A CRAT is the right choice for those who want to receive fixed annual payments along with the tax advantages and philanthropic impact of a charitable remainder trust. If certainty matters more to you than growth potential in annual payments, then a CRAT is an option worth considering.

Jump to: What Is a CRAT? | Is It Right for You? | Calculate Your Payments & Deduction | How It Works | CRAT vs. CRUT | Tax Benefits | Best Assets | Real-World Example | FAQ | Let’s Talk

What Is a Charitable Remainder Annuity Trust (CRAT)?

A CRAT is a tax-exempt trust into which you transfer assets (cash, securities or other property) in exchange for a fixed dollar payment each year for life or a term of years. You choose the trustee who administers the trust and guides its investments. Unlike a charitable remainder unitrust (CRUT), CRAT payments remain constant regardless of the trust’s annual performance. When the trust ends, the remaining value supports Pomona College students by funding scholarships, experiential learning opportunities and more. Minimum gift: $100,000.

Is a Charitable Remainder Annuity Trust Right for You?

A Pomona Plan CRAT may be a strong fit if you want to:

• Receive fixed, predictable income for life: the same amount every year, regardless of market conditions
• Avoid or defer capital gains tax on highly appreciated assets
• Receive an immediate charitable income tax deduction
• Choose who administers your trust and guides its investments
• Provide income for multiple beneficiaries, including people other than yourself
• Have the option to benefit multiple charities through a single trust
• Make a significant gift of $100,000 or more that supports future Pomona College students

Calculate Your Payments and Deduction

How Does a Charitable Remainder Annuity Trust Work?

1. You establish an irrevocable trust. You transfer assets to a tax-exempt trust governed by a trust agreement. The gift is irrevocable, and in return you receive fixed income for life and significant tax benefits.
2. You choose your trustee. You select the trustee responsible for administering the trust and guiding its investments. The trustee may be Pomona College, a financial institution, an advisor or another qualified individual.
3. You choose your fixed payment amount. You set the fixed dollar amount the trust must distribute each year, which must be at least 5% of the trust's initial value. A payout of 5%-6% is typical. Payments are made annually, semiannually or quarterly and never change, regardless of investment performance.
4. You name your beneficiaries. You decide who receives payments. Most donors name themselves, or themselves and a spouse. You may also designate others, such as parents, siblings, children, close friends or household employees. Payments can last for one or more lifetimes, a fixed term of up to 20 years or a combination of both.
5. Your legacy supports Pomona College students. When the trust ends, the remaining principal funds charitable purposes you have designated. In the case of a Pomona Plan CRAT, your remaining principal will go on to support scholarships, experiential learning opportunities and more for Pomona students.

CRAT vs. CRUT: Which Charitable Remainder Trust Is Right for You?

A charitable remainder annuity trust (CRAT) pays a fixed annual dollar amount that is established at the trust's inception. This annual payment never changes unless the trust's assets are completely exhausted. A CRAT is the stronger trust option for those who prioritize predictability above growth potential. A charitable gift annuity (CGA) is a simpler solution that provides even more stability than a CRAT as it cannot be depleted.  

A charitable remainder unitrust (CRUT) pays a fixed percentage of the trust's value, revalued each year. If the trust grows, payments grow. A CRUT also allows additional contributions and can accommodate real estate and other illiquid assets, making it the more flexible of the two structures.

If you're unsure which structure fits your situation, our team is happy to walk you through your options. You can reach us at 1-800-761-9899.  

Tax Benefits of a Charitable Remainder Annuity Trust

Immediate charitable income tax deduction. You receive a federal income tax deduction in the year of your gift. Any unused deduction can be carried forward for up to five additional years.

Capital gains tax avoidance or deferral. If you fund your CRAT with appreciated securities, you pay no capital gains tax when you make your gift. Because the trust is tax-exempt, it also pays no capital gains tax when it sells those assets, allowing your trustee to reinvest the full value and diversify immediately.

Tax-advantaged payments. CRAT payments are typically taxed as ordinary income, though a portion may be taxed at capital gains rates or in some circumstances may even be partially tax-free in years when the trust's income is insufficient to cover the full distribution.

Estate and probate savings. Removing assets from your taxable estate through a CRAT may reduce future estate taxes and probate costs, depending on your situation and applicable law.

Best Assets to Fund a Charitable Remainder Annuity Trust

Appreciated securities. Stocks or other securities with a low-cost basis are among the most effective assets to contribute. You avoid paying the capital gains tax you would owe on a sale, your trustee can immediately reinvest the full proceeds in a diversified portfolio, and you will shortly begin to receive a fixed income stream for life.

Cash and low-yield accounts. Savings accounts, CDs and money markets often underperform. A CRAT can convert those same dollars into a higher, fixed income stream with an immediate tax deduction.

Real-World Example: Converting $500,000 in Appreciated Stock into Reliable Lifetime Income

Tiffany, age 84, has various appreciated stocks in her brokerage account with a combined value of $500,000. The stocks cost $200,000 to purchase and provide her with approximately $10,000 in annual dividend income. Tiffany would like to increase her cash flow, not worry about market fluctuations, and arrange for an endowment at Pomona College.

Tiffany finds that creating a charitable remainder annuity trust will achieve her goals nicely. She transfers her $500,000 in stock to an annuity trust with a 5.0% payout rate.

What Tiffany gains:

• Fixed annual income of $25,000, up from $10,000, regardless of market performance.
• An immediate income tax deduction of approximately $363,265*.
• No capital gains tax when the trust sells and diversifies her stock holdings
• A significant gift to Pomona College when the trust ends

*Deduction amount varies with timing. For educational purposes only; not tax advice.

Frequently Asked Questions About Charitable Remainder Annuity Trusts

What is the difference between a CRAT, a CRUT and a CGA? 

• A charitable remainder annuity trust (CRAT) pays a fixed dollar amount each year that never changes. 
• A charitable remainder unitrust (CRUT) pays a fixed percentage of the trust's value, revalued annually, so payments can rise or fall with the market. 
• A charitable gift annuity (CGA) is a simpler planned giving structure that provides fixed lifetime payments backed by the full resources of Pomona College.

What is the minimum gift for a Pomona Plan CRAT? The minimum gift required by Pomona College is $100,000.

Can I fund a CRAT with appreciated stock? Yes, and it is one of the most tax-efficient ways to do so. You pay no capital gains tax on the transfer, and because the trust is tax-exempt, your trustee can sell and reinvest the full value immediately without any capital gains liability.

Who can receive payments from a CRAT? You decide. Most donors name themselves or themselves and a spouse, but you may designate other individuals, such as parents, siblings, children, close friends or household employees. You may also structure the trust to benefit multiple charities.

How long do CRAT payments last? Payments can last for one or more lifetimes, a fixed term of up to 20 years or a combination of both. Payments are usually taxable, typically based on a  combination of ordinary income and capital gains income rates.

What happens to the remaining assets when the trust ends? All remaining principal goes to the charitable purposes you have designated. In the case of a Pomona Plan CRAT, your remaining principal supports scholarships, experiential learning opportunities and other critical programs for future Pomona students.  

Let’s Plan Together

Want to know exactly how much income a Pomona Plan CRAT could generate and what you could save in taxes? Our advisors can help design a personalized strategy that reflects your goals, assets, and vision for retirement. You can reach us at 1-800-761-9899.