beneficiary. 

An example will be helpful.

CRUT vs. CRAT Example

Erica is a 36-year-old New Yorker with $1m assets that have no cost basis (that is, she paid $0 for it). She wants to set up a 20-year term trust.

CRAT (Charitable Remainder Annuity Trust):

  • Payout Rate: Given the trust length and the IRS’s discount rate, she will receive 5.39% of the trust’s initial value every year.
  • Annual Payments: The trust was originally worth $1 million, so Erica will receive $53,900, or 5.39%, every year.
  • Up-front Charitable Deduction: $100,000
  • Total Payouts After Donating Charitable Remainder: $647,268

Standard CRUT: (More on the different CRUT structures)

  • Payout Rate: Erica is entitled to receive 11.04% of the trust’s assets annually for 20 years.
  • Annual Payments: In year 1, Erica would receive $117,742 (assuming the assets are valued at the end of the year after they’ve had a chance to grow a bit); because her payout rate of 11.04% exceeds the asset growth rate of 8%, the trust’s value and payments will decrease over time.
  • Up-front Charitable Deduction: $100,000
  • Total Payouts After Donating Charitable Remainder: $1,483,400

Why does a CRUT perform so much better on average?

No doubt you noticed the bottom line: The total payouts from Erica’s CRUT are significantly higher than from a CRAT. Why is that so? It’s simple: A CRUT’s annual distributions are defined as a percentage of the trust’s assets, measured that year, whereas a CRAT’s annual distributions are a fixed percentage of the trust’s starting value. Assuming that the trust grows in value over time — a fair assumption for our users, most of whom will aim to match historical market returns. Then, the distributions will be much larger if they connect to the trust’s growing value rather than how much the assets were worth on day 1.

Another benefit is adding additional assets to a CRUT whenever you’d like. Say you added $1m of stock in year one and then had another $1m in year five you wanted to defer taxes on; with a CRUT, you can continue contributing those assets. CRATs don’t offer the same benefit.

Next Steps

Charitable Remainder Trusts are robust tax planning structures. While CRATs and CRUTs are very similar, their crucial difference in calculating your distributions has massive implications. If you are willing to give up more significant distributions and are focused on a short timeline, you may prefer a CRAT. Why? Because you want certainty with your annual payments from the trust.

On the other hand, you may choose a CRUT if you wish the Charitable Remainder Trust to run for a more extended time or value more flexibility with the timing and amount of distributions. To know more about CRUTs, check out our comprehensive guide. Access our CRT calculator to evaluate the potential return on investment given your situation, or schedule a meeting with Valur’s experts.

About Valur

We have built a platform to give everyone access to the tax planning tools of the ultra-rich like Mark Zuckerberg (Facebook founder), Phil Knight (Nike founder), and others. Valur makes it simple and seamless for our customers to utilize the tax-advantaged structures that are otherwise expensive and inaccessible to build their wealth more efficiently. From picking the best strategy to taking care of all the setup and ongoing overhead, we make it easy.