When you’ve spent years building something meaningful, there comes a point when you start thinking about what comes next. Your focus starts to shift from building a legacy to preserving it long-term.
Now that you have a solid plan for your family, you’re beginning to think about ways to make a lasting impact for your community and the causes that matter most to you. Maybe it’s time to support that environmental nonprofit you’ve quietly followed for years, or help your alma mater expand opportunities through scholarships.
What many people don’t realize is that some of the most powerful ways to give can also bring personal benefits. Tools like Charitable Remainder Trusts and Charitable Gift Annuities can create income and lower your tax bill while making a real, meaningful difference in the world.
So the question isn’t whether you should give. It’s how to give in a way that aligns with your values and helps sustain the life you’ve worked hard to build.
Charitable Remainder Trust vs Charitable Gift Annuity
Can I support causes I care about while benefiting my own financial future?
- Yes - strategic charitable giving creates income for you while supporting meaningful causes
- Charitable Remainder Trusts and Charitable Gift Annuities are two powerful ways to support causes you care about
What are Charitable Remainder Trusts and Charitable Gift Annuities?
- Both strategies let you support causes you care about while creating income and reducing taxes
- CRTs are irrevocable trusts that pay you income from contributed assets, with remainder going to charity
- CGAs are simple contracts where you donate to charity and receive fixed payments for life
Which strategy should I choose?
- Choose a CRT if: You have appreciated assets worth $250,000+, want potential income growth, and value estate planning benefits
- Choose a CGA if: You want predictable fixed income, prefer simplicity, and are making smaller gifts ($25,000-$100,000)
- Choose both: Many clients use CGAs for smaller gifts and CRTs for larger, strategic transfers
What are the key differences?
- Income: CRTs offer variable payments that can grow; CGAs provide fixed payments for life
- Complexity: CRTs require ongoing administration; CGAs are simple contracts
- Tax benefits: Both provide immediate charitable deductions, but CRTs often offer larger deductions and capital gains advantages
What Is a Charitable Trust and How Does It Work?
A charitable trust is a legal structure that allows you to split an asset between yourself and a nonprofit over time. Instead of donating a lump sum and calling it a day, you create a trust that pays you income for a set number of years (or the rest of your life), with the remainder going to charity later on.
These trusts are tax-exempt, which means they can sell appreciated assets (like stocks or real estate) without triggering immediate capital gains. This creates an upfront income tax deduction, a new stream of income, potential estate tax savings, and the opportunity to make a meaningful impact.
Who should consider charitable trusts?
If you own appreciated assets, want to create additional income, and feel genuinely motivated to support charitable causes, these strategies deserve a closer look.
Charitable Remainder Trusts: Income That Grows with Your Portfolio
A Charitable Remainder Trust (CRT) is an irrevocable trust where you transfer assets, receive income from those assets, and designate a charity to receive the remainder once the trust term ends.
There are two main types of Charitable Remainder Trust: Charitable Remainder Unitrusts (CRUTs) and Charitable Remainder Annuity Trusts (CRATs).
What Is a Charitable Remainder Unitrust (CRUT)?
A CRUT pays you a percentage of the trust’s value each year, recalculated annually. If the trust grows, your income grows. If it shrinks, your payment decreases accordingly.
Let’s say you fund a CRUT with $500,000 and select a 5% payout rate. In year one, you receive $25,000. If the trust grows to $600,000 in year two, your income increases to $30,000.
CRUT Advantages:
- Income that can increase with market performance
- Additional contributions are often allowed
- Removes appreciating assets from your taxable estate
- No immediate capital gains tax when assets are sold inside the trust
A CRUT works best when you’re contributing appreciated assets, have a longer time horizon, and want income growth potential.
What Is a Charitable Remainder Annuity Trust (CRAT)?
A CRAT pays a fixed dollar amount every year, no matter how the trust’s investments perform. The payment is set at the start—at least 5% of the original trust value—and it doesn’t change.
Example: You fund a CRAT with $500,000 and choose a 6% payout. That’s $30,000 per year, every year, for life (or the term you choose), regardless of how the market performs.
A CRAT makes sense when you want predictable income and don’t expect significant growth from the assets you’re contributing.
Charitable Gift Annuities: Simple, Predictable Income for Life
A Charitable Gift Annuity (CGA) is a contract between you and a charity, not a trust. You make a donation, and in return, the charity agrees to pay you (or someone you name) a fixed annuity for life.
Here’s how it might look: You donate $100,000 to your favorite nonprofit. Based on your age (let’s say 70), they offer to pay you $6,000 annually for life. You also receive an immediate charitable income tax deduction for a portion of your gift.
CGA Highlights:
- Simple structure, minimal ongoing admin
- Fixed lifetime payments
- Best for gifts of $25,000 to $100,000+
- Payments backed by the charity’s general assets
Note: Because there’s no separate trust, CGA payments rely on the charity’s financial strength, so it’s important to do your homework.
Charitable Gift Annuity vs Charitable Remainder Trust: Which Is Right for You?
| Factor | Charitable Gift Annuity | Charitable Remainder Trust |
|---|---|---|
| Structure | Simple contract with charity | Irrevocable trust with trustee |
| Income Type | Fixed payments for life | Variable (CRUT) or Fixed (CRAT) |
| Minimum Gift | $25,000 - $100,000+ | $250,000+ recommended (CRUT) |
| Tax Deduction | Partial, immediate | Immediate, often larger |
| Complexity | Low maintenance | Higher setup and ongoing costs |
| Growth Potential | None - fixed payments | Yes (CRUT) |
| Additional Gifts | Separate contracts needed | Additional contributions possible (CRUT) |
| Asset Protection | Backed by charity's assets | Segregated trust account |
When to choose a CRUT:
- You’re contributing appreciated assets
- You want income that could grow over time
- You’re okay with some variability in payouts
- You care about estate planning advantages
When to choose a CGA:
- You want predictable income
- You prefer simplicity
- You’re making a smaller gift
- You trust the charity’s financial strength
What Does Investing for Impact Look Like?
Susan’s Story
Susan, a retired executive from a regional energy company, was in her late 60s, single, and had no children. She owned highly appreciated company stock and was staring down a six-figure capital gains tax bill if she sold. Her goals were to generate lifetime income, reduce taxes, and support a local environmental nonprofit.
The solution that made sense for Susan was a Charitable Remainder Unitrust (CRUT). By transferring her stock into the trust, the stock was sold without triggering capital gains taxes. The proceeds were reinvested, and Susan now receives annual income equal to 5% of the trust’s value.
That income is tax-advantaged and can grow over time. She also received a substantial charitable deduction in the year she made the gift. Eventually, the remainder of the trust will go to the nonprofit she cares about.
Mark & Linda’s Story
Mark and Linda, both in their 70s, had a different set of priorities. They wanted to support their alma mater while securing predictable income. They chose a Charitable Gift Annuity (CGA), contributing $100,000. In return, they receive a fixed 6% annual payout for the rest of their lives.
Both approaches made a lasting impact and delivered meaningful personal benefits that fit these clients’ individual goals.
Frequently Asked Questions About Charitable Trusts
Are there downsides to a Charitable Remainder Trust?
CRTs are irrevocable, which means you can’t change your mind later. They require setup, administration, and good investment oversight. If performance is weak, your income may be lower than expected. If you pass away earlier than planned, more of the trust goes to charity.
SectionAre Charitable Remainder Trust distributions taxable?
Yes, but typically at lower effective rates. CRTs use a four-tier system: distributions are taxed first as ordinary income, then as capital gains, followed by tax-exempt income, and finally return of principal. This often results in favorable tax treatment.
Are there downsides to a Charitable Gift Annuity?
The main risk is the financial health of the charity. Since payments come from the organization’s general assets (not a segregated trust), you’ll want to be confident in their long-term financial stability.
How do we choose the right giving tool for us?
Start with three questions:
- Do you want fixed or variable income?
- Are you contributing appreciated assets?
- Are you planning for near-term simplicity or long-term impact?
Many families combine strategies to meet different goals to maximize both giving and financial flexibility.
Building a Legacy Through Strategic Giving
Charitable giving is a powerful way to use your wealth to create a lasting impact that reflects what you truly care about. The right strategy can also help create steady income, streamline your estate, and bring more clarity to your long-term financial picture.
Whether that’s through a Charitable Remainder Trust, a Gift Annuity, or a blend of both depends entirely on your goals.
If you’ve ever thought about giving, but worry it might come at the expense of your own financial security. you’re not alone. The truth is, the smartest giving strategies are the ones that support your life and your legacy.
At SK Wealth, we help you find that balance. Our team works closely with clients to design charitable plans that are thoughtful, tax-efficient, and fully integrated with the rest of your financial life.
If you’re ready to give with purpose and confidence, we’re here to help you take the next step.
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