Charitable Remainder Trust vs Annuity Trust: 5 Key Differences You Must Know (2026)

I sat across from my accountant last fall, staring at a spreadsheet that had two columns labeled "CRAT" and "CRUT." We were trying to decide which trust to use for a chunk of appreciated stock I’d held for years. My gut said, “They’re basically the same thing, right? Both give income, both benefit a charity.” But my accountant just shook his head and started drawing two very different payment streams on a napkin. That napkin sketch saved me from a costly mistake.

The confusion is understandable. Both a charitable remainder annuity trust (CRAT) and a charitable remainder unitrust (CRUT) are types of charitable remainder trusts (CRTs). They both let you donate assets, get a tax deduction, and receive income for life or a term of years. The charity gets what’s left. But the difference in how you get paid—fixed amount versus variable percentage—changes everything: your cash flow, your inflation protection, your tax deduction, and your administrative burden. Get it wrong, and you could lock yourself into an income stream that doesn’t match your needs. Let’s break down the five key differences so you don’t have to learn the hard way.

Key Difference #1: How You Get Paid – Fixed Amount vs. Variable Payout

This is the core structural difference, and it’s the one that trips most people up. A CRAT pays you a fixed annuity each year. That number is set when the trust is funded, based on the initial fair market value of the assets and the payout percentage (which must be between 5% and 50% of the initial value). If you put in $500,000 and choose a 6% payout, you get $30,000 every single year—no more, no less—for the life of the trust. It’s like a bond coupon: predictable, but also rigid.

A CRUT, on the other hand, pays you a fixed percentage of the trust’s assets as revalued each year. Same 6% example, but the trust is revalued annually. If the assets grow to $600,000 next year, your payout jumps to $36,000. If they drop to $400,000, your payout falls to $24,000. The percentage stays the same, but the dollar amount fluctuates with the market.

Here’s a quick table to make it concrete:

• CRAT: Payout = fixed dollar amount each year (e.g., $30,000). No revaluation. Predictable, no upside or downside.
• CRUT: Payout = fixed percentage of revalued assets each year (e.g., 6% of current value). Fluctuates with market performance.

Which sounds better? It depends entirely on your appetite for volatility and your need for predictable cash flow.

Key Difference #2: Growth Potential vs. Predictability – The Trade-Off You Must Weigh

Here’s where the trade-off gets real. With a CRAT, you’re trading away any growth potential in your payout for certainty. If the trust’s investments double, you still get the same $30,000. The upside all goes to the charity at the end. That’s fine if you’re risk-averse and need a steady check to cover fixed expenses like a mortgage or insurance.

With a CRUT, you’re betting that the assets will grow over time, lifting your payout. Let’s run a scenario. Say you fund both a CRAT and a CRUT with $500,000, a 6% payout, and a 7% annual growth rate on the underlying investments. After 15 years, the CRAT has paid you $30,000 each year—total $450,000. The CRUT? The trust’s value grows to roughly $1.1 million (accounting for the 6% payout each year), and your final year’s payout is about $66,000. Total income over 15 years: around $700,000. That’s a huge difference.

But here’s the flip side: if the market tanks, your CRUT payout shrinks. During the 2008 crash, some CRUT holders saw their income drop by 30% or more. A CRAT would have kept paying the same amount, even if the trust’s assets were decimated (though that could jeopardize the charity’s remainder). In my own planning, I chose a CRUT because I was young enough to ride out market cycles and wanted the growth potential. My retired neighbor went with a CRAT because she couldn’t stomach the uncertainty. Both were right—for their own situations.

Key Difference #3: The Annual Revaluation Requirement (and Why It Matters)

This is the administrative headache that nobody talks about until you’re knee-deep in paperwork. A CRUT requires annual revaluation of all trust assets as of the valuation date (usually the first day of the year or the anniversary of funding). That means the trustee—often you or a financial institution—must get a current appraisal on any non-cash assets like real estate or closely held stock every single year. That’s time-consuming and can cost $1,000 to $5,000 per appraisal, especially for illiquid assets.

A CRAT has no such requirement. Once the annuity is set, the payout is fixed. The trust can hold illiquid assets like real estate or art without annual appraisals, as long as it has enough liquid cash to make the annuity payment. I learned this the hard way when I considered funding a CRUT with a piece of raw land. The annual appraisal cost alone would have eaten up a big chunk of my payout. I ended up selling the land first and funding the trust with cash—a simpler, cheaper path.

If you’re planning to fund the trust with hard-to-value assets, a CRAT might be the simpler choice. If you’re using publicly traded stocks or cash, the CRUT’s revaluation is straightforward (just look up the market price).

Key Difference #4: Tax Deduction Calculations – One Is Simpler

The charitable deduction you get when you fund a CRT is based on the present value of the charity’s remainder interest—the amount the charity expects to get at the end. The IRS uses actuarial tables (Publication 1457) and the Section 7520 rate (a monthly rate tied to Treasury yields) to compute this.

For a CRAT, the deduction is straightforward: the IRS assumes a fixed annuity paid over your life expectancy (or term), and subtracts that from the initial trust value. The math is clean because the payout never changes. For a CRUT, the calculation is messier because the payout can grow or shrink. The IRS uses an assumed growth rate (often a conservative estimate) to project future payouts, which results in a slightly smaller deduction in many cases—because the charity’s remainder is assumed to be smaller if the payout might grow.

Here’s a real example from my research: with a $500,000 trust, a 6% payout, and the 7520 rate at 4.2% (a typical mid-2025 rate), a CRAT for a 65-year-old donor would yield a charitable deduction of roughly $200,000. A CRUT under the same assumptions might yield around $185,000—about 7.5% less. That difference matters if you’re counting on the deduction to offset a big capital gain from selling appreciated stock. Also, both trusts must satisfy the 10% remainder rule: the charity’s projected remainder must be at least 10% of the initial trust value. Falling short can disqualify the trust, so work with a planner who runs the numbers.

Key Difference #5: Which One Protects You Better Against Inflation?

Inflation is the silent killer of fixed incomes. A CRAT’s $30,000 payout loses purchasing power every year. At 3% annual inflation, that $30,000 will be worth only about $19,000 in real terms after 15 years. Your standard of living effectively drops unless you have other income sources.

A CRUT, by contrast, can act as a partial inflation hedge—if the trust’s assets grow at or above the inflation rate. Over the long term, a diversified portfolio of stocks and real estate has historically returned 7-10% annually, well above inflation. That means your CRUT payout can rise with the cost of living. But there’s no guarantee. If the market underperforms, your payout stagnates or falls. It’s a bet on capitalism working over the long haul—a bet that has paid off historically but carries short-term risk.

For someone retiring at 65 with a 20-30 year horizon, inflation is a major threat. I’d lean toward a CRUT in that case. For someone in their 80s with a shorter horizon, the inflation risk is lower, and a CRAT’s predictability might be more valuable. In my own planning (I’m 52), I chose a CRUT precisely because of inflation protection over the next three decades.

Which Trust Is Right for You? A Decision Framework

Here’s a practical checklist to help you decide, based on the five differences above:

• Choose a CRAT if: You need predictable, fixed income (e.g., to cover fixed expenses), you’re funding with hard-to-value assets (real estate, private equity), you want the simplest administration and tax deduction, or you have a shorter time horizon (under 15 years) where inflation is less of a concern.
• Choose a CRUT if: You want income that can grow with the market and hedge inflation, you’re funding with liquid assets (stocks, cash), you can handle annual revaluation (or outsource it to a trustee), and you have a longer time horizon (15+ years) where growth potential matters more than predictability.

There are also advanced variations like the NIMCRUT (which defers income until assets are sold) and the FLIP-CRUT (which starts as a NIMCRUT and flips to a standard CRUT). These are niche tools for specific situations, like holding illiquid assets that you plan to sell later. For most people, the choice between a standard CRAT and CRUT is where the conversation starts—and ends.

Before you fund anything, run a side-by-side projection with your tax advisor using current 7520 rates and your actual life expectancy. The numbers will tell you which trust fits your financial life. And if you’re still unsure, consider this: you can always start with a CRAT for safety and add a separate CRUT later if your situation changes. Just don’t lock yourself into the wrong structure now—it’s irrevocable.

Practical takeaway: A CRAT gives you a fixed, predictable income but sacrifices growth and inflation protection. A CRUT offers growth potential and inflation hedging but comes with administrative complexity and variable payouts. Match the trust to your time horizon, asset type, and risk tolerance—not the other way around.