Charitable remainder trusts are typically categorized into 2 types, each being defined by the structure of the income stream. A charitable remainder annuity trust, or CRAT, provides income as a fixed dollar amount, whereas a charitable remainder unitrust, or CRUT, provides income as a fixed percentage amount.
Using a hypothetical example, if the CRAT has an initial value of $100,000 with a 5% payout rate, the income beneficiary will receive $5,000 annually. Payments can also be issued monthly, quarterly, or semiannually for life or for a specified period not to exceed 20 years.
What happens if the CRAT's investment performance is less than 5%? The payout remains at the originally established $5,000, which results in the trust value decreasing. The trust value can also be completely depleted if the investment returns are poor.
